The insurance industry is facing a period of sustained transformation, that we believe will create a trillion dollar value shift. Start-up ‘disrupters’ will capture some of that value but the biggest change will be between insurers that embrace innovation and those that are left behind.
As Evan Greenberg, CEO of Chubb, the world’s largest publicly traded property and casualty company, recently said “We’re in a world that’s going from analogue to digital, if you remain analogue you’re history”.
Insurers today face multiple challenges, they have under invested in technology and therefore have to manage multiple legacy IT systems, data captured is unstructured and hard to access, processes are often manual and labour intensive, the typical culture leans towards conservatism and customer engagement is infrequent. It is this dynamic that has opened the door for new tech companies, with $4.1 billion invested in 2018 alone (source Willis Towers Watson Quarterly InsurTech Briefing Q4 2018).
Perhaps unlike FinTech, we believe that InsurTech will drive most value by working in partnership with incumbents as ‘enablers’ rather than attempting a pure disruptor model. Insurance is complex, highly regulated, difficult to understand, multi layered and incredibly diverse. This will require insurers to engage, be open minded, agile, willing to try new ideas, willing to fail and open to technology and data partnerships. This is a huge shift but the leading players are already making the adjustment. Locking in this alignment between incumbents and start-ups is at the heart of our approach at Eos.
As InsurTech enters its fourth year, we are beginning to see the sector mature. Funding rounds are starting to concentrate on those companies that are performing well, there is less patience for those talking a good game but failing to deliver. This year we expect to see more large rounds, like the $111 million Series B round raised by Wefox from Mubadala European Venture Fund, and for the number of down rounds and failures to increase.
We will also see the continued expansion of InsurTech solutions across the insurance value chain and into multiple product areas. Understandably, the majority of early start-ups focused on popular personal lines products like auto and how to improve the customers experience. However, we are now seeing significant traction across the core areas of insurance including underwriting and claims (although claims remains under represented given the size of the prize) and in to more complex commercial products.
Key trends that will shape the next period of InsurTech include:
Ability to capture and analyse new data sets - often data is already being captured but has never been used for insurance purposes. Unlocking this potential is hugely powerful. Concirrus, an Eos portfolio company, is working in the commercial marine sector with billions of rows of data gathered from sensors, IoT devices, satellites, monitoring of machinery, historical claims experience and industry data from partners. The insights from this data allow insurers to assess risk in a completely new way.
Ability to automate underwriting using AI – in conjunction with the work being done to capture new data is the ability to use machine learning techniques to create predictive models for the assessment and pricing of the underlying risk. For example, it is possible to segment risks based on behaviour and to allow a real time and dynamic view (rather than the traditional approach which relies on an on often dated historical view and proxy information).
Digital customer engagement – Customer expectations have changed and they expect their insurers to keep up. Business models that are digital, transparent, fast and intelligent will create a significant competitive advantage. An example is DFP, an Eos portfolio company, which in the UK works with SME’s and is able to generate automatic policy recommendations based on a needs analysis of the underlying business, the engagement process is online and DFP does all the hard work for the customer.
Active risk management and prevention – Insurers have an opportunity to fundamentally change the nature of insurance. Currently insurance is about protection, however with the growth in data, IoT and AI it is possible to change the model to being prevention focused, helping the customer to reduce the frequency and severity of potential losses. For example, life and health insurers can make health and med tech available to people that have a high risk of a particular condition to allow monitoring, early intervention and better health outcomes.
Changing customer proposition and engagement model – Customer interaction is infrequent, trust levels are often low and interest and demand are depressed. Leading propositions are looking to change this dynamic by offering customers something they actually want and need with the insurance sitting in the background, typically in the form of services and support. An example is Players Health that has built a risk management platform for athletes and sports organisations that supports athlete’s health and safety. The platform is used on a daily basis, provides invaluable support, allows the organisation to comply with legal requirements and helps manage injuries and return to play. This creates a different customer relationship and allows Players Health to provide tailored insurance services and support.
The pace of change will only increase from this point and one thing is certain, insurance will no longer be the sleepy backwater of financial services.