Article Synopsis :
“Insurance Technology: Four Trillion Dollar Industry Finally Goes Global”, from AGC Partners, is a tech-investment-banker perspective on technology disruption of the global insurance industry. The high-level argument goes something like this:
- InsureTechs are riding a wave of innovation and investment, attempting to do in a few short years what the insurance industry itself has failed to do over the last decade: a complete digital migration across all business processes
- With $4.6 trillion in global annual premiums, or 5.6% of global GDP, the insurance industry is a highly attractive market where incumbents have been slow to embrace innovation
- There are three competitive threats at work in the insurance market, all pointing to Technology Disruption: (1) an explosion of well-funded InsureTechs, 2) the feared entry of B2C tech “titans” (i.e. Google, Amazon, Facebook, etc.), and 3) incumbents racing to adopt modern enabling technologies
- As a result, InsureTech investments are up six-fold over the last five years across at all stages of funding
- Whereas the first InsureTech wave has primarily focused on distribution, a second wave is taking aim at how insurance products are designed, priced, and delivered
- Incumbents’ initial reaction has been to partner and invest mostly in enabling technology
- Market forces point to increased M&A activity as customer demand will make InsureTech solutions key to an insurer’s customer acquisition and retention strategy
Other salient points include:
Investment in Technology Pays Dividends: There’s a clear relationship between higher technology spend and financial performance by insurance companies over the years. Tech-heavy insurers have historically outgrown their lower spending peers by 1.8x (on a % growth basis).
Incumbents Hesitant to Adopt, Despite Benefits: There are two reasons for this, 1) dependence on legacy systems to manage highly sensitive proprietary data and regulatory compliance, and 2) switching costs can be very high and time consuming. Only a third of insurers say they see the advantages of being a first-mover.
We’re at the Inflection Point of Tech Transformation: The insurance industry as a whole must rapidly transition from the antiquated, less profitable business model of old to the tech-focused model of the future.
Major InsureTech Themes covered in the report include:
- Omni-Channel Customer Engagement (Lemonade case study)
- Broker Disintermediation & Threat of Tech Titans (Oscar Health case study)
- Massive Opportunity for Process Automation (Guidewire case study)
- Big Need for Big Data Analytics (Verisk Analytics case study)
- IoT: Real World Insurance Applications
- P2P Insurers: Revolutionizing an Age Old Concept (Friendsurance case study)
- Part-Time Insurance for a Part-Time Economy (Metromile case study)
- Top Funded Companies by Total $ Raised
- Most Active Strategic Investors
- Most Active Financial Investors
- Most Active Accelerators
- InsureTech Recent M&A Transactions – 48 in total
- InsureTech Recent Private Placements – 251 in total
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Digital Insurer's CommentsThe insurance industry is dominated by a relatively small group of behemoth companies controlling trillions of dollars of balance-sheet assets. Managing these assets in a highly conservative manner, they have also been excruciatingly slow to adopt new technologies. It’s understandable. New technologies are risky, and incumbent insurers got where they are by being risk averse.
Companies, like people, change when the pain of the status quo exceeds the pain of the proposed change. A new crop of InsureTechs, aimed squarely at traditional insurance business models, aspires to make incumbents uncomfortable in ways they’ve never felt before.
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