NextlifeBook Head of Marketing Yan Aik Teck deep dives into InsurTech market trends and how the digital afterlife services industry can leverage these post pandemic.
By Yan Aik Teck
InsurTech companies are leveraging technological and cultural shifts to expand regionally and investors interest in InsurTech are at an all-time high. Similarly, the digital afterlife industry is tracking the same market changes to gain funding amidst COVID-19 outbreak worldwide.
To help understand InsurTech, McKinsey & Co Knowledge Consultant Valentino Ricciardi (2018) defines InsurTech as “the ecosystem of focused, innovation-based companies (often startups) that generate value for clients and/or insurance incumbents by disrupting or solving problems across the insurance value chain through the engagement of technology by following a lean and user-centric approach”.
InsurTech has been around for 10 years using technological innovations to improve the insurance model (Hargrave, 2019). However, none turned a profit till date (CB Insights, 2020). Given the current COVID-19 climate, more companies will go under and those with sustainable business models will emerge victorious.
The growth of InsurTech is projected to be 41% annually between 2019 and 2023 and show no signs of slowing down (Hargrave, 2019). Investments continue to be made in the InsurTech space. However, funding within the Insurtech space differs. There is more funding in early stages than late (CB Insights, 2020) which means more opportunities for late stage investors.
More incumbents and InsurTech are likely to collaborate and provide solutions to emerging markets. Incumbents need the help of InsurTech as they are more agile and can leverage on AI and data analytics while incumbents struggle to incorporate the latest technology into their legacy systems. On the other hand, InsurTech needs to leverage on incumbents expertise to navigate regulations, even if regulations are more relaxed in Asia (Devanesan, 2020) — where Insurtech can make a foothold.
With widespread technological change in the landscape, such as the increased use of drones and self-driving vehicles, InsurTech is positioned to take advantage of cultural shifts and mitigate risks for consumers and businesses alike.
There are three main ways that Insurtech is changing the insurance business model — more competitive pricing for consumers, more personalized insurance products, and improved efficiency in operations.
Even though the US and Europe had a head start 10 years ago, Asia is seeing higher growth traction (CB Insights, 2020). This high growth is enabled by fewer regulatory controls and collaboration with other tech startups to grow in the B2B2C market in the region. For example, PasarPolis, an Indonesian InsurTech, integrated with GET and Go-Viet to provide travel and e-commerce delivery insurance (Devanesan, 2020). Moreover, Insurtech should explore expanding into South-East Asia as the region has favourable factors — high digital penetration, a relatively young population and a fast-growing middle class.
The relationship between incumbents and InsurTech are not necessarily competitive. InsurTech needs to leverage incumbents existing networks if they want to expand overseas. Some InsurTech firms are insurance enablers, where they enable incumbents to digitize their businesses. These enablers are positioned to expand globally to different markets that have large, established insurance leaders. One such expansion into Latin America market is made possible by the partnership between omni:us and Rokk3r (Hurst, 2020).
Furthermore, InsurTech can look into strategic partnerships with air travel providers, ecommerce or automobile as a way to expand to other regions. For example, LifeMiles, an air travel loyalty program provider, partnered with insurtech startup novae to provide users a unique travel experience (IBS Intelligence, 2020).
Big data and IoT wearables
InsurTech improves the speed and accuracy of underwriting. As compared to traditional actuaries, big data are able to provide more accurate risk assessment of the customers because they are able to analyze granular data sets such as how many steps they took each day and how much water they drank (CB Insights, 2020). However, big data is not replacing actuarial science. Rather, it is used in conjunction to provide the most accurate risk assessment of the individual and startups are in a good position to leverage on the extensive experience of incumbents.
Other than risk profiling, insurance plans can be further customized by gathering data through IoT wearables such as Fitbit or Apple Watch. Customers are rewarded with lower premiums based on their activity level and their plans can be adjusted accordingly (CB Insights, 2020). This provides value to both user and insurer — improved users health and cost savings to insurers as less claims are made.
