2018: Trends and Opportunities in Fintech & Insuretech
Since joining Founders Factory in late 2017 I have spent months reviewing hundreds of pitch decks. As a result, I have formed 5 clear conclusions about the Fintech/Insuretech sector.
(1) The market is crowded so differentiating oneself is key
(2) Gaining true traction isn’t easy
(3) Cryptocurrencies are booming alongside the ability to be scammed
(4) Founders need to stop labelling themselves as “innovative” and “disruptive” — unless you want to blend into the crowd
(5) Genuinely ingenious applications of blockchain are hard to find
In this article I shall break down the key trends and biggest opportunities I see across the Fintech/Insuretech sector.
Financial Technology
Main themes targeted by early stage startups include:
Advisory (robo-advisory), the gig economy, biometrics, supply chains (data analytics), mortgages, investing (goal-based investing, gamification, micro-investing) and the use of blockchain — everywhere.
Currently, I find the topic of mortgages most interesting within this sector. Here I saw startups trying to re-write the concept of mortgages or aiming to digitise the whole mortgage process.
Biggest opportunities:
(1) Pensions — An overlooked area in the current “fintech” market map. One could suggest those focused on robo-advisory and goal based investing were indirectly tackling such an issue, however a company truly helping avoid the millennial pension saving issue has yet to come to the fore.
(2) Student Debt —There is a large untapped demand for products helping to reduce student debt burdens, such as through micro-repayments. (Note, solutions in the UK will differ in comparison to other countries due to the terms of the UK student loans company.)
(3) Illiquid assets — Creating liquidity in illiquid assets such as property is increasingly becoming feasible and thus would lead to the growth of a huge swathe of new investment categories.
Startup to watch
Luther Systems — Utilising blockchain technology to improve the efficiency, reliability and integrity of enterprise processes in financial services.
Cybersecurity
Main themes targeted by early stage startups include:
Regulatory compliance, product distribution, enterprise digital asset insurance and finally personal/business liability and asset insurance / protection.
With the growth of IoT and the huge volumes of data subsequently being produced, cybersecurity is a huge and pressing issue. Indeed in 2017 alone more data was created than over the past 5,000 years. A recent article by the Times highlights an example of this risk in the form of modern cars being easily hackable, a fact that has the potential to cause millions of deaths.
Currently, I find applications of proxy re-encryption highly interesting within this area alongside startups targeting cybersecurity for the IoT.
Biggest Opportunities
(1) Consumer facing products — Currently the growth of this sector revolves around corporates and commercial applications. Given the increasing media focus on cybersecurity risks there is likely to be an explosion in demand for consumer products/services.
(2) Insurance — how does one realistically underwrite hacking risks from a consumer perspective. If possible this would be a huge market.
Connected Vehicles and Infrastructure
Main themes targeted by early stage startups include:
Mapping solutions, new data provisions, new insurance models, securing connected assets against digital threats and fleet management.
“Connectivity” is having a huge impact on our daily lives. Not only does this area offer massive amounts of potential data but it also provides huge advantages to insurers by enabling them to more accurately price risk.
Currently, I am fascinated by innovations in the underwriting process and the accurate inclusion of new data source into this.
Biggest Opportunities
(1) Data — “Connectivity” is creating millions of new data points and thus enabling insurers to more accurately price risk. New types of data and new applications of such data offer up huge opportunity.
(2) Predictive maintenance — Here not only do fresh data sources open up the ability to predict future failures in vehicles and infrastructure but also apply to consumer health. This has huge implications on, for example, life insurance.
Startup to watch
Shepherd — An AI powered detection and maintenance tool aimed at reducing the cost and losses for maintenance service providers.
Automating the insurance process
Main themes targeted by early stage startups include:
Claims validation, consumer self-validation, smart contracts, predictive claims, streamlining payouts and automating coverage.
Here I am most interested in startups targeting claims, due to the far-reaching opportunities available. However, credibility in this part of the value chain is key and attempts to automate the whole value chain are likely too ambitious.
Biggest Opportunities
(1) Claims — Current interactions between insurers and their clients during the claims process typically lead to poor customer satisfaction and a disillusion with insurance. Travel insurance is one example of where claims automation has being attempted but there are countless other areas ripe for similar applications.
(2) Automating Coverage — Given the number of sensors we carry around with us just in our mobiles, automating insurance coverage and adjusting it to your daily routine is increasingly possible beyond just car insurance.
New Insurance Products
Main themes targeted by early stage startups include:
Cyber, temporal and geo-locational insurance products, on-demand, social media, voice and ‘generation rent’.
My favourite area of focus here, as already alluded to, is cyber security. Accurately pricing risk for consumers wanting to insure against hacking revolves around qualitative judgements on value lost when hacked. Hence, consumer focused insurance products in this market may never be a possibility.
Biggest Opportunities
(1) Catastrophe’s — We are increasingly seeing frequent severe weather events associated with climate change. This brings with it opportunities for a whole swathe of new insurance products and methods to enhance risk modelling.
(2) ‘Generation rent’ — Under 40% of renters have contents insurance, this is just one example where insurance products have yet to adjust and become appealing to millennials.
(3) Risk modelling — New technologies we already take for granted still have an untapped potential to disrupt how we model and underwrite risk.
Conclusion
Overall, the buzz in both the insuretech and fintech space is deafening. However, clear gaps still remain, most notably in pensions and cybersecurity. The companies appearing most successful here are managing to effectively building both trust and utility hand in hand, satisfying common issues of sensitivity around the insurance/finance space. Moreover, a notable tactic used by some of the most fast moving startups is corporate partnerships, effectively importing the trust the corporate themselves has built up over many years. Importantly, there is a swiftly growing appetite on the corporate side for such partnerships as well. Hence, all-in-all the boom in insure/fintech is no where near conclusion!
My current key areas of interest moving forward are as follows; relevant blockchain solutions, death-tech (including pensions, funerals, wills etc), cybersecurity, enhanced underwriting processes and solutions targeted to heavy-duty fleets.
If you are a startup, or know of one that is plugging the gap on any of the opportunities I have highlighted, please get in touch and apply at Founders Factory.
