There’s no part of the year more exciting than the beginning, and as we enter 2018 it couldn’t be more thrilling. Although InsurTech is arguably still in its infancy, each year this sector has grown exponentially with $3Bn+ invested into InsurTech startups during the course of the past two years. We are seeing individuals and organisations from within and outside the insurance industry take InsurTech seriously, gradually moving from theoretical conversations to real action.
In 2018, InsurTech will only become even more significant and here are just few key themes that come to mind that will drive it forward:
1 Connected devices will be a key enabler to acquiring and sharing data
Connected devices are beginning to see widespread adoption across all industries, but more importantly the insurance industry is following suit to deliver smarter propositions. Although connected devices have been around for a while, businesses have only recently started to realise the importance of the technology as a key enablement platform to accessing a multitude of data types.
Gartner estimates that in 2017 there were c.8.4bn connected devices globally, up 31% from 2016. With this increase in devices comes an increase in data, which ultimately allows the companies collecting that data to derive better insights. If one of these companies happen to be an insurer this could potentially feed into more precise risk analysis, underwriting and claims.
However, when it comes to the 8bn+ connected devices worldwide, their usefulness within insurance hinges on insurers being able to plug into them. This may be in the form of properties, vehicles, cities or other types of data sources. Though some firms leveraging the ‘Internet of Things’ (IoT) are focussed on the insurance industry (e.g. Hippo, Neos Insurance, Fing, O Seven, Zendrive or Amodo) – meaning that the data is collected in a format to be of use to insurers – most are not. Therefore, insurers will have to effectively plug into, access and translate this wealth of IoT data to gain the right level of information from a multitude of devices and industries to really capitalise on what IoT has to offer. This will ultimately enhance insurers’ decision-making processes.
2 The Cyber threat will increase but so will protection
With an average annualized loss of $18.28 million for companies in the global financial services sector in 2017, cyber was one of the most talked about segments in insurance in 2017 and we certainly believe that nothing will change in 2018. We will see more breaches and potentially more (and larger) fines being awarded, as we continue to ramp up digitization programs. This also means that we will see more targeted solutions focussing on more than just data breaches.
In Cyber – more than any other insurance segment – the lines between loss prevention, risk transfer and incident resolution are blurred. InsurTechs and Insurers alike have realised that holistic solutions are the only way to really address the cyber threat. In 2018, insurers and InsurTechs will form close-knit partnerships to ensure that insureds have the optimum protection before a breach occurs and in the event of a breach. This c.$100bn industry is certainly going to grow and we are likely to see more bespoke and comprehensive solutions that better protect insureds. (Aon)
3 AI will have emerged
In 2018, we can expect to see the number of companies utilising Artificial Intelligence (AI) increase across both startups and incumbents. In 2017, 53% of applicants to the SBC InsurTech London accelerator were already using a form of emerging technology – with a large proportion using AI. During our 2017 sourcing process, over 60% of all startups used a form of AI to address a variety of big data challenges. Robo-advisors, followed by autonomous vehicles and AI analytics will represent the largest sources of investment up to 2020. These clearly back-up the prevalence of AI in the startup space and future forecasts are likely to increase. From an incumbent perspective, many of the major insurers already have individuals or teams that are tasked to identify best use of AI algorithms and techniques within their organisations.
But why? The answer is simple. Using AI is probably the best way for new insights to be gained from existing datasets and to deliver more personalised offerings to customers. Both Incumbents and InsurTechs are refining methods to gain actionable insights from data that can be used to make more informed decisions. Bearing that in mind, it would be more accurate to say that we will see much more ‘augmented’, rather ‘artificial’ intelligence coming to market.
4 A richer pool of Series A InsurTechs
In 2018, we will see a larger pool of Series A InsurTechs (otherwise known as scale-ups or growth companies) emerge as the sector becomes more mature. This will primarily be driven by two factors:
- More InsurTech capital: With respect to both investment and underwriting capital, the amount allocated to InsurTech is becoming more significant. Globally there are more than 30 insurer-backed VCs and counting (Coverager) and a multitude of traditional VC funds dedicated to investing into InsurTech startups. With this wealth of capital, it is likely that funds will concentrate their efforts on startups seeking Series A funding – that have already proven themselves to a certain extent – rather than earlier stage ones
- More refined propositions: Over the past few years, it is fair to say that InsurTech has really been finding its feet. In that time InsurTechs have been experimenting to find out how they can best impact the insurance market, both with and without the assistance of incumbents. Now we are at a stage where InsurTechs better understand their place in the market and will need additional funding to really achieve their goals.
With an increased supply of capital from new funds and an increased demand from more mature startups with proven propositions, the Series A pool of InsurTechs and beyond should increase significantly in 2018.
5 The ecosystem will thrive
The industry as a whole is starting to get to grips with the fact that Insurance (i.e. risk transfer) is only part of the solution. Whether we look at homeowners, travellers or motorists, its becoming a question of how can we make insurance fit into a wider customer-driven offering?
In order to answer this question incumbents and InsurTechs need to have a thorough understanding of their customer needs and the customer journey.
- Customer needs: Covering liability and ‘paying out’ in the result of a claim has become a hygiene factor and they are looking for a service that goes beyond this. For example, having the ability to manage all elements around going on holiday (e.g. bookings, flight, hotel and local transportation info, buying insurance etc.) in one place is in high demand from a large pool of consumers, and insureds.
- Customer Journey: Instead of solely focussing on what is being bought, there will be greater emphasis on the “invisible how”. Insurers will have to better understand how insureds would like to purchase and consume insurance, digitizing that experience seamlessly with as few touchpoints as possible. For example, this may involve more effectively partnering with e-commerce companies to provide insurance at the point of sale for a ‘frictionless’ experience.
With respect to both meeting customer needs and optimising the customer journey, this is not something that can be done by insurers alone. Building partnerships with other stakeholders (e.g. e-commerce platforms and vendors) within the ecosystem will be vital in developing customer centric solutions.
6 We’ll embrace our Digital Identities
In the FinTech world, Digital Identity is already becoming one of the most talked about areas of change due to the fact that with a fully digitised identity life in general becomes more secured, and there is evidence to suggest that InsurTech will follow suit. The idea of gaining a single and detailed view of a customer’s true digital profile is something that opens up a plethora of opportunities for the insurance world, but also some level of risk in the new data management space we are entering (e.g. PSD2 and GDPR).
With the introduction of GDPR consumers can readily request their online information, meaning that insurers will need to have this data in a centralised, standardised and structured format. Although this initially sounds like a burden, it is a blessing in disguise as they will be forced to create more comprehensive profiles to serve the needs of each insured across key life events.
InsurTechs and Insurers will be able to capitalise on this in two ways. Firstly, by creating new ways to build and store digital identities. Secondly, using these more detailed profiles to gain deeper insights through data analysis. An example of a startup we met this year in the digital identity space is Baasis ID. SBC FinTech alumni, Tradle.io is also doing very well.
7 InsurTech will lose its boarders
In 2017, our team at Startupbootcamp interacted with startups in 96 countries and 850 cities. Still at present, even the most successful Insurtechs have a presence in just a few geographies. In 2018 we will begin to see greater geographical expansion from InsurTechs across the globe. Although the expansion of the likes of Lemonade and Trov in developed insurance markets is to be expected in order to gain easy access to capital and a mobile friendly customer base, we could also see the movement of InsurTechs into less developed markets (e.g. Asia & Africa).
Although differing regulatory landscapes will always present problems, there is a conscious effort from government and corporates to create conditions conducive to startups succeeding. We have seen a number of InsurTech hubs emerge across the globe and within many of these hubs we have seen the creation of sandboxes (e.g. MAS and FCA’s innovation sandbox) and accelerators to facilitate new ideas.
As more hubs emerge and the regulatory landscape shifts, it should be easier than ever for InsurTechs to enter new markets.
8 Beware of behemoths
As every market works harder to acquire new customer segments, the battle for distribution will become even fiercer, and the biggest threat will be outsiders to the insurance sector. We are very specific in saying distribution here, rather than insurance (or InsurTech), as we believe the movement of large tech firms like Facebook, Amazon and Google will initially be in this space. This is because the expertise they gain from their insurance-focussed innovation projects will likely increase their interest in areas of the value chain where insurers are weakest, and this means distribution and customer engagement.
In addition, becoming a full stack insurer requires ring-fencing significant capital and adhering to stringent regulation, which are two large barriers to entry for most challenger InsurTechs and other new market entrants. That said, although these barriers seem more easily surmountable by a Google or Amazon in theory, the key question is do they really want to be in such market? Instead of tying up capital and spending large amounts on compliance, a much easier route (in the short term) into insurance is through distribution. These [large tech] companies already have numerous channels through which they interact with consumers and incumbent insurers could quickly plug into them, for a fee. Some already do!
In the short term, we are likely to see more existing and new products sold and serviced through the platforms of these large tech firms. In the long term after the tech giants have accumulated more insurance specific data and expertise, we might see a movement into other areas of the value chain. Trov just finalised partnership with Alphabet’s Waimo, so it’s a matter of time before we see more of these partnerships develop.
The eight predicted trends highlighted are in no way exhaustive. They are just a few thoughts that may be worth looking out for in 2018. Most of them are simply a natural progression of the InsurTech market as it becomes more mature, customer centric and tech-enabled. However, what will be really interesting is, if there are some major trends that none of us expected but really transform this evolving sector.