Watch out for the second wave of innovation in Insurtech!

The US and China have already produced some InsurTech « unicorns » : OscarHealth and Zenefits, in the West, ZhongAn and Ping An Good Doctor, in the East. But what about Europe? We are still looking for a champion in this area… The good news is, it might change soon: last year, the number of InsurTech funding rounds in Europe increased by 118%, and the amounts raised by 385%. Even better: Europe accounted for one third of Insurtech fundraisings in the world. Those encouraging figures even led Accenture to consider Europe now as a key Insurtech « Hub » [1].

European InsurTech entrepreneurs are mostly focused on three areas: distribution, the core business of insurance, and the acquisition of a license. Innovation gradually infuse those three layers, which requires and increasing level of technological excellence.

A first wave of startups tackled distribution models, to disrupt the traditional processes of insurance companies, thanks to digital. This trend is mostly German, with newcomers like GetSafe, Clark and WeFox.

Nevertheless, their model has limitations: acquisition costs are extremely high, while margin are limited and use frequency stay below expectations… Indeed, it’s quite a challenge to create enthusiasm for insurance products… The topic can be stressful and intimidating, and less rooted in the everyday life than, let’s say, a banking app.

The pioneers have clearly acknowledged this fact: they are transforming their offer, to go from BtoC to BtoB, for instance. In doing so, they show that it’s still possible to innovate in the field of distribution. Look at WeFox: it pivoted to allow brokers to connect to its platform, in order to manage leads, edit quotes and sign contracts. That’s a clever way to reduce acquisition costs, while generating recurring revenues, as brokers subsribes to a monthly plan.

A second wave of innovation is now disrupting the core business of insurance, by reinventing the job through technology, data analysis and artificial intelligence. The tools for actuarial services, scoring and fraud detection are going to be deeply shaken by the use of machine learning. They will gain efficiency and accuracy, while at the same time reducing costs.

For instance, in the Netherlands, Friss, one of BlackFin investments, already convinced 120 insurance companies to use their automated fraud detection software, based on deep learning and AI. Fraud detection can be performed at the signature of the insurance policy or in the event of a claim.

The maturity of AI, as well as the need for insurance companies to equip themselves with new tools against an increasing level of frauds, make those startups particularly popular at the moment.

Finally, the third wave of innovation is only starting: it takes advantage of the high level of regulation of the industry to create a competitive edge. Alan, the only French startup to go « full-stack », with its own insurance license (the first new insurance licensed in France since 1986, actually), exploits its license to create and distribute its own insurance products to companies and individuals. Its German counterpart, Ottonova, does the same. But other licensed players, like Elements made a different choice: they open their license to other companies.

The first European « unicorn » will probably come from the second or third wave of innovation. Why ? Because that’s where the most disruptive and promising business models are, with strong barrier to entry. Something VCs particularly like.

[1] https://newsroom.accenture.com/news/investment-in-insurtech-industry-surged-in-2017-with-europe-emerging-as-key-insurtech-hub-accenture-analysis-finds.htm