Status of the Canadian InsurTech Landscape (Part 2) — Life & Health
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 second part of the series, we will discuss the Canadian Life & Health InsurTech space.
In 2019, 22 million Canadians owned $5 trillion in life insurance coverage and paid $23.3 billion in life insurance premiums. 81% of life insurance policies are purchased by individuals and the remainder is distributed as part of group policies through employers or membership associations. In the same year, insurers paid $12.1 billion in death benefits and to living policyholders as disability benefits, cash surrenders or dividends²³.
Similar to its P&C counterpart, the Canadian life insurance industry is still far from being able to offer consumers a fully digital experience. For instance, for certain levels of coverage, insurers still need to physically collect fluid samples to underwrite life insurance clients. Because of this requirement, the medical precautions put in place in response to Covid-19 pose a significant burden to the distribution of new life insurance policies.
Underwriting: Some carriers are beginning to explore methods of risk assessment that do not require a high touch process such as collecting fluid samples. Although at an early stage of exploration, leading responses incorporate more data and AI-driven models. Canada Life, for example, uses sophisticated AI underwriting techniques for life insurance applications up to $1 million for those aged 18 to 45²⁴. These types of projects are often undertaken by the carriers’ internal data science teams since they require large historical datasets that are not typically available to startups.
Digital Distribution: We are starting to see innovation in the distribution of life insurance, particularly from a few early stage players. PolicyMe is a digital advisor that offers customers a highly streamlined and educational experience when purchasing life insurance. It is able to perform a financial needs analysis (FNA) for customers during the sign-up process. However, the sale of life insurance still often requires the support of an advisor.
Advisor Enablement: To assist independent advisors, who account for the majority of life insurance distribution today, Finaeo offers a digital marketplace where advisors can access multiple carrier products from a single dashboard. It also offers technology solutions for digital onboarding, detailed FNA, product recommendations and customer relationship management.
Wellness: There is a growing interest among insurers to offer their customers tools that can help improve their physical and mental wellness. In addition to promoting better health (and potentially reduced claims), they also help carriers build a deeper and more engaged relationship with their customers. Optimity, for example, has built a wellness app that helps people build healthy habits and rewards them for completing activities such as exercise and meditation. Insurers can partner with Optimity to better engage their clients and offer personalized insurance products. Insurers are exploring these types of value-added perks with their insureds and are beginning to test new offerings as a form of differentiation.
Health Insurance and Benefits
In 2019, insurers covered $28.7 billion in extended health care costs for 26 million Canadians, which included costs of prescription drugs, dental procedures, paramedical, travel health and added hospital costs. This segment generated $48.3 billion in premiums in 2019²⁵. 90% of health insurance in Canada is distributed through group plans sponsored by employers, unions or professional associations²⁶.
Employee Physical & Mental Wellness: One of the main areas of innovation in this category has been around promoting employee health and wellness. For example, InsurTech startup League provides a single platform for employees to engage with their health, lifestyle and benefit programs. Plan members can get personalized health programs, manage their benefits and spending accounts, as well as access virtual care from a team of healthcare professionals. Virtual care-as-a-benefit is also on the rise with telehealth platforms such as Dialogue partnering with employers, brokers and insurance carriers. We expect the adoption of this type of platform to accelerate in the midst of COVID19, where medical professionals increasingly prefer remote consultations. Insurance carrier iA Financial Group partnered with Dialogue to offer virtual healthcare services as a benefit to its clients after the global pandemic began²⁷. Insurance carrier Sun Life Financial led a $43 million financing into Dialogue in July 2020²⁸, while also establishing a strong partnership that was motivated by COVID19²⁹.
Digital Distribution: Trends in distribution include overall digitalization of the customer facing side of insurers and brokerages, as well as distribution of benefits through other software platforms. For example, HR and payroll software providers Humi and Rise People also provide benefits advisory services to their customers. Another new model of distribution is offered by CloudAdvisors, which provides a digital platform that allows benefits advisors and plan sponsors to access various employee benefits products.
Financial Wellness & Spending Accounts: 53% of Canadians continue to live paycheque-to-paycheque and debt is considered “overwhelming” for 25%³⁰. A survey of employed Canadians found that financial stress is a contributing factor to decreased work performance for 43% of workers and it is estimated that financial stress causes $16 billion in annual lost productivity in the Canadian economy³¹. Employers are increasingly interested in the financial wellness of their employees.
Over the last few years, there has been a steady trend of employers offering their employees flexible benefits solutions, through a Health Spending Account (HSA) or Wellness Spending Account (WSA). Aya Payments has built a WSA and tax-advantaged HSA platform that combines a mobile application with an employer-sponsored prepaid MasterCard. Employees can use this physical or virtual card to make health-related purchases, eliminating the need to pay out of pocket. The platform offers real-time reporting and other tools to employers, employee benefits brokers, insurance carriers and other third party administrators (TPAs). This represents an example of ways in which brokers and carriers are looking to offer unique products to their plan sponsor customers (employers) to help them with talent retention.
Benefits for Gig Workers: At Luge, we see an opportunity for benefits insurers to better cater to part-time, shift, freelance and gig economy workers. We believe it is important for health, wellness and financial benefits to be customizable by workers, and able to support contributions from multiple employers. According to a report published by Statistics Canada in 2019, the latest data shows that there are 1.7 million gig economy workers in Canada³². Due to layoffs related to COVID19, we expect the supply of gig economy workers and part-time workers to increase, leading to a larger opportunity in this segment for benefits providers. A few early stage startups addressing this opportunity include Livelii, AlphaBenefits and BOUNC3.
In the next part of this series (Part 3), we will discuss InsurTech startup activity in each major function within the insurance industry in Canada. You can download the entire report here.
[24] Advisor’s Edge
[27] iA Financial Group teams up with Dialogue to offer virtual healthcare services to its clients
[28] Sun Life leads a $43 million round of financing in Dialogue
[29] Sun Life, Dialogue partner on free virtual care for plan members
[30] BDO Canada Affordability Index
[31] Financial Stress In The Workplace Costs Canadian Economy $16 Billion Annually
[32] Statistics Canada
