Insuretech is short for a technology-led insurance startup. It is a subset of the more extensive fintech industry, at the intersection of technology and insurance, where companies emphasize making, distributing, and aggregating insurance policies.
In India, we have sold insurance as a push product for ages. Today, we can buy them via our mobile apps. Multiple niche insurtech startups like Plum, Acko, Policybazaar, and Coverfox have also emerged.
Reportedly, Acko is in talks to secure over 200 million USD, which will propel the five-year-old company to the unicorn club (1). Plum recently secured 15.6 million USD in a funding round led by Tiger Global (2). Digit entered the unicorn club with over 1.9 billion USD valuation earlier this year (3). And Policybazaar is preparing to go public (4).
According to market experts, the increased occurrences and documentation of hyper-local and global catastrophes like cyclones, menaces, wildfires, and events like the COVID-19 pandemic have irreversibly changed people’s risk perception (5).
At present, India is witnessing an unprecedented increase in demand for health and term life insurance, a trend also mirrored in Africa and Southeast Asia. Even areas previously obscure in the nation, like property insurance, are seeing a massive demand.
Notably, according to Boston Consulting Group, P&C, property and casualty insurance was among the most significantly funded category in insurtech last year, mopping up over 3.4 billion USD, or about 45% of the total funding. It was followed by health insurance, 2.1 billion USD, 29%, multiline insurance, 1.6 billion USD, 22%, and life insurance, about 300 million USD, 4%.
As per an ET report, the ease of pricing one’s risk, paying a nominal fee with larger payout assurance, and the convenience of purchasing insurance via an app make insurtech one of the most promising sectors worldwide.
Last year, as per the BCG report, the growing sector attracted deals worth more than 6 billion USD worldwide. Between Q3 2020 to Q3 2021, the cumulative funding in insurtech startups has jumped over 200% YoY from 6.4 billion USD to 12.6 billion USD, making it one of the most prominent sectors worldwide.
Yes, sure, Insurtech is new to several consumer markets in the world, including India. However, if you have been following China and the astonishing growth of Zhong An, a pioneer in the area, you would know the potential.
Mega Funding Rounds of 2020
The growth of Zhong An, China’s online-only insurance startup, led to a rise in similar platforms in India, the US, and Europe. Simultaneously, it also led to a sharp surge in demand among venture capitals for a chunk of these companies. Consequently, the insurtech industry is witnessing huge funding deals worldwide like never before.
According to BCG (6), the three most significant rounds last year includes:
- Bright Health, a US-based individual, family, and medical insurer, secured 500 million USD in its Series E funding round (7).
- Ki Insurance, a fully digital and algorithm-based insurance syndicate in the UK, incubated by Google, Brit, and University College London, had also secured 500 million USD in a private equity round.
- Hippo, a US-based digital insurance offering homeowners insurance products, had secured 350 million USD in its series E funding round.
In recent times, other huge investment deals include Berlin-based Wefox’s 650 million USD funding round, which valued the company at 3 billion USD. Notably, apart from fundraising at a high valuation, the company plans to go public in the near term. Last year, Lemonade Inc., a startup backed by SoftBank, had a market cap of 6.5 billion USD.
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The Evolution of Insurtech Industry
As we mentioned, the funding level worldwide indicates the evolution of the insurtech industry. Global funding in the industry has increased from about 2 billion USD in 2016 to 6 billion USD in 2020. While the US accounts for the largest funding share, about 68% of total funding in 2020, India has also witnessed an increase, albeit with a smaller base, from 11 million USD in 2016 to 287 million in 2020.
The funding trend in India has continued, with Turtlemint securing 30 million USD in November 2020 and Digit securing 84 million USD at the beginning of 2021.
General insurance is the largest and most rapidly growing segment in the industry, accounting for more than 60% of the worldwide funding in 2020 and the highest three-year CAGR of 65%. Over the past few years, General Insurance funding has also skyrocketed in India, accounting for over 75% of the total funding pool last year. The trend is followed by B2B and B2C insurtech companies (8).
As the insurtech landscape has matured and evolved, players have started pushing their products’ limits and offering newer value-added services. Businesses are also rapidly expanding their reach to create a large ecosystem. We see innovations in broad dimensions:
Niche Insurance Catering to a Specific Context or Need
The focus is on bite-size transactions like ecommerce transactions or air travel, offering protection at the consumption point. The trend is significantly pushed by digital commerce across industries where insurtech companies test their new products. There are predictions that it can lead to a significant shift from how people perceive insurance.
Products Catering to New Age Needs
Examples include pet insurance, short-term rental host insurance products, etc. The trend is also pushed by digital consumption, indicating easier digital targeting and distribution, which was often difficult in conventional offline distribution models or newer requirements with the evolution of demand. We can expect to see new specialized insurances capturing these or a cohort of new products from already established businesses.
Products Enabling Prevention Over Protection
It is especially true for health, where businesses rapidly push for better health outcomes and reducing claim expenses. They are using elements such as virtual care and the deployment of health tech devices to make new offerings. The pandemic has also triggered the shift, with people getting far more comfortable with digital and telehealth solutions.
