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Trends in Insurance Tech

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Tech's most prominent trends all have massive disruption potential on the multi-trillion dollar insurance industry.


But we're also seeing insurance companies make investments, like New York Life and Transamerica, which recently invested in digital currency group, which is Barry Silver's new effort. They actually have their portfolio of Blockchain investments themselves. So it's interesting that for New York Life and Trans-America, they get a view into this portfolio of what's going on within Blockchain and monitored that strategically.

 

Lloyd's recently highlighted the potential of Blockchain in insurance as part of its monetization plan earlier this month. We're also now seeing or starting to see startups look to different applications within Blockchain for insurance. Everledger is one company. They went through Barclay's accelerator. They're using Blockchain to combat fraud, and they're starting with diamonds as where they're starting out but look into expanding into other use cases there. Blockchain is an exciting area, but I think still extremely early for insurance firms to think about it and also startups in the space that are targeting Blockchain for insurance use cases.

 

Another area where we see a lot of buzz is this area of on-demand insurance, so insurance enabled by smartphones and allowing you to get the policy on-demand rather than annual coverage. So what you're doing is basically slicing and dicing a policy into, say, for an hour for car insurance or different types of ways to better utilize this.

 

So if you think about the on-demand economy and what Uber and Airbnb did in terms of getting a ride or a place to stay or your laundry or food delivered in the click of a button, we're seeing insurance startups, as well as efforts like what Baidu is doing with Alliance, move into...and has been given a bunch of different names such as episodic insurance or scenario-based insurance, moving into that effort.

 

What's interesting though, is that when you look at the investments by insurance firms in the startups, most of them actually aren't focused on companies that are directly focused in the insurance space. So, actually, most of the tech deals by insurance firms to date are actually going to companies that are complementing their existing businesses, whether those are on-demand roadside assistance apps, community coordination tools, cloud mortgage software firms or others, most of the deals are not directly related to insurance.

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So, Google, which we'll dive into it a bit later, has made a number of investments and partnerships with various insurance startups, as well as launching their own auto-insurance comparison engine. Alibaba and Tencent were initial backers of a new online property and casualty insurer. In China, Baidu, which just this month teamed up with Alliance as well Hill House Capital to start their own insurance provider is focused on scenario-based insurance, which we'll dive into a little later as well.

 

And Rakuten, which acquired AIRIO Life Insurance, rebranded it as Rakuten Life and is now deeply involved in finance as well, and actually started their own Fin Tech fund to invest in in Fin Tech startup. So you can imagine that maybe insurance might be a focus of theirs as they look to deploy that Fin Tech fund.


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Below is a transcript of our Webinar, Trends in Insurance Tech, led by CB Insights Senior Analyst, Matthew Wong.


Two is how big insurers, as well as tech giants, are responding to the insurance tech opportunity. So what are we seeing from firms ranging from AXA to Alliance, as well as companies like Google and Baidu, and how does this all come in together? 


Third, we'll do a quick case study on Google. So if we think of resource allocation as strategy, how have we seen Google move strategically within insurance tech? What are the moves that they have made on the investment partnership, as well as M&A side, within the world of insurance? 


And lastly, we'll look at a few areas where insurance tech might be headed next. So what are some of the new things people are buzzing about within insurance tech, and what are we going to look forward to in 2016 and beyond?



Others that we've seen is Progressive, which partnered with Censio, to power their usage-based insurance programs which is called Snapshot. The Snapshot app that they're building helps automatically monitor and measure driver data such as time of day, mileage, hard breaking, and potentially earn a discount through Progressive's program. Oscar did the partnership with Misfit. So they're basically paying their users to use the Oscar Misfit wristband, and that connects automatically to Oscar's app. So here are some of the investment, the partnerships you've seen over time by insurance firms with IOTs, startups, as well as bigger tech corporations. 


The elephant in the room, though, is that we're seeing more tech corporations themselves enter the insurance business. So this is the chart that Kleiner Perkins Caufield and Byers made within their Internet trends report that they put out each year. It's a list of global Internet public leaders by market cap, and what we've seen is that an increasing number of them are actually now stepping into the insurance business. 


