Status of the Canadian InsurTech Landscape (Part 1) — Property & Casualty
We recently launched our 2020 Status of the Canadian InsurTech Landscape report that dives deep into the InsurTech ecosystem here in Canada. We thought it would be great to highlight some parts of the report through a Medium blog series.
For this first part of the series, we will discuss the Canadian Property & Casualty InsurTech space.
Auto Insurance
Auto insurance generated almost $25 billion in 2018¹ and more than $27 billion in 2019² in terms of direct written premium in Canada. 81% of this premium volume was generated from private passenger auto insurance. In 2019, private P&C insurers paid out $20.3 billion in direct claims incurred to policyholders³. In this section, we cover both private passenger and commercial auto insurance.
Globally, auto insurance has seen significant evolution in the last decade, including online price comparison and purchase, rideshare driver insurance, “pay-as-you-drive” insurance, use of telematics and underwriting for autonomous vehicles. In Canada, auto insurance was one of the first insurance categories to see innovation both from incumbents and startups. Desjardins, for example, launched the first version of its telematics program — Ajusto — as early as 2013⁴. On the new entrant side, some of the early digital brokerages, such as Covera⁵, first launched with its online auto insurance quoting product before introducing other products like home insurance. Despite this, we are only at the early stages of adopting and utilizing the full potential of modern technologies in auto insurance.
Digital Brokers: The majority of the new InsurTech entrants in this space are operating as digital brokers. Many incumbent insurers and InsurTech brokers now offer consumers the ability to shop for auto insurance online. Incumbent brokerage firms are also increasing their online presence by either developing in-house solutions or partnering with InsurTech startups. Today, an individual is able to apply for insurance and receive quotes online. While the initial customer interactions are conducted online and may seem automated, much of the back-end processes are still largely manual. In many cases, an insurer or broker will call the customer to verify information before processing an application. As a result, the consumer experience of buying auto insurance still contains some level of friction and is not instant. Furthermore, the quote a consumer receives through an online experience often differs from the final premium established after a phone call with an agent⁶. Examples of new Canadian InsurTech digital brokers include Aha Insurance, InsureGo and Insurance Jack⁷.
Telematics and Usage Based Insurance (UBI): In auto insurance, devices or mobile applications that collect telematics data to understand usage and driving habits provide the opportunity for consumers to be rewarded for good driving behaviour. Many of the large auto insurers in Canada have introduced some form of a usage-based insurance (UBI) program either through the use of connected devices or mobile applications. Desjardins’ Ajusto program and TD’s MyAdvantage program are examples of this technology being used today. Among new InsurTech startups, Allegory Insurance is developing a mobile app to offer a similar solution to consumers through an intermediary (MGA) model. On the commercial auto insurance side, InsurTech startup Foresight Analytics has developed a technology that analyses data from dash cams of commercial fleets to help insurers with underwriting and claims adjustment.
We believe that, as more insurers adopt UBI and telematics programs, consumers will expect more from their telematics programs than simple premium reductions⁸. Insurers will need to provide additional benefits in order to stay relevant and maintain solution stickiness. This may include driving improvement recommendations, improved road-side assistance, safety alerts and more. The user experience for some of these applications also need to be improved for better detection of driver versus passenger role, more contextual understanding of driving habits and lower battery usage⁹.
Autonomous vehicles: As the industry tries to modernize auto insurance underwriting, large industry players are currently debating the long-term implications of autonomous vehicles, which has the potential to significantly change the auto insurance market. As long as consumers use cars as a means of transportation, the need for auto insurance will remain. However, autonomous vehicles will change the way we think about who pays for insurance (passenger vs. original equipment manufacturer (OEM)), who insures the vehicle (OEM vs. incumbent insurance carrier), who requires insurance (passenger vs. vehicle), what type of new risks will be introduced and how to underwrite them, how will data be shared between the OEMs and the insurers — to name a few of the considerations. Industry thought-leaders are already assessing the implications of autonomous vehicles on their businesses¹⁰.
Claims: In general, claims submission and management has been one of the last aspects of insurance (across all segments) to evolve. Auto insurance is no different. While insurers allow claims to be initiated online, some parts of the process often require offline intervention such as when a claims adjuster needs to inspect damages to a vehicle. Some insurers allow customers to send photos of car damage via a mobile or web application. Intact Insurance, for example, receives electronically sent photos for 60% of their auto claims allowing them to streamline the claims process¹¹. However, many of these insurers are not yet using image recognition technology that can help with the analysis of photos and appraisals of car damage. Although still in their infancy, newer technologies are beginning to emerge that extend beyond just online submissions. For example, Talem Health Analytics has developed a platform that uses clinical and forensic engineering insights to allow insurers to predict severity of bodily injuries from auto collisions. Its goal is to enable insurers to provide a better claim experience to customers while mitigating fraud risks.
Property Insurance
Property insurance generated more than $24 billion in direct written premium in 2019¹² and nearly $22 billion in 2018¹³ in Canada. Approximately 60% of this premium is driven by personal property insurance and the remainder is driven by commercial property insurance. Insurers paid out almost $14 billion in direct claims incurred¹⁴. In this section, we cover both private property and commercial property insurance.
Similar to auto insurance, the property insurance market has seen significant innovation worldwide in the last decade. In Canada, consumers are able to receive online home insurance quotes and complete the purchase process with little human interaction. However, similar to its auto insurance counterpart, the customer experience is not seamless and often requires the buyer to interact with a human broker or agent to confirm or correct details, cross-sell products or detect fraud attempts. The role of brokers continues to be important both for consumers and carriers. In 2017, the broker channel contributed 64% of the direct written premium in the P&C industry¹⁵. As some insurers shift from legacy technology to newer infrastructure, increased flexibility of technology will allow them to distribute home insurance more easily.