Offering Beyond Insurance
Another key trend is the shift of insurtech away from pure-play insurance to a cohort of value-added services.
The aim is to offer a more comprehensive “one-stop” solution to people who come into their fold. On one side, there are examples like Haven Life, which has launched services such as creation, document vault, etc. On the other end, businesses are making massive financial ecosystems. The key triggers for these ecosystems to rise include the view of customers and the ability to reduce operating costs, acquisition costs, and fixed costs with scale, including credit risks and claim expenses. The Chinese ecosystem, such as Ping An, is a classic example offering a multitude of services going beyond insurance.
And, as these insurtech companies are getting matured, they have also started offering B2B solutions.
It should come as no surprise that insurtech companies are now increasingly focusing on data capture and creating analytic models to extract maximum value. Some of the essential uses we can expect to include underwriting models and sharper pricing. Examples like auto insurance differential pricing based on driving behavior are more common. Similarly, other areas that have previously been less or underpenetrated because of lack of data, such as Crop Insurance, are becoming more prevalent thanks to more sensor and satellite-based data and better risk models.
Businesses also use analytics to drive insights across essential areas like claim assessments, acquisition, personalization, customer service, and fraud detection. AI-driven capabilities would help improve sales conversions. Businesses can further adopt Machine Learning to enhance claims efficacy using images or improved pattern recognition for frauds.
Enhancing Overall Experience
Experience for customers, channel partners, and employees makes the core area of innovation and push with rising digital adoption. Flawless customer onboarding with the merest fuss and the highest transparency has become an area of strong focus for most B2C insurtech companies.
Intelligence sales assistant apps tightly integrated with the internal system is only one example of how businesses are pushing limits on this front.
In short, the pandemic has turned the insurtech industry on its head, and it is forcing incumbents to reevaluate their offerings and presenting opportunities for entrepreneurs to fill the gap.
We can see multiple opportunities in this sector, such as:
Gig Workers and P2P Models
As per the latest data, India has more than 15 million gig workers, and the nation stands in a promising position to become the world’s gig hub. Even globally, people freelancing full-time grew from 17% in 2014 to 24% in 2019. Amid the pandemic, the number increased even further (9).
It has resulted in the rise of companies, models, and products, such as:
- Collective Benefits: It offers gig workers access to a full range of protections and benefits. It has secured over 13 million USD since February 2020 (10).
- Duuo: A Canada-based on-demand digital brand insurance brand that recently rolled out a new gig liability produced based on the standard rate (11).
- Dinghy: It offers to pay as you go business coverage for freelancers (12).
- Snack: It offers microinsurance policies for Grab drivers, a ride-hailing service in Asia (13).
Bread Funds is another pioneering P2P insurance and self-organizing model based in the Netherlands, which emerged in early 2006 and offers income protection to the self-employed.
VouchForMe is another online platform based in the USk that allows freelancers and entrepreneurs to create and manage their P2P income protection insurance groups. The company charges users a one-time activation fee of about 117 USD and a monthly platform fee of about 6 USD (14).
You can also follow the same without limiting your offering to freelancer insurance. Allow people to self-organize across several niche products, including extreme sports and even motor and bicycle insurance.
Laka, a London-based organized collective instead of a for-profit firm, focuses on offering niche products, especially for cyclists. Since its inception in 2017, Laka has secured about 9.4 million USD (15).
Pandemic-Proofing and Usage-Based Insurance
The pandemic forced the industry to innovate for a new world where deadly global outbreaks are possible.
For instance, airlines have started offering COVID-19 insurance, some even covering quarantine costs and medical expenses (16).
Elite Risk and Spotted Risk have also started offering insurance products for niche markets like the indie film industry, protecting production companies against cast and crew falling sick with the coronavirus during filming (17). Machine Cover, which utilizes multiple nonconventional metrics to address risks, is also innovating in this area. For instance, they have started using traffic data around businesses like restaurants and beauty salons to check if and when a policy should automatically payout (18).
Demand for more flexible solutions and UBI, usage-based insurance options such as these are soaring.
As per a 2020 report from Capgemini, consumer demand for UBI has increased from 35% in 2019 to 51% in 2020 (19). There are expectations that the size of the UBI market would increase 525% from 24 billion USD in 2019 to 126 billion USD in 2027 (20).
There is an opportunity for entrepreneurs to offer niche UBI products such as pay as you drive motor insurance for WFH employees or for specific events that are canceled because of a positive COVID-19 test.
Businesses can also build an insurance marketplace like PolicyBazaar, but with a focus on niche UBI offerings.
DeFi and Blockchain
Self-executing and automatic insurance policies similar to the one’s Machine Cover offers are often enabled by smart contracts and blockchain technology.
Decentralized insurance applications such as Lemonade, Guardtime, and Etherisc will be more commonplace as the adoption of blockchain technology increases.
There is also an opportunity to offer insurance products to blockchain users and businesses. For example, Nexus Mutual offers cover against bugs in smart contract code and crypto wallet cover.
As the DeFi industry continues to grow, more opportunities for niche products will arise.