Let's get started here on the insurance tech webinar, FinTech's next frontier. We may be covering a lot of different things today, including a data-driven look at the trends, emerging technologies, and how incumbents are responding in the growing insurance tech landscape. We're going to cover four main areas: One is a look at the financing trends through the global insurance tech universe. So which of the startups that are receiving funding? What are the hot industries, and what does the financing landscape look like for insurance tech?


Financing trends to global insurance tech startups


What is the unique value that you're going to have to do that? Because as you see here, and this is borrowed from a presentation from Andreessen Horowitz, most of the play we're seeing is on the broker side of the business, whether that's in life, healthcare, PNC, and others. What are we going to see? Are we going to see companies target full insurance capabilities and not just broker plans?

 

We see a few companies doing that on the peer-to-peer side in Europe, and we're seeing a little bit of that in terms of initiatives like Zhong An in China, Mass Mutual starting their own program with Haven Life. That is a little bit different than what the startups are doing, Oscar and health insurance based, but this is, I think, what investors and people in the industry are worried about, are also thinking about is, is this going to happen? It remains to be seen whether we're going to see companies target the full stack approach versus more brokerage-based startups. So that's what a lot of people have their eye on today.


We'll end this by saying I think growth in technology can tend to look slow and then grow extremely fast, and I think we're going to see that in insurance tech, is a lot of the solutions that are just getting off the ground today or starting next year may eventually be brushed off or start small. But I think eventually, some will catch on, and those are the ones to pay attention to because those are going to be the transformative businesses within insurance. Whether that's five, 10 years, 20 years down the line, the insurance tech opportunity is alive and well today, and we're seeing that bear out in the data that we're tracking. 

 


So, given how much activity is now happening in the insurance tech universe, how are we seeing big insurance tech giants respond? Also, how are we seeing big tech corporations like Google and others react to what's happening in the insurance tech universe? Well, what we see is that big insurance firms are aware of the coming change. So here are a few quotes from some of the biggest insurance firms out there.

 

So Mark Wilson recently said that "Insurance is in the Stone Age while other people are circling Mars." Generali, which is one of the biggest Italian insurance firms, Mario Greco, the CEO there, said that "either you understand that insurance is going to change, or the industry will disappear." And then Progressive CEO Glenn Renwick who recently said that "we don't necessarily control the direction of technology."


THE INCUMBENT RESPONSE

How are insurance firms and tech giants reacting to he insurance tech opportunity?


So you can make the argument that insurance firms aren't investing in companies that are reimagining what insurance looks like. That said, given the amount of attention they've put on this area, it's hard to imagine that they're not aware of the companies that are thinking about reimagining insurance. We do see a few investments into insurance tech startups from insurance providers, so we'll see if that changes over time. 


In terms of the partnership angle, we're seeing a lot of insurance firms look to partner with startups, especially on the IOT world. Insurers are increasingly recognizing the potential of the Internet of Things on their core business, and we're seeing that bear out in the partnerships that they're providing. So a few here that I note are Google Nest division recently partnered with American Family Insurance just to help offset the costs of a Nest smoke detector. We also saw Google partner with Liberty Mutual at the same time to offer a monthly discount. They have their program available in a number of states including Alabama, Colorado, Illinois and others.


CASE STUDY: GOOGLE

Resource allocation is strategy. How has Google moved strategically in insurance tech?

WHERE IS INSURANCE TECH HEADED NEXT?


So, what are a few different areas that we expect insurance tech to move into next? Well, there are a number of different areas, and some of these are more buzzed about than others. But let's quickly look at a few of them. 


One is Blockchain. If you look at this map of financial services firms investing in different Bitcoin or Blockchain related startups over time, we see, obviously, a number of investments by banks like Goldman Sachs and Canberra and others.

 

What are some of the new things buzzing in insurance tech?


So here, you'll see some of them, which we've highlighted. So Baidu and Alliance, you see how Baidu describes their program saying that scenario-based insurance will consist of small situational protection offered for high frequency location-based or Internet transactions, such as OTA purchases, online-offline services, such as dining, ticketing, and other transactions.

