By CB Insights
On February 26th CB Insights hosted a webinar covering specific topics and themes to watch out for in 2019.
State of Investment
The growth of insurtech continued in 2018 with investments for insurance startups and the announcements of partnerships and innovative platforms from specific carriers. In 2018 global insurance tech investment for insurance-focused startups reached 257 deals amounting to $4.15 billion, a marked increase compared to previous years: in 2012 there were 46 deals raising $348 million. The substantial investment in insurtech startups originates from a cohort of entities, such as companies selling insurance digitally through brokers, MGAs and carriers, or companies selling software, data analytics and tools to the insurance industry. The scale of these investments also increased last year with 28 deals over $30 million in financing rounds totaling $3.04 billion.
A breakdown of the investments show many of the recipients to be intermediaries or B2B enablers. Full stack startups have also experienced an influx in investments. Medicare advantage companies such as Oscar and DevotedHealth were among the top three megadeals in the space with a combined total of $675 million.
Another element to the current state of insurance investments is the venture capital "funnel" in this space. The "natural selection process" of seed funding ultimately weeds out which startups receive billion dollar outcome. Additional themes and topics to watch in the industry for potential growth and possible predictions include:
Telematics has become more of a focus for auto writers based on several common benefits:
· risk selection with the potential to attract better drivers who lean more toward telematics;
· increased customer engagement and safety;
· more sophisticated claims handling around accident reconstruction and fraud tracking with the presence of smart phones for real-time updates; and
· more accurate and agile underwriting in light of trends such as distracted driving and ongoing marijuana legislation.
Telematics has been noticed on an industry-wide level with the term increasingly mentioned on earnings calls in recent years in the last quarter alone; insurance leaders of the auto industry are quoted on these calls noting telematics to be a focus of their strategy.
It has yet to overtake the industry: out of the total 14 million auto insurance policies in the US, only 4.4 million policies were sending telematics data to insurers in 2017. More strikingly, less than 9% of the global telematics policies were characterized by usage-based pricing, meaning that the initial policy pricing is not influenced by driving.
In the US, the use of telematics is bifurcated between carriers such as Progressive (via their snapshot program) and Allstate (via subsidiary Arity) who maintain a data lead over others in the industry. The full stack tech startup Root insurance also utilizes telematics data, growing to 1 million users and earning $100 million in funding rounds in 2018.
(2) Insurers as VCs
The model of insurer as Venture Capitalist has held strong in recent years. Unicorns have boomed from investments by corporate venture capitalists (“CVCs”); however there are only 3 CVCs that have invested in Series B or earlier of 3 or more of the global unicorns population—all of which are tech companies.
Strategic investments by (re)insurers have grown, but in recent years there has been a leveling off of private technology investments: there were 118 deals in both 2018 and 2017, previously jumping from 66 in 2015 to 105 in 2016. Even with the plateauing in 2017 to 2018, insurers are “cropping up” more as the lead investors in these insurance-related startup deals that are either strategic or taking a lead investor role, as well as syndicates in funding with other investors. Some examples include:
· CoverHound received $58 million investments from Hiscox, Chubb, Aflac and MS&AD Insurance Group; and
· LimelightHealth’s lead investors were comprised of Principal, AXA, Aflac, MassMutual and TransAmericas.
Some (re)insurers are “doubling down” with bigger funds or new strategies; notable activity is seen from examples such as:
· Allianz boosting VC fund to $1.1 billion for tech and insurance deals in February 2019;
· AXA Venture Partners raising $150 million early-stage fund in January 2019.
(3) Small Commercial
The industry of small commercial business valued at $100 billion with significant amounts of opportunity. Earlier projections showed that penetration into the small business market would not reach meaningful growth until 2020, due mainly to the key of distribution rather than the focus of coverage in this space. These projections were in a widely-cited study with estimates that beginning in 2015, 15-30% of small business insurance would be sold digitally by 2020; this rough quarter of the small business market would translate into a $17-33 billion premium market opportunity.
Startups, as well as incumbents, are taking aim at the US small commercial market, examples of incumbents from notables such as:
· Progressive releasing a soft launch in Q3'18 of BusinessQuote Explorer in collaboration with startup Bold Penguin in the form of new portal for insurance for small businesses with agents and a few carriers, but remain predominantly writing their own policies; and
· Berkshire Hathaway recently announced plans to launch THREE, a direct comprehensive insurance product, which is already approved in a few states for a soft launch by April, this is in parallel to the BiBERK platform (that will continue to operate), predominantly writing workers’ compensation insurance.
(4) Full Stack Insurance Startups
Measuring the progress of new startup P&C insurers is more readily available for full stack startups that have more information available as licensed entities from filings in the US: examples include Root, Lemonade, Metromile and Next. The influence of full stack insurers is also expressed globally:
· China-based Zhong An has expanded its business shift in the past four years, comprised of almost wholly shareholder-related business of premiums from lifestyle consumptions, travel, among others, moving to H1 2018 where just under 75% of the business is diversified to consumer finance, health and auto, specifically tech services. For example, Zhon An recently announced a partnership with Grab. The startup will offer insurance to the Singapore-based technology company.
(5) Southeast Asia
The Southeast Asia (SAE) Internet economy is growing fast, the largest residing in Indonesia. The country features a particularly compelling “macro backdrop” for the future based on its youthful demographic: 79.5 million of the population are millennials and half of the entire country is under the age of 30. By 2050 projections show that the Indonesia will have the third largest middle class among emerging markets.
(6) Ancillary M&A
Not many professionals and experts believe ancillary M&A as an area to provide a large possibility for growth. As a survey showed only 12% of (re)insurance and investment professionals with knowledge of their company’s innovation strategy believe acquisitions are their organization’s primary outlet for innovation. However, some large insurers are making a large push in this space through certain ancillary M&A deals. Allstate uses M&A to move into identify theft protection and device protection with four notable supplementary acquisitions in the past four years:
· February 2019 – acquisition of iCracked for on-site SquareTrade repairs
· November 2018 – acquisition of PlumChoice to enhance SquareTrade
· August 2018 – acquisition of InfoArmor for $525 million
· November 2016 – acquisition of SquareTrade for $1.4 billion
(7) Changing Dynamics in Home Insurance
There are changing dynamics with opportunities for more sophisticated underwriting and data in the home insurance segment, providing more opportunity for business growth. Startups have penetrated this space with success, examples include:
· Hippo’s use of data analytics has reshaped the customer experience in home insurance through accessing sources like municipal building records and satellite imagery to simplify signups and policy management. For example, if a customer inputs their address on the platform, a form automatically populates through scrapings of the public records.
· Blend Labs integrates the home buying process targets new home buyers, blending the home insurance into the lending process to streamline mortgage applications. The startup recently launched a home insurance agency in August 2018.
(8) Life Insurance
The “Life Insurance Value Chain” has many areas to target for startups, as well as incumbents:
· John Hancock shows promise in innovation with Vitality Go, a new option for all new life insurance policies for discounts at places like Amazon, Rei and Fitbit, for reaching health milestones; however there are no discounts offered for annual premiums. Using the Southern metropolis of the US as a test market for the new marketing campaign of Vitality, research shows that 40% of customers signed up for Vitality since its launch in 2015.
The multiple themes and topics trending from 2018 pose prospective insights and opportunities for growth in 2019 in the insurance-related and insurtech spaces of the industry.
For more on the webinar, visit here.
26 Feb 2019