Why next year can be a turning point for the global insurance innovation market?
Insurance is a conservative area, which has long remained distanced from innovations. But more and more insurtech companies are appearing in the global market. In just 5 years the number of insurtech companies has increased to several hundred worldwide.
According to the authors of The Current InsurTech Landscape study, new market participants create solutions that compete with traditional insurance companies and brokers. Therefore, in the coming years, the main trend will be the ability of old companies and new players to negotiate and find ways to interact.
In most countries, the insurance market is considered to be a stable part of the financial system. Insurance companies provide economic growth, creating significant financial resources (consisting of insurance premiums). In addition, the development of insurance contributes to the creation of jobs, helps to stabilize the economy and reduces the impact of risks.
Value chain in the insurance business
Innovative insurance ecosystem can be represented as follows:
There are risks that private and corporate clients want to insure against property risks, as well as those related to life and health. Participants of the traditional insurance market work with them: brokers, agents, primary insurers and reinsurers, as well as insurtech-companies that have emerged in recent years.
Initially, insurance policies are sold through sales channels (brokers and agents), and then information about them is received by primary insurers. They take risks in exchange for insurance premiums. Some risks (for example, related to natural disasters) can be reinsured — to transfer part of the responsibility on them to other insurers or reinsurers.
An innovative company in the insurance
All insurtech and related projects operate in several categories:
● platforms-aggregators that help to compare different insurance companies and certificates
● digital brokers
● services that offer insurance as an additional service (cross-selling)
● IoT-solutions that collect data using smart devices
● peer-to-peer services where a client can influence the services
● services based on big data analysis
● digital-insurers that offer online-insurance certificates
● insurance upon request (for a short period).
Digital brokers and insurers
Having received the most attention of the media and the public, these companies were among the first in the field of insurtech. Brokers act as intermediaries between insurants and insurers. The income of companies is the percentage that they receive from insurance companies if a user chooses the services of the latter.
A successful representative of the market is the German mobile application wefox. Its users can choose the offers of different insurers, monitor the changes of all insurance certificates, payments and benefits on them, as well as add or remove insurance.
At the same time, the client works with the same broker that maintains his insurance certificates. Convenient and modern interface for the insurance broker and the client is the main product provided by wefox.
Health insurance service Oscar, which was created in 2012, works online (via web-version or mobile application). By describing his/her symptoms on the website or in the app, the user can get a free online doctor’s consultation and prescription, as well as choose the nearest clinic.
Now Oscar works in several cities of the USA. Oscar insurance plan covers the costs in case of diagnosis (according to the individual plan).
Clients pay an annual fee, which amount is set by the risk assessment algorithm. Cost depends on the age, income level and location of the patient. In August 2018, Oscar raised $385 million from Alphabet (Google’s parent company). The company’s capitalization is $3 billion.
Non-classic insurance services
The German company Friendsurance operates using a peer-to-peer model, which offers users to create private insurance pools based on social networks. For example, friends or family can create a group that combines their insurance certificates.
Part of the insurance premiums will be returned to the pool as cashback, and the other will be used to buy insurance coverage (if it suits all participants of the pool). During the year, each of them receives cashback in the amount of not more than 40% of the down payment.
American company Lemonade distributes the funds in a different way, which instead of paying to clients makes charitable donations to the funds selected by client pools. These pools are formed depending on the purpose of the donation. Whereas Lemonade is a risk bearer and therefore may be also referred to the category of digital-insurers.
simplesurance offers insurance as an additional service. The company helps sellers of online stores to provide their basic products with appropriate insurance coverage. Sellers can increase profits by selling insurance certificates, while clients can insure the purchase without departing from the monitor of their computers.
Project in the field of on-demand Metromile insurance operates in the model of pay-per-mile. It calculates the cost of insurance based on the monthly mileage of the car. To account for the miles traveled in real-time, the company installs a special tracking system into the users’ cars.
The company also provides services for minor repairs and car service.
Another example of a flexible insurance company operating on request is the platform for registration, evaluation and insurance of any property — Valoo. The service processes photos of things, evaluating them with the help of artificial intelligence, and offers short-term insurance programs.
Support services: big data and IoT
There are companies that do not provide services directly related to insurance but influence the insurtech market. These are IoT solutions and big data projects — they work with data that helps insurance companies.
For example, wristbands Fitbit and Withings monitor users’ heart rate and blood pressure. Pedometer is also incorporated into gadgets. This information allows insurance companies to assess risks associated with a particular client.
Big data service Zenefits provides automated software for small and medium-sized businesses. The software helps to manage all HR processes, including dismissal of employees, payroll, vacation distribution.
Business models of insurtech companies
These categories are divided into three sectors (depending on the business model pursued):
● distributors that optimize and simplify the insurance process;
● companies that take risks and pay money to the client if an insured event occurs;
● technological solutions that change the insurance market.
Their distribution can be seen on the chart below.
Over the past two years, a lot of companies have appeared on the market of insurtech solutions. But even investment does not guarantee survival. Investors prefer to finance companies that, like Oscar, have already demonstrated their capacity for sustainable development.
According to venture investor Craig Shedler, 2019 can be a turning point for the global insurance innovation market. In recent years projects were born and received millions of investments. Now startups have to show whether they are able to really transform the market, change the usual insurance models and find their niche.
In GR Capital we believe insurtech to be a promising direction, monitor new projects in this area and consider prospective investments in insurtech projects.