 

You see some of the startups here that are also focused on providing on-demand insurance. So, Shore is one company that is termed what they're doing episodic insurance. Cuvva is another company based out of Edinburgh. You see a quote there that says, "Consumer expectations are that we should be able to get what we want, where we want, and from all of our personal vices. Why should car insurance be any different?" So, say, you borrowed your friend's car for an hour, getting a policy for that time.

 

Another company that you'll see there in the screenshot is Trove. What they're trying to work on is, swipe to protect. So being with a swipe right with your finger and activate coverage on a number of different possessions that you have, and conversely, swipe your finger left to turn off the coverage. So startups, as well as companies like Baidu, are really making this an interesting proposition. We'll expect that more startups will probably be focused on this as we move forward into 2016.

 

The other area where we expect to see more activity in the insurance tech [inaudible 00:26:43] system is companies that are building up these valuable data sets or have a unique data proposition, move into different insurance applications. So here, we'll highlight two of the companies, and there are many others.

 

If you think about Orbital Insight, which is a company that's utilizing satellite imagery, you can imagine that with the data that they're gathering and have at their disposal of satellite imagery, that they can track places that are having natural disasters or hard-to-see areas for insurers to better understand risk. They've stated that insurance is one of the verticals that they'll be going after. CEO Jimmy Crawford previously worked at Climate Corp, so he has an understanding of the insurance business, especially from a data standpoint.

 

And then another program we'll highlight here is Beam Technology. Beam initially started as a smart toothbrush, and now we see them move more into an insurance place. So, being able to track your oral hygiene stats and use that information to support a dental insurance plan. Now we're seeing companies like Beam move into a prelude to an insurance business.

 

So, imagining new applications for insurance through different startups who may not have thought that they would be in the insurance space but now we're seeing them move into that. That's a scenario, a theme that we're seeing more and more of. 


And lastly, I think one thing that we're seeing a lot of talk, especially from investors is, the full stack insurance startup, the full stack company. Obviously, this is extremely hard to do because of marketing costs, among other things. Geico spends a billion dollars a year on marketing costs. Alex Rampell at Andreessen Horowitz had a great segment earlier where he talked about insurance firms finding...if you're going to go full stack, what is the wedge that you have into the industry?

 


Let's get started with insurance tech startups invading the multi-trillion dollar insurance industry. We don't see the word "trillion" often when sizing the market opportunity for startups, but in some ways, it was inevitable that startups would eventually target old stead insurance business. So if you look at global life insurance premiums, those total 2.7 trillion. The non-life insurance premiums totaling 1.4 trillion.

 

THE BOOMING INSURANCE TECH SPACE

Given how big the market opportunity is, startups are now more and more entering the insurance business. One of the primary reasons why they're doing that is because of the failure by insurance incumbents to create compelling digital advances for their consumers. So here, and you'll see in this chart in terms of how satisfied their online consumers are, insurance trails way below even personal banking, as well as some of the other financial sectors, and you see that borne out in terms of satisfaction by consumers of insurance services online.


Here is just a quick look at some of the most well-funded insurance tech startups, so Zhong An Insurance, which is that Chinese online insurance starter, insurance seller based on the property and casualty space. That was initially funded by Alibaba and Tencent. As well as you'll see others like Zenefits, Oscar, Collective Health, and Clover, all of which are focused on the health insurance space either as brokerages, tech solutions, or health insurers themselves, in the case of Oscar, which is now notched evaluation over a billion dollars.



This is a quick tool that we made just this week in terms of mapping out the insurance tech landscape. So you may have seen some of these periodic tables that we put out. We just recently put this out for insurance tech looking at 120-plus key players in the insurance tech space, ranging from startups to VCs, to corporate investors, and accelerators.


So here, you see just a number of different companies that are targeting, whether it's in term life insurance, or property and casualty, or health insurance, to new areas like peer-to-peer insurance. We've mapped out a little bit, and we're going to be updating this over time. We'll be sending you this presentation after, so you'll have links to all of the materials that we put forth in the presentation.