With the increased use of personal data, Insurtech runs the risks of privacy concerns and social discrimination. In most societies, the implied meaning of fairness is to have products priced the same for everyone. Hence, it is novel to accept this new form of fairness of using discriminatory surveillance methods to price insurance products (Mcfall & Moor, 2018). Furthermore, Insurtech needs to be mindful of how they communicate the data collection process to the end users as privacy concerns are at an all-time high.
Increased usage of telematics also brought about new challenges in terms of responsibility. For example, if the telematics failed to detect a drunk driver and an accident happened, determining who is responsible is not as straightforward. Regulators need to adapt to this new era and make relevant laws that protect the rights of the users without hampering the speed of product innovation (Marano & Nossia, 2020). For example, in the European Union, the Insurance Distribution Directive can be amended, based on the principle of technological neutrality, to accommodate for changes in the insurance industry brought upon by Insurtech (Marano, 2019).
With the help of AI, claims can be automated and analyzed quickly. Customer experience can also be transformed when AI is deployed to build a more detailed customer profile. When used in call centers to analyze call volumes and other data, an accurate profile of a customer can be created to reduce wait times and appoint the most qualified staff to attend to them (CB Insights, 2020).
Furthermore, AI can pay claims at an unprecedented speed. For instance, Lemonade paid a claim in 3 seconds, all without any paperwork (High, 2020). Such feats can only be performed by analyzing large datasets and running anti-fraud algorithms that only InsurTech are capable of.
Funding in different sectors
There are two main categories of InsurTech startups — disruptors and enablers. Disruptors are digital insurers and comparison marketplaces while enablers are companies that help improve operational efficiency of incumbents. Most funding, about 75%, went into disruptors while the rest are left for the enablers (CB Insights, 2020).
Within the disruptors, property and casualty (P&C) InsurTech gets 80% of the early-stage funding as compared with life and health InsurTech in Q1 2020. This may be a result of COVID-19 where VCs are looking at P&C as a better business model which has lots of potential strategic partnerships opportunities (CB Insights, 2020).
For example, a direct insurer Digit, partnered with auto dealers and ecommerce marketplaces to distribute policies for auto and electronics for consumers at the start of their customer journey (Littlejohns, 2019). Furthermore, for P&C InsurTech, those that improve claim management processes gain significant funding (CB Insights, 2020).
Funding in different stages
Most startups are still getting substantial funding at the aggregate level. However, most funding is in early stages (CB Insights, 2020). For example, Qoala, a startup that wants to make filing insurance claims as simple as ordering a pizza, secured a USD 13.5 million series A funding (Yu, 2020).
The lack of late stage funding signals that VC firms are increasingly risk averse and want to support proven businesses instead of chasing speculative exits. Smaller investments are funneled into a much wider portfolio as compared to industry investors that invest in later deals with concentrated larger investments (CB Insights, 2020). This widening gap between series A and series B will have long term implications for InsurTech at the growth stage where they will see their valuation forced down or plateau.
Funding in different regions
About 57% of funding went into U.S. startups, indicating that non-core InsurTech markets are losing investment funding. China and Asia Pacific saw a total of 20-percentage-point drop of investment funding from Q4 2019 (CB Insights, 2020).
According to CB Insights (2020), “Almost USD 20 billion has been invested globally into InsurTech over the past 10 years.” In the near term, this investment pace is likely to continue but we don’t know what’s in stored in the long-term as COVID-19 continues to impact the world’s economies. Winners will likely be acquired or not requiring funding while there will be less unicorns because of inadequate market share.
Even though the U.S. leads the way in InsurTech funding, other countries such as the U.K, China, India, Germany and France are catching up (CB Insights, 2020). Especially for China and India, where they are able to join forces with a variety of businesses to bring the best value to the everyday consumer.
Regardless of regions, a long sales cycle coupled with high barriers to entry means VCs’ role is vital in the InsurTech space, giving them expertise and time to market and scale effectively.
