Equal Ventures Focus Area: Insurance
This is one of our current interest areas for investment at Equal Ventures. Our other areas of interest can be found in our overview post.
Market Overview & Shifts
The insurance industry is seeing massive changes as digital transformation impacts nearly every facet of the insurance value chain.
The low-interest-rate rate environment over the past decade has made reinsurance capital immensely plentiful and risk-seeking. Capital dedicated to the global reinsurance sector was at $605 billion in 2019, up from $400 billion a decade prior. In turn, this has led to a large number of new insurers emerging as incumbents shifted to a decisively open stance to partner with emerging startups.
Insurers are using new forms of signal data (everything from mobile devices to connected sensors) to generate better underwriting results and manage risk. A large number of Managing General Agents (MGAs) have emerged to capitalize on this trend, with the MGA market nearly doubling in size between 2012 and 2019. MGAs now account for over $42.4 billion in premiums.
The industry has simultaneously pursued top-line growth alongside cost-cutting opportunities generated by the shift to digital. This has happened internally inside many incumbents as they increasingly move to SaaS products over home-grown, internally developed solutions, but is equally true at the customer level as well. Over 94 million of the nations’ 156 million employees are covered in self-insured or self-funded plans as they seek to reduce insurance costs. While the cost-benefit of self-insured plans can be massive, this massive shift of risk to the customer creates an entirely new set of challenges and opportunities.
What We’re Interested In
Within the insurance space, we’ve been principally pursuing three major themes.
On the carrier side, we see incredible opportunities to develop new insurance solutions that “bend the risk curve” by combining digital products with insurance products to help customers better manage risk and lower loss ratios. These solutions are likely to leverage customer-centric signal data to help incentivize customers to adopt lower risk behaviors. We think this trend will carry over to the self-insured arena, where customers can benefit from implementing their own risk management solutions and find greater access to reinsurance / stop-loss markets.
On the broker side, we see tremendous opportunity for digital transformation, but recognize a need for creative business models that make it easier for this largely decentralized industry to more easily adopt new solutions. This population has long relied on offline processes, creating immense opportunity for software solutions to increase productivity. These opportunities will certainly exist on the carrier side as well, however, digitization in the broker landscape presents a particularly unique set of challenges and opportunities that requires heavily nuanced solutions.
Lastly, given the massive growth of both the reinsurance and MGA markets, we see great opportunity in infrastructure that enables greater efficiency of new entrants and transacting of risk. These processes remain largely offline and create a unique opportunity for greater liquidity in one of the world’s largest markets.