There's really been very little insurance innovation from large providers. Now we're seeing venture capitalists very publicly talk about insurance tech disruption. So whether those are firms like Andreessen Horowitz to smaller micro-VCs, we're seeing this come from a bunch of different investors in the industry.


Ribbit Capital, which is a small firm based in the Valley, and Micky Malka, who runs the firm there, had a great quote that "Insurance won't get you a date, but it really feels like lending did in 2007." So that's when Lending Club and On Deck Capital took their first investments. They're spending 60% of their time in insurance. If you're at Money 20/20 Conference, you might have heard that insurance is still ripe for disruption, and you see a bunch of other firms here who are publicly blogging or tweeting about the insurance tech opportunity from being capital ventures to others.


And at the core, it comes down to what startups are going to be doing in the space. So in a great quote from Policy Genius CEO Jennifer Fitzgerald, she mentions that in her previous life as a McKinsey consultant, she advised for the top insurance companies on products that were, at their core, incremental. Now what we see is more startups target this largely unsexy area and find ways that re-imagining what the insurance value chain looks like from a bunch of different areas, whether that's in claims, distribution, or risk.



This is a quick tool that we made just this week in terms of mapping out the insurance tech landscape. So you may have seen some of these periodic tables that we put out. We just recently put this out for insurance tech looking at 120-plus key players in the insurance tech space, ranging from startups to VCs, to corporate investors, and accelerators.


So here, you see just a number of different companies that are targeting, whether it's in term life insurance, or property and casualty, or health insurance, to new areas like peer-to-peer insurance. We've mapped out a little bit, and we're going to be updating this over time. We'll be sending you this presentation after, so you'll have links to all of the materials that we put forth in the presentation.


The CEOs of the largest insurance firms are aware of this coming change. So how have they responded to it? Well, one of the most clear ways we've seen that happen is through investments in tech startups. So whether that's AXA, MassMutual, Alliance, Ping An, Transamerica, and others, we're seeing a host of different insurance providers make investments in the tech startup. So here, you'll see the deal trend by insurance providers in the tech startups. They really jumped in 2014 to over 20 deals, and now over 30 deals in 2015 year to date. 


So when we look at the insurance tech landscape today, it's really broadened from just a few years ago, and whether that's in healthcare, auto, mobile insurance management, SaaS companies that are providing software for insurance providers, product insurance startups, companies that are providing commercial insurance or brokering commercial insurance for small and medium-sized businesses, new startups in the peer-to-peer space, as well as on the life insurance side. So this is just a small cut of some of the startups that are now in this space, but you see how many companies are now entering the insurance business from the tech startup standpoint. 


We don't expect that to slow down. We're now seeing more and more insurance firms who are thinking about starting a corporate venture arm. A number of the firms that are now investing, they actually made their first investment this year. So AXA, for example, set up their strategic venture arm earlier this year, and we're seeing other firms like XL Catlin, as well as Hartford Steam Boiler just get ready and get started this year in terms of corporate venturing.


And what all of that is doing is now bearing out in the funding data. So here, you see the funding trend to insurance tech startups over time. What we see here is that in 2014, tech companies that have targeted the insurance space took less than $700 million in funding. Just in the first nine months of 2015, we see that number is actually tripled in terms of funding to global insurance tech startups. You see the spike there in Q2, driven by a few mega rounds, the companies like Zenefits and Zhong An Insurance in China.


We don't expect that to slow down. We're now seeing more and more insurance firms who are thinking about starting a corporate venture arm. A number of the firms that are now investing, they actually made their first investment this year. So AXA, for example, set up their strategic venture arm earlier this year, and we're seeing other firms like XL Catlin, as well as Hartford Steam Boiler just get ready and get started this year in terms of corporate venturing. Again, we expect this to change over time because we're seeing more and more insurance firms express interest in corporate venturing, but already you see a number of different firms that are making investments today in terms of insurance providers investing in tech startups. 


But I think more importantly, it's important to keep in mind that the deal trend is really hitting new highs, and that's probably the bigger trend to keep...that's more important to keep aware of, is just more deals happening in the sector, and the deal activity hitting a high.