Embedded insurance: As financial services become more digital, we will see insurance being distributed through modern FinTech platforms. For example, home insurance can be embedded within the mortgage application process offered by tech-driven mortgage brokerage firms. Finmo, a mortgage technology provider, allows mortgage brokers to offer home insurance to their clients during the home purchase process through a partnership with digital brokerage Nuera. This speaks to one of the trends we believe will continue to grow: embedded or point-of-sale insurance¹⁶.
Connected homes: The adoption of smart home technology to reward customers and reduce claims is not yet widespread in Canada. Some insurers have publicly discussed the benefits of using smart home devices to detect and prevent damage such as water leakage. However, very few carriers have actually introduced water leak monitoring systems to their customers. One example is Desjardins, which has partnered with Roost to offer customers a water system monitoring device. Unlike the case with telematics and auto insurance, smart home devices have not yet been used by Canadian insurers to reduce insurance premiums. Rather, it is offered as an add-on that would help reduce home damage for consumers and claims for insurers.
Short term rentals: The changing lifestyles of homeowners are creating insurance product innovation opportunities for carriers. For example, the growing trend of short term property rentals through platforms like Airbnb presented a gap for coverage within existing homeowners’ insurance products. As a response, The Co-operators Group launched its on-demand digital insurance brand, Duuo, with the support of InsurTech startup Slice Labs. Duuo allows Airbnb hosts to purchase a short-term rental policy in addition to their regular home insurance policies.
Underwriting and Claims: While the distribution of home insurance is improving with new channels and creative partnerships, there is a large innovation gap for underwriting and claims processing. With respect to underwriting, the main innovation focus has been on utilizing existing proprietary data to build machine learning models for faster underwriting. For example, Gore Mutual announced in 2019 that it was partnering with Element AI to use its AI Underwriting Partner software product utilizing Gore Mutual’s proprietary dataset to accelerate its underwriting process¹⁷. On the commercial property side, InsurTech startup Orbiseed has developed an AI platform that standardizes and summarizes commercial property data for insurance carriers to help facilitate their underwriting processes. With respect to claims, insurance carriers need to make significant changes to improve the current claims experience for customers. We believe that insurers can player a larger role in supporting their insured customers suffering from damage to their homes. Westhill, a startup that recently announced its expansion to Canada, connects carriers and their policyholders with vetted general contractors via their platform and tracks the repair process to feed data back to the insurer.
Commercial Liability Insurance
Commercial insurance has two major segments — property and liability insurance. Since we covered commercial property insurance in the Property segment, this part will focus on commercial liability insurance¹⁸. This segment generated more than $7.3 billion in direct written premium in Canada in 2019¹⁹ and more than $6.6 billion in 2018²⁰. In 2020, private insurers in Canada paid out more than $4.7 billion in direct claims incurred²¹.
The Canadian commercial insurance space is beginning to see innovation from both startups and incumbent insurers, although it lags behind the innovation in the personal lines space. This is not surprising, as purchasing business insurance can often be a complex and high-touch process.
Small business insurance: InsurTech innovation within this category has been largely centred on digital distribution, especially for small-medium business insurance policies. Technology is enabling brokers and carriers to serve small businesses more efficiently and with more personalized products. Zensurance²², for example, allows businesses to receive quotes for various types of business insurance products online at any time of the week or day.
Broker enablement: Other InsurTechs are enabling existing intermediaries, such as brokers, to provide a better digital experience. Apollo Exchange, for example, offers a white-labelled e-commerce platform for brokers so that their clients can purchase small business insurance products on their respective websites. Brokers also have access to Apollo’s marketplace where they can shop for policies on behalf of their clients.
Process automation & efficiencies: Some InsurTechs are offering solutions to improve the workflows and efficiencies of brokers and carriers. For example, Chisel AI provides AI-based data extraction technology to automate underwriting workflows for commercial insurers and brokers such as policy check, quote comparison and submission triage.
We expect this category of insurance to see much deeper innovation in the next few years.
In the next part of this series (Part 2), we cover InsurTech activities in the Canadian Life & Health insurance sector. You can download the entire report here.
[1] IBC-2019-Facts
[2]; [3] IBC-2020-Facts
[4] CBC: Car-tracking device could lower premiums, insurers claim
[5] Acquired in 2019
[6] Why the Most Innovative Brokerage in Canada Doesn’t Use Online Quoting
[7] These digital brokers also distribute other types of insurance products.
[8] A global study conducted by Accenture, which included 2,000 Canadians, found that 64% of respondents were interested in receiving adjusted car insurance premiums based on safe driving.
[9] While data privacy concerns prevail among a portion of consumers, studies show that there is a growing willingness among Canadian consumers to share data so long as they understand how the data will be used to their benefit and not a premium increase.
[10] For example, the Insurance Bureau of Canada released a detailed position paper in November 2018 based on a two-year study with recommendations of an insurance framework for autonomous vehicles Auto Insurance for Automated Vehicles: Preparing for the Future of Mobility.
[11] “COVID-19 has accelerated changes to the claims industry” (Canadian Underwriter)
[12] IBC-2020-Facts
[13] Calculated using data from IBC-2019-Facts.
[14] IBC-2020-Facts
[15] IBAC Economic Contribution Study (Statistic originally found by CIBC).
[16] Discussed further in the Future Opportunities section.
[17] Element AI and Gore Mutual Announce First AI-powered Insurance Underwriting Collaboration
[18] Including commercial general liability, Directors’ and officers’ liability insurance, Errors and omissions or professional liability insurance and Business interruption insurance.
[19] IBC-2020-Facts
[20] Calculated using data from IBC-2019-Facts.
[21] IBC-2020-Facts
[22] Majority stake of the company was acquired by Travelers in 2018.