COVID-19 and funding
At the onset of the outbreak, funding to Insurtech has decreased by more than 50%. However, in Q1, a substantial amount of USD 912 billion was raised (Smith, 2020). Total number of deals increased as compared to Q4 2019 and most funding is pouring into early-stage InsurTech firms that focus on policy distribution (CB Insights, 2020). We cannot tell what long-term impact COVID-19 might have on the global InsurTech community as the pandemic is still in its early stage.
Drones, self-driving cars
Technology has disrupted whole industries such as agriculture and transport. The agritech industry is estimated to be worth $22 billion by 2020 (MarketsandMarkets, 2020). Drones, vehicle telematics, AI and data analytics are the main technology that transform the agritech industry (Research and Markets, 2019). InsurTech can enter the agritech industry by mitigating a wide range of risks posed by the usage of these technologies. For example, InsurTech can cover farmers that are exposed to property and liability risks because of the widespread use of drones (Ruppel, 2020).
Telematics sensors are becoming cheaper and more vehicles are installed with it. The data harvested from the telematics helps InsurTech companies assess risks more accurately and customize their offerings based on usage and driving conditions (Marafie et al., 2018). As these data are real-time, InsurTech are able to modify their pricing structure accordingly. For example, individuals with infrequent car usage can be insured with a pay-per-mile model.
Other than product redesign, telematics data can also be used to prevent fraud in the event that a claim is made. However, consumers are happy with the current state of auto-insurance — low interaction and simple.
Furthermore, privacy concerns are at an all-time high. Therefore, any product innovation in auto-insurance must have significant benefits if they are required to have greater interaction (CB Insights, 2020).
Distribution of auto-insurance will be affected by the decrease of car ownership due to the shift towards a sharing economy. Instead of individual auto-insurance ownership, policies may be centrally managed by owners of fleets. This is an opportunity for InsurTech players that are able to interpret autonomous vehicle and fleet data and translate them into better pricing and convenient claims management (Rubini, 2018).
One common use of blockchain technology is to verify transactions as adopted in the cryptocurrency industry. However, blockchain can also be used to verify identities and smart contracts. Applying blockchain to InsurTech improves the underwriting process as Know-Your-Customer and identity checking are improved. Fraud can be prevented as it will be impossible to make multiple claims for the same incident (Rubini, 2018).
Furthermore, sharing of health and financial transactions over blockchain improves the customer onboarding process as the insurer can obtain these information without having customers filling out any forms (Yan et al., 2018). Combining external data such as physical activity level, real-time adjustments can be made to pricing and coverage thereby reducing insurance product life cycle.
Since blockchain are distributed over a network of computers worldwide, InsurTech companies adopting it are not restricted by geography. This can be useful in microinsurance within emerging markets such as crop insurance for farmers (Lorenz et al., 2016). In the event of bad weather, claims can be paid automatically without manually checking farm conditions. Other than niche insurance, blockchain can also work for vehicle insurance as payments can be paid immediately upon vehicle damage claims (Lynn, et al. 2019) without having the need to check the damage of the car.
With the cultural shift into gig economy and environmental sustainability, InsurTech is positioned to create new insurance subtypes. For example, InsurTech companies have the power to leverage on algorithms — bypassing traditional underwriting processes — to calculate risk and create flexible, pay-as-you-go insurance for gig economy workers (Cartago, 2020) and environmental enthusiasts that favors car-pooling over car ownership.
An example of Insurtech that provides financial services to the gig economy workers is Buckle. Founded in 2017 and based in the US, Buckle provides both personal and commercial insurance coverage to rideshare drivers of transportation network companies such as Lyft and Uber (CB Insights, 2020).
Fueled by these technological and cultural shifts, a greater percentage of InsurTech enters the commercial lines space. By providing service to transport network companies, ecommerce and air travel companies, Insurtech companies are able to have a sustainable and long-term business (CB Insights, 2020).
