2020: Focus Series: InsurTech Focus Series - InsurTech Maturing
While it may appear that InsurTech is moving at a frantic pace, insurance-focused disruption did not appear overnight. There were a host of strategic problems facing insurers, such as an evolving and increasingly demanding customer base, and rapidly advancing technology solutions.
The Conning Focus Series, “InsurTech Focus Series: InsurTech Maturing” examines the maturing InsurTech industry, business challenges and pain points driving innovation and transformation, the investment ecosystem and participants, including to-date activity. It examines the momentum of the InsurTech movement, as well as future activity that could lead to further significant advances in the insurance industry.
- Motivation for InsurTech Investment
- Enablers and Collaborators
- Property-Casualty Investment
- Life Annuity Investment
- Conclusion: What Does This Mean?
Introduction
Letter from Insurance Research
Conning is launching a new series of studies to review activity in the InsurTech arena. In this first edition, we will dive into the who, what, why, and future of the InsurTech landscape. In subsequent editions, we will continue to follow and analyze startups, investors, and emerging technology activities in this space.
From the advent of ledger books to personal computers, technology has enabled the insurance industry to evolve, serving new customers, and providing greater back-office efficiencies. Following the FinTech movement of the 2000s, the next wave of technology creating advancements are coming within the insurance industry, energized by InsurTech activity and investment. A near-perfect storm came together over the early 2010s where expanded connectivity and mobility allowed Internet retailers such as Amazon and Netflix to redefine the customer experience. Simultaneously, insurers began to need to update technological systems that were first created back in the early days of the Internet, or even earlier. Further, PE (private equity) and VC (venture capital) investors have driven an influx of new capital into the insurance space. Some of this capital has been deployed in the distribution function, buying and consolidating agencies. This plethora of startups founded by both industry insiders and technology entrepreneurs has arrived to give the InsurTech movement momentum.
We see a few macro reasons why an entrepreneur would want to create a new offering in the insurance space or why an investor would want to place a bet here:
1. Stale technology—Agency management tools, underwriting workstations, and rating worksheets came to market with the advent of Microsoft Windows and common Internet access led to widespread tools being introduced into the market. These tools, however, have only changed incrementally since their introduction.
2. Stubborn expenses—Expense ratios have been largely the same over the past 50 years. Other industries have seen enhancements in efficiency, but insurance has tended to replace one expense with another over the years.
3. Loss costs—Approximately 70% of the underwriting dollar is applied to loss costs. Tremendous opportunity lies in the ability to reduce these expenses through mitigation, prevention, and process improvement.
The insurance industry offers opportunities to generate new sources of value, whether that be driving down loss costs, optimizing expenses, finding new ways to improve the customer experience, or developing better methods to identify and price new accounts. Value is being realized across the insurance value chain and by multiple parties.
Conning’s initial report in this series provides an overview of this maturing space including activity to date, where investment activity is coming from and going to, and where future activity could lead to further significant advances in the insurance industry.