 

As an aside, we're going to be using this business social graph tool throughout the presentation. So this is a tool that let's you visualize the investment acquisition and competitor landscape of relationships between players in a space. So it makes mapping an industry very simple in terms of companies partnering or investing or acquiring and others, and we're using that tool that we've built here at CB Insights.


You'll see that weaved in throughout the presentation. One way and one chart that we did illustrate that with is here in terms of the number of insurance tech investors increasing over time. In 2011, there were less than 50 investors across all types - angel BC, hedge funds, mutual funds - invested in the insurance tech space. Now fast forward through the end of Q3, and we see that number increased to actually past 380. It's actually more today, and we expect that number, especially heading in next year, to increase substantially still.



So if you look at Google, Alibaba, Tencent, Baidu, as well as Rakuten in Japan, all of them have made strides into the insurance business. Here you'll see some of those specific moves that they've made. 


One trend we have noticed since 2010 is that most of the insurance tech startups that have raised money since 2010 have focused on the health insurance space. That's probably not surprising, given the Affordable Care Act which was signed into law in 2010, creating new opportunities for consumer health insurance providers. So we've seen startups like Oscar, which are actually creating new health insurers. We also see a lot of companies on the brokerage side form in the health insurance space.



So let's quickly look at Google and the moves that they have been making. In 2014, Google co-authored this report with BCG that showed that insurance are the top five product category in insurance usage. Google had a bunch of different conclusions from this report, but a lot of people were speculating whether they would eventually enter the insurance business, given how much and how lucrative it is to their search business.  What we see is that Google had a steady rise of insurance tech investments and partnerships over time, so let's quickly look at some of those that they've made. In 2011, they acquired Beat That Quote, which is a UK insurance price comparison site for 61 million, and then they starting making a number of investments and partnerships with both startups, as well as insurance providers.

So this chart has changed a little bit since we've made it earlier this year, but most of the companies that have been funded in the space to date have been on the health insurance side. But now with new companies starting up and eventually will be funded, we're going to see much more movement on the life insurance side, on the property and casualty side, as well as others. So we expect this to change over time. In terms of the share of deals to companies by stage, not surprisingly, most the activity in the insurance tech space has been at the early stage. 



They partnered with Vision Service Plan, as well as AXA. They invested in Climate Corp, which was later acquired by Monsanto. Climate Corp was a firm that was, and still is, providing automated crop insurance program for farmers based on actual versus expected weather data.

 

And then moving into 2015, we saw the launch of their Google Compare, auto insurance comparison engine, with partners like compare.com, as well as CoverHound, which is a Bay Area-based auto insurance comparison and brokerage. Google Compare just recently launched in Illinois. And then you see a few of the other partnerships and investments that they've made in 2015, including three different investments in the health insurance space, including Oscar, Collective Health, and Gusto, which just recently moved into brokering health benefits five months after Google Capital invested in them.


Industry perspectives on Google's entrance have been mixed, but I think the more important thing is to focus on the actions. So here, you see some of the perspectives of different people within the insurance industry. So Willy Mark Berkley of W.R. Berkley Corp, mentioned earlier this year that Google's competitive advantages can't be denied because they invested an enormous sum of money and are actively building a rural roadmap of America. Whereas on the other side, you see people like Bill Wilson of the Independent Insurance Agents and Brokers of America, mention that "What Google is doing now has been done for 10, maybe closer to 20 years now."

 

Despite the perspectives and what different people are saying, we think that it's important to focus on the actions, because Google is likely positioning themselves for the long term, and we'll certainly be paying attention to all of these partnerships, acquisitions and investments still be making over time, especially as they pertain to insurance. So that's a quick look at what Google has done. What they do in the future will be interesting in terms of how they position themselves because they are now deeply making moves in the industry.

 

Insurance Tech Q&A

60% of all deals since 2011 have come at the seed or Series A stage. We've seen that deal share number drop a little bit, but still well over half of all deals. Two insurance tech startups in this space have been at the early stage. Probably not surprising, and we'll probably continue to see that until companies can gain enough traction to hit more mid-stage fundings and eventually more late stage fundings. But the early stage is where we think most of the attention should be focused in terms of the insurance tech universe. 