Insurtech is in a good position to help gig economy workers put out of work by the pandemic. Many gig economy workers are considering canceling their professional indemnity policies because they cannot afford to pay the premiums. However, this may cause financial ruin in the long term because claims can’t be made without the policy in place. InsurTech company Dinghy offered to keep the cover active for two months, for free — to protect these gig economy workers (Lucas, 2020).
For established players, integrating InsurTech can be a boon to their business as three stakeholders benefit — employees, distribution partners, and customers. Employees and distribution partners benefit from having the ability to deliver a great customer experience which in turn benefit their customers leading to a positively reinforced cycle. By outsourcing specific functions to InsurTech, incumbents can save costs and gain a foothold in the digital future (CB Insights, 2020).
Insurance incumbents may not know what is coming based on what Anthemis Principal Matthew Jones observed at the Consumers Electronics Show (CB Insights, 2020)-
“The other thing I have learned is that I’m not sure that the industry knows what is coming. You could probably count the number of insurers and reinsurers in attendance on two hands. Don’t get me wrong, insurers and reinsurers have a lot on their plate, dealing with the challenges of today. However, if engagement with emerging tech at CES is an indicator, it means one of two things: Either the industry is going to successfully resist the effect of technology for a while to come, or executives are in for one big surprise,” says Jones.
Even though InsurTech can be seen as disrupting incumbents, most are ready to collaborate to deliver the best value to the customers. Increasingly, InsurTech companies are seeking partnerships with incumbents to enter the commercial space (Kneeland & Sadarangani, 2020).
Other than traditional strategic partnerships possibilities, incumbents may also explore licensing or global risk transfer relationships to InsurTech.
It is unlikely for InsurTech to standalone without any collaborative relationships to survive. Mergers and acquisitions should happen more frequently in the future as the market reaches an equilibrium to determine the true costs of the now mostly overpriced InsurTech startups (CB Insights, 2020).
Based on a survey conducted by Bruce et al. (2018), most insurers lack an understanding how InsurTech affects their risk management framework. Hence, it is important for them to do their due diligence and study the InsurTech landscape extensively before making any investments or collaboration attempts.
COVID-19 and InsurTech
During this pandemic, some countries such as the US lowered their interest rate to zero percent. Most insurance business models are to take in the premiums and lend it out for an interest. As a result, the impact on large insurers is great, since some insurance policies offer guaranteed rates of interest. In response, some insurers even pull out of whole markets and change their contract terms, which further hurt the industry (Jones, 2020)
This spells opportunities for InsurTech as consumers are demanding last-minute insurance policies and ditching incumbents that provide subpar experience during this pandemic crisis. With lockdowns implemented worldwide, consumers are looking to buy policies, as fast as they could without leaving their homes. InsurTech, in particular the digital insurers, are more agile than incumbents, and can see a surge in revenue during this period (CB Insights, 2020).
The impact of COVID-19 to InsurTech depends on the duration of the virus and it does not affect the industry equally.
For full-stack insurers like Root, Lemonade, and Next; they are in a good position to grow when the virus is gone. These digital-first companies can take advantage of the consumer trend towards higher digital engagement than traditional media engagement. However, in the short term, there are fewer people buying new cars or buying homes which means less insurance bought (Breading, 2020).
Digital distribution InsurTech and comparison platforms are positioned to thrive as lockdowns create more opportunities for consumers to engage their brands digitally. However, same as full-stack insurers, they will also be affected by less car and property purchases (Breading, 2020).
For InsurTech in the operations side of things, such as underwriting and claims management, their future is not so straightforward. On the up side, consumers’ expectation of interacting with insurers digitally through mobile, DIY, self-servicing and virtual channels can often be met. However, marketing and sales will be affected on the B2B side without meeting insurers face to face as insurers demand a physical presence to sign contracts, conduct pilot tests and proofs of concepts (Breading, 2020).
Funding is also affected as investors are being more prudent to save companies in their portfolio rather than allocating resources for new ventures. In the near term, some InsurTech may fail as they run out of cash and M&A may accelerate as acquirers are looking out for bargains. If the pandemic persists, InsurTech will be heading to a very uncertain future, with funding being one of the most disruptive factors to the industry (Breading, 2020).
