Why the explosive growth in Insurance Tech?

Wondering how many new companies there are in the insurance tech space today?  There is no consistent definition of what constitutes an insurance tech (or instech) company, but Axa Strategic ventures fund, which invests between $100,000 and $10 million have looked at over 1,000 companies in this space according to Minh Q. Tran, one of the founders of the $230m fund. 

Ten companies graduated from the first Insurance StartupBootcamp (SBC) incubator last month. Sabine Vanderlinden and her colleagues also had close to 1,000 nascent companies to chose from last year. My pick for the bravest in the selected cohort goes to Covi Analytics, which is offering "Compliance as a Service". CEO and founder Waleed Sarwar, formerly with the Bank of England, opened his presentation at the Insurance and Disruption conference in London this week, with the promise of “making compliance fun”. Having seen what his new application can do, I reckon he's onto something. 

With the recent funding rounds approaching $1bn for a single company -  OSCAR($400m), Zenefits ($728m) and Zhong An ($931m) -  it’s no surprise insurance tech is starting to get noticed. Bermuda reinsurer Fidelis raised $1.5Bn last year, but for how much longer will investors favour risk carriers rather than the new service companies and intermediaries that offer new ways to make money in this space?

The sell out success of the inaugural DIA Barcelona (“Digital Insurance Agenda”) event which launched last week is a hint of what to expect in this space in both style and substance.  This was a quality performance  – high tech, rock concert lighting,  set against the backdrop of the 14th century Casa Llotja de Mar.  50 companies gave finally tuned presentations, 10 minute each.  The ability to deliver a snappy presentation is table stakes these days for anyone that claims to be offering digital disruption - but it was a great way to absorb the gestalt of this new space.

So what are the trends to watch in Insurance Tech?

Whilst it’s tough to keep up with the flow of start ups, getting to grips with the emerging themes is getting easier. even if there is no universally acceptable coherent framework. CB Insights takes an innovative approach with it’s library of periodic tables for tech start ups in different markets.  Their insurance tech table covers only 125 of the better known companies and suffers a bit from trying to boil the universe (investors are lumped together with start ups) but the themes are clear: health dominates (more than all other insurance types combined) followed by auto and life.

Insurers just want to be loved

Health may be the most popular area just now, but we are starting to see some very interesting developments elsewhere.

The very premise of insurance is going to change radically in the next few years. We review our insurance policies on average once every 18 months. Unless we make a claim, that's about as much engagement we as want with our insurer.  As a group, the traditional insurers tend to be trusted, but fifty percent of people in the UK change their car insurer after they have made a claim. There is very little brand loyalty.

Forward thinking insurers, such as =LV and Axa are realising that becoming more customer centric will not be enough. The insurer of tomorrow needs to radically redefine what they can offer to their clients to retain their attention, and business. 

As consumers, we are going to benefit from this new relationship with our insurer very soon – from the device that senses when a pipe has burst and turns off the water to prevent flood, the drone that not only photographs broken tiles on your roof, but repairs them as well,  the replacement iPhone that is immediately dispatched from the warehouse to replace the one that automatically filed a claim when it’s screen was smashed.  

The rewards from helping the insurers successfully re-invent themselves by offering products that really do make a difference will be huge.

Has anything changed yet?

A lot has happened in the last twelve months. Four of the most innovative – and successful – categories of innovation in insurance that I have seen this year are in microinsurance, brokers, blockchain and big data. New companies in these areas are acquiring clients fast. 

Millennials – those born between 1980 to 2000 - use their mobile device for an average of 1 minute, 150 times a day. It’s not sufficient for application to be "device independent", many new businesses are now embracing mobile first, tomorrow it will be mobile only. But this is not just about making insurance appealing to the consumers of tomorrow. Where millennials go, we others follow. Solving for the limitations of mobile device forces simplicity on all transactions, including buying insurance.  

 "Things should be a simple as they need to be. But no simpler."

Einstein nailed it.  Insurers need to know a lot of information about their clients in order to price competitively, yet most customers give up when faced with multiple questions to fill in on-line and won't even bother with a mobile app if there are more than a couple of questions.  Will it ever be possible to successfully sell, and make money in insurance by asking only two questions (“What’s your name and where do you come from?”).

Actually, yes. But the Cilla Black of the insurance world won’t be match making on Blind Data, she will be a Bot. Bots are rapidly becoming sophisticated enough to conduct an intelligent on-line conversation that mimic human behaviour, enabling live client support to be saved for only complex situations (or frustrated clients). We will welcome our new digital insurance friends ability to curate many more aspects of our lives than we could hope for from our insurer today, and they will do it at a lower price. And what is more, studies show that people will disclose more about themselves to a bot, than to a real person.  The future is a foreign country, they will do things differently there.