The reason why is because early stage activity gives a really good snapshot into what to expect in terms of innovation in the industry, say, a few years down the line. So when we hone in on the early stage insurance tech investment trend, we see just the number increasing on an absolute deals and dollars basis to over 360 million in 2015 and over 40 deals. So with still a month to go, those numbers are already at highs, and heading in 2016, it'll be interesting to see whether this early stage funding trend continues.


When we break those early stage numbers down by geography, we see that the U.S. has taken almost three of every four insurance tech deals. That said, there's a lot of activity in Europe, especially in the German and UK tech hubs. So we see Germany and UK rank second and third, rounding out the top three. That said, there are a lot of early stage companies in both of those markets in the insurance tech space. We expect to see their share of insurance tech deals grow over time. Within the U.S., we see that California has taken about half of all the deals to insurance tech startups. New York has taken about 20%, 17% of all deals in the space, and Massachusetts rounds out the top three at 6% of all deals.



What is the unique value that you're going to have to do that? Because as you see here, and this is borrowed from a presentation from Andreessen Horowitz, most of the play we're seeing is on the broker side of the business, whether that's in life, healthcare, PNC, and others. What are we going to see? Are we going to see companies target full insurance capabilities and not just broker plans?

 

We see a few companies doing that on the peer-to-peer side in Europe, and we're seeing a little bit of that in terms of initiatives like Zhong An in China, Mass Mutual starting their own program with Haven Life. That is a little bit different than what the startups are doing, Oscar and health insurance based, but this is, I think, what investors and people in the industry are worried about, are also thinking about is, is this going to happen? It remains to be seen whether we're going to see companies target the full stack approach versus more brokerage-based startups. So that's what a lot of people have their eye on today.


We'll end this by saying I think growth in technology can tend to look slow and then grow extremely fast, and I think we're going to see that in insurance tech, is a lot of the solutions that are just getting off the ground today or starting next year may eventually be brushed off or start small. But I think eventually, some will catch on, and those are the ones to pay attention to because those are going to be the transformative businesses within insurance. Whether that's five, 10 years, 20 years down the line, the insurance tech opportunity is alive and well today, and we're seeing that bear out in the data that we're tracking. 


Are there more innovation, in particular geos? 


I think a lot of the interesting innovations in terms of interesting business models or ways to approach re-imagined insurance obligations are coming out of Europe. So I think UK, if you think about what's happening...and I'll say Europe overall. So Germany, UK, as well as France. You see companies working in peer-to-peer. To some degree, those are applications that can't really be transported over the U.S., given regulatory environment here and having to move state to state, different issues like that.

 

I think we're definitely seeing a lot of innovation out of Europe, and I think part of that may be because also the insurance corporates in Europe are also very keen on innovation and in fostering programs. So sponsoring programs like Startup Bootcamp Insurance and also investing in a number of companies. Obviously, most of the deal flows come from the U.S., given the plethora of health insurance startups that have raised funding. I think outside of London, London especially, UK tech hub we've seen a lot of innovation come out of.

 

What about self-driving cars and how that's going to impact insurance? 


It's a great question, but I think when we think about startups that are in the auto insurance space, the way they're thinking about it seems to be a little bit...I'll give one quote. I think Censio, when they were asking whether they're thinking about self-driving cars, they said that it's a long ways away.

 

It's going to be a big shift, but it's still a long ways away. So they think the future is in, I think they said driver-based insurance rather than car-based insurance, and there's still going to be a lot of innovation on models based on on-demand and others. And Censio just raised their Series A. So it sounds like companies are obviously, I think, well-aware of this self-driving car future, but today we haven't seen companies on the startup side focus their entire business on the self-driving space, given how early it is still. So obviously, another area that we'll be keeping a close eye on. 


So with that, I think we're going to finish up. Again, definitely send our questions over. I'm at [email protected] You can also ping us on Twitter, as well as email. And again, the new insurance tech initiative that we started is at cbi.vc/insurance-tech.