More and more different types of InsurTech are emerging as regulations are starting to be relaxed and virtual insurance licenses are issued. In Hong Kong, InsurTech are entering the pet industry (Shu, 2020).
Despite the pandemic, 12 InsurTech joins Lloyds of London accelerator program called Lloyds Lab (Faridi, 2020a). Also, early stage startups such as Sprout.AI are still getting funding (Faridi, 2020b).
Insurtech are having an advantage in this COVID-19 crisis as they don’t require agents nor brokers. Daily business can be conducted as payments as usual systems are completely built on digital processes. Coupled with the increase in awareness of insurance products, InsurTech are ready for the next phase of growth, provided that they have a sound and sustainable business model (CB Insights, 2020).
Modern life is dependent on a social safety net such as continued payment of wages despite current economic climate and threats from COVID-19. InsurTech, not the incumbents, are more than ready to take up the mandate and help commercial and retail customers alike (Wallace, 2020).
With brand loyalty at an all time low (Kusek, 2020), it is harder for brands to appeal to customer desires. InsurTech needs to continue to reinvent themselves and define what success means to them instead of just improving profit margins. Consumers need to be able to relate to InsurTech to have a buy in.
To navigate COVID-19 and emerge stronger, businesses need to have a robust continuity plan, tweak their business models accordingly, and focus on serving their customers in these uncertain times. According to the CEO of GetSafe (Wallace, 2020), “The pandemic will weed out those companies that do not have a sustainable business model… Insurtechs generally can benefit from crises in general as both businesses and consumers become more aware of safety and protection.”
After Insurtech — Digital Afterlife Services
The next necessary step forward from Insurtech is the afterlife services industry. As people become more affluent, we start thinking about living a legacy behind after setting aside inheritance.
Just like InsurTech, the afterlife industry is transformed by technology especially with the rise of social media. People are aware that photos they upload on social media platforms such as Facebook may outlive them and they are unsure of how to deal with them — whether they want to be memorialized digitally (Greenspan, 2019). That’s where digital afterlife services comes in.
The opportunities and challenges discussed so far about InsurTech mostly applies to digital afterlife as well. One notable similarity is how COVID-19 increases consumers’ awareness about the fragility of life which increases the awareness for digital afterlife as well.
Evidently, Google Trends for the keyword “digital afterlife” have increased sharply since March 2020. However, unlike insurance, leaving a digital time capsule is not a common practice for many. This means that we will need to change public perception about leaving digital time capsules through educational marketing.
For example, a Wiconsin couple was unable to cope with the grief of their son’s suicide and want to find answers via his Facebook account (Arnold, 2013). This began a series of courtroom visits to determine if they have the right to access their son’s Facebook account. On top of grieving the death of their son, they have to deal with emotional trauma from visiting courtrooms. Here’s how digital afterlife services can come in by educating the public the importance of preparing your digital afterlife without having to burden your loved ones with it.
Many digital afterlife startups were formed to address different needs within the industry. One gap we noticed is there’s no one stop directory where consumers can be educated about the importance of managing both their digital and physical afterlife.
At NextLifeBook, we help users with creating their digital time capsule and send it to intended recipients at scheduled times. Also, we are a one-stop directory for all things related to afterlife services, including will writing and pet memorial. Our patent-pending technology enables us to deliver messages and gifts to our users’ loved ones at a very low price.
In the B2B space, our product fits in with existing afterlife services companies and collaboration with them is vital to bring the best value to the consumers. Other partnership possibilities consist of giving a NextLifeBook account to employees as part of their employment package, similar to company health benefits. Also, we can collaborate with government cyber wellness campaigns to educate the public on the importance of digital afterlife services.
As seen from the Wiconsin example, it is a social good for people to manage their digital afterlife properly. Hence, the government should take active steps to educate the public as well. This can be done through formal educational channels and setting up agencies