Until then, there is a lot to engage us.   One of my favourite presentations from DIA Barcelona was BIMA. Microinsurance is getting big. It’s soon going to be huge if the success of this 5 year old company is anything to go by. Between 80 – 90% of the people in the Developing World have no insurance. BIMA has 20 million customers today and is adding 500,000 customers a month. BIMA has successfully re-invented the insurance model to eliminate paperwork and frictional cost, using mobile phone payments instead of cash. Insurance of a few cents a day is now possible and affordable for consumers, and profitable to collect and pay claims against for insurance operators, without the need for subsidies.  And the model is highly scalable. BIMA is a broker; its applications can be easily be adopted by insurers and mobile phone operators already operating in local markets. 

Rumours of the death of the broker are widely exaggerated.  

Many of the most impressive and potentially disruptive offerings at DIA Barcelona were new ways to broke business, demonstrated convincingly by GoBear and BoughtbyMany

GoBear, based in Singapore,  has come out of nowhere in only two years to become amongst other things, the leading insurance broker in Thailand, and one of the fastest growing fintech start ups in Asia. They exploit the power of social networking in a region badly served by choice and suffering from lack of trust. GoBear recommends products not simply on price, but on those that best fit the buyers’ needs. Like Google, it is paid on the leads it passes to insurers, but its 30% conversion ratio for click-throughs puts it massively ahead of Google’s which typically hover around 5%. Offering 20% savings on premiums, GoBear has brought in 1.2 million customers in it’s first year and already offers more than 1,000 financial product for its customers. The quirky Youtube video that accompanied the recent launch of GoBear in Thailand has already achieved 2.5m likes in a country of 15m car owners.  

I’m keeping an eye on BoughtByMany; the co-founder and CEO is charismatic Steve Mendel (“father of three, sax playing, Japanese speaking cyclist”) who also has an excellent pedigree in corporate insurance and business, including time as an actuary at Aon. Steven has identified the power of what Seth Godin refers to as the “tribes” we identify with. BoughtByMany today has 282 separate groups and 164,000 members. Of these, 139 groups are for the owners of different dog breeds, and another 50 are for travel insurance aimed at groups such as “travellers with diabetes”, “travellers with nut allergies” and “travel for the over 80s”. By negotiating on behalf of these groups BoughtbyMany is able to negotiate an average of 18% saving in insurance as well as creating a powerful viral marketing network as the word spreads with in the “tribes”.

 What about reinsurance?

For all the great companies on show at DIA Barcelona, there were two noticeable absences: reinsurance and commercial insurance. The word reinsurance was only mentioned three times in two days. Catastrophe bonds got a name check by Leanne Kemp from Everledger in her highly energised and compelling presentation, leaving me hungry for more information on what she may be planning next. Cat bonds got a briefname check -  coverage for the next Hatton Garden style heist perhaps?. Everledger is another company that has moved rapidly to demonstrate a real value proposition in a niche market, in this case diamonds, using new technology (blockchain) to radically reduce fraud and create major barriers to reselling stolen diamonds.  In one year Leanne has gathered support of the major diamond houses, and recorded a million diamonds on Everledger. Not only has Leanne defined an entirely new market, but she has opened the door for more widespread adoption of blockchain into conventional insurance. I want to learn more about Everledger and will cover it in more detail in the near future.

Will the next one be covered by a cat bond?

The other star of DIA was bigML, getting the top vote for the most strategic impact from attendees. Data scientists are amongst the hottest jobs just now, with the data available to us becoming richer, yet more complex each day.  Insurers want to know how to attract customers, retain them and avoid fraud. Up until now this has meant hiring people able to code in R with a strong grasp of statistics.  Good data scientists are expensive and supply can’t match demand, limiting the effective use of Predictive Analytics. BigML has built a Machine Learning as a Service (MLaaS) platform that provides data mining applications in a format that enables many more people in a company to query and explore data. More to follow on BigML, but for now there is a wealth of detail on their website, including interactive examples of the analyses they have performed with their tools across a wide range of samples. 

It’s impossible to spend time in this space without getting energised by the change. There are companies this week who will be huddled over a bench in a loft somewhere in the world with a great idea but no revenue,  figuring out their business plan, searching out investors. In 12 months time they will have over a million customers.  If there are over 1,000 companies vying for attention in Insurance Tech today, how many will there be this time next year? And will we finally see more innovation becoming available to reinsurers and commercial insurers?