Category Archives: InsurTech

Water damage is costing homeowners billions. Could IoT help?

Pop quiz: what’s one of the most common types of homeowners insurance claims? (Hint: it’s not fire.)

It’s water damage. Maybe that’s not surprising – it rains a lot in many places. But what may surprise you is that things like pipe bursts and broken appliances are increasingly the main causes of water damage in homes.  

In insurance-speak, these are called “non-weather water damage claims.” Worryingly, these claims are happening more often and are getting a lot more expensive. A Best’s Review article reports that the average homeowners water damage claim is now over $6,700. Large losses (over $500,000) have doubled in number over the past three years. Non-weather water damage is now costing insurers (and their policyholders) billions in losses every year.

This is happening for several reasons. Our housing stock is aging, as is our infrastructure. More houses are being built and they’re getting bigger – many houses now have extra bathrooms and second-floor laundry rooms, which means more piping. (The story is probably different in Florida. You can read why that is here.)

But the worst part is that many – if not most – water damage claims are preventable. Inspecting pipes or conducting routine maintenance can go a long way. That’s where the internet of things (IoT) comes in. Smart devices and connected sensors installed on piping can detect leaks before they occur or before they cause too much damage. They’re basically smoke detectors, but for water.

And they work. Best’s Review noted that installing IoT devices can reduce water losses by up to 93 percent.

The Review quoted an IoT company CEO who claimed that leak detection devices could save insurers and their customers $10 billion every year.

Homeowners have admittedly been slow to install IoT to help detect leaks. But insurers are hopeful that raising awareness about the issue, offering policyholder incentives like premium discounts, and encouraging IoT installation during home construction will begin to turn the tide.

 Update: Of interest, Washington state adopted a rule in 2018 that specifically mentions water monitors and water shut-off systems as permissible tools for an insurer’s risk reduction program.

The state of the Insurtech market 2018

S&P Market Intelligence has recently published a report on the state of the Insurtech market, and on November 7 the company held a briefing on the subject. Panelists included Slice CEO Tim Attia, Drew Aldrich, Principal at American Family Ventures and the report’s author, Research Analyst Thomas Mason.

Here are some of the trends observed by S&P in the insurtech space:

  • Insurtechs are still in very early stages and that means it could take up to seven years before the recent crop of successful insurtechs go public and return investor capital.
  • Digital agencies and tech-focused underwriting generated the largest amount of deal value in the first half of 2018.
  • Companies that have full control of distribution, underwriting and servicing their policies (full-stack companies) have amassed substantial funding.
  • Disruption of the sort wreaked by Netflix on the entertainment industry is unlikely for the many lines of insurance (auto for instance) that are already dominated by the direct distribution model.
  • In commercial insurance where direct sales are not as prevalent, large incumbents are vigorously competing with startups for direct sales.

The panelists had this advice for incumbents who are looking to compete with nimble insurtechs:

  • Prediction is the next big frontier.
  • Spin off a separate digital insurer, it’s a lot easier than changing existing systems, silos and layers.
  • Embrace a culture of entrepreneurship and willingness to experiment.
  • Consumer expectations are changing quickly – the disruption could have happened already, and we don’t even know.

 

 

Insurtech deals reach a record in the first quarter of 2018

Insurtech deals reached $724 million in the first quarter of 2018, according to Willis Tower Watson. This is a record and a 155 percent increase from Q1 2017.

The number of transactions, at 66, also represents a record. Seven of those transactions rose to over $30 million in recent funding rounds.

There was only one developed market incumbent insurer participating in the fundraising while the remaining funding rounds were dominated by traditional VC money. Willis speculates that the stakes are becoming too high for insurers, especially if they are mostly investing in order to learn how to improve their existing processes.

Trends in P/C Insurance Technology

Over the past few years property/casualty insurance companies have been vigorously active as investors in technology startups and in partnerships with complementary technologies and ecosystems (drones, smart homes, car sharing, cyber risk management).

Established Insurers are also launching new brands and businesses.  Munich Re’s Nexible, an online auto insurance portal, is one of many examples.

On Thursday March 23, CB Insights’ lead intelligence analyst Matthew Wong conducted a webinar on trends in P/C Insurance Tech. Here are some of the highlights from the webinar:

  • Mentions of technology in earnings calls of major P/C carriers nearly quadrupled in the 3rd quarter of 2017 compared to the prior quarter.
  • P/C insurance tech start-ups have raised over $3 billion since 2012.
  • The U.S. leads the number of tech deals, with the fastest growing markets such as India, Saudi Arabia and Indonesia lagging. Europe is seeing an uptick in P/C startup activity.
  • Many insurance tech startups are partnering with the real estate industry
  • More startups are targeting small and medium sized businesses
  • More startups are gearing to distribute cyber insurance

Slides from the Trends in P&C Insurance Tech webinar are available for download here.

 

Key insights from this year’s ACORD insurance innovation challenge

This year, ACORD held its annual insurance innovation challenge competition in Boston. The competition highlights tech-driven solutions from some of the best and brightest in the business. Willis Re’s Dan Foster reports in this blog post on several key insights from the event.

  • This year’s winners demonstrated their ability to compile data that’s widely available and generally sought-after and use it in new ways. Something the industry needs to get quicker at doing.
  • The industry has been too focused on growth through product development or distribution innovation leaving a lot of room for improving underwriting and operational efficiencies.
  • A greater balance of technology efforts across different business processes would serve the industry well. While individual InsurTech companies continue to become more specialized in the problems they address, the dispersion of the tech movement across all operations will foster greater cohesion in all segments of the industry.

Willis Re’s most recent InsurTech Briefing, for Q3 2017 is available here.

InsurTech disruption: threat or opportunity?

Whether you’re an InsurTech startup with new ideas or an incumbent concerned about protecting your book of business, the greatest risk you can take may be to resist collaboration, according to a post on Willis Towers Watson Wire.

In Threat vs Opportunity? InsurTech is largely a matter of perspective, Andrew Newman, president and global head of casualty at Willis Re, says while it’s understandable that many insurers have perceived InsurTech as a threat to the value chain, the biggest threat lies not in technology itself, but in competitors of any description leveraging these innovations to gain advantage by reducing risk and lowering costs.

“The plain fact is that the vast majority of InsurTech companies aren’t interested in going to war with incumbents. Their focus is on creating value within the insurance value chain – not collapsing it. So if incumbents embrace ‘disruption’, rather than concentrating on defending themselves by keeping these opportunities at arm’s length, then they will find that the available technology is largely complementary to most of the current processes in the industry.”

Download the presentation Insurance: Leading Through Disruption by Insurance Information Institute president and CEO Sean Kevelighan to find out more about how the industry is poised to lead through disruption.

2017 Magic Ball on Insurance

It’s that time of year when insurance predictions for 2017 are being made, and as we look ahead, it’s clear that these are innovative times for our industry.

First up, Insurance Networking News with 10 Insurance Tech Predictions for 2017, based on a research report by Strategy Meets Action (SMA). Karen Furtado, SMA Partner and co-author of the report explains: “In many cases, the 2017 trends reflect a move by insurers to operationalize strategies that have been in development or early phases in the past couple years.” Predictions include: insurtech remains sizzling hot and 2017 will be pivotal for its future; digital transformation will expand; and telematics starts a new growth phase.

Keeping it hot, next up is The Financial Brand with Top 5 InsurTech Trends for 2017. Check out #1 Micro-Insurance to Handle Usage-Based Needs which highlights the growth of micro-policies covering specific risks for specific durations of time. At #3 Emergence of Blockchain as a Key Driver says smart contracts are emerging as the ideal way to automate claims management and underwriting creating billions of dollars in savings. It tips the B3i partnership between Aegon, Allianz, Munich Re, Swiss Re and Zurich as one to watch in 2017.

Talking of specifics, there’s Fast Company with 5 Fintech Startups To Watch in 2017 and pay-per-mile auto insurer Metromile headlines the list. “Insurance investors say Metromile has become an important proof point for the industry’s hottest topic: Measuring observable behavior in order to get more granular about risk.” Fast Company describes insurance is a “massive opportunity” in fintech in the year ahead.

And as we ring in 2017, CB Insights takes stock with a look back at some of the most notable partnerships, hires and financing rounds in insurance tech in the past year. Of particular note are the 29 startup-insurer partnerships in 2016, a reflection of insurers’ growing participation in the tech startup landscape. Insurance Information Institute’s Insuring California blog writes more on this here.

InsurTech: Outlook Positive

Investors are expected to become more confident in the FinTech sector, including InsurTech startups, as fallout from the Brexit vote in the United Kingdom and uncertainties associated with the U.S. Presidential election stabilize.

A quarterly report from KPMG and CB Insights says that while many investors in Europe and North America took a break from deploying capital in the third quarter of 2016, fintech investment is expected to regain momentum in the fourth quarter of the year and into 2017.

In the third quarter of 2016, venture capital-backed fintech companies raised $2.4 billion across 178 deals, accounting for 83 percent of the $2.9 billion in overall global fintech funding.

Both the number of deals and value of investments were lower than in the second quarter of the year, and when compared to the third quarter of 2015.

Still, the outlook is positive, with InsurTech and other sectors flagged for growth, the report said.

“Over the next few quarters, artificial intelligence is expected to gain more investor attention in addition to RegTech, InsurTech and data and analytics.

At the same time, fintech areas that have emerged over the past year (particularly blockchain) may receive more scrutiny as investors assess when and if investments will deliver returns.”

(RegTech refers to technologies that reduce the cost of regulatory compliance and improve risk outcomes for financial institutions.)

InsurTech VC-backed global investment activity totaled $204 million across 22 deals in the third quarter of 2016, KPMG and CB Insights noted.

The U.S. led the way with 10 InsurTech deals and $104.7 million in investment activity, followed by Germany with 4 deals and $47.2 million in investment.

The top InsurTech deals in the third quarter were pay-per-mile auto insurer Metromile ($50 million in funding), cybersecurity analytics services provider Cyence ($40 million in funding) and insurance brokerage app FinanceFox ($28 million in funding).

Year-to-date some $10.3 billion has been deployed globally across 612 fintech deals through the first three quarters of 2016, according to the report.

Read about the top InsurTech deals of the year as reported by Insurance Networking News here.

More stories on InsurTech over at the I.I.I. Insuring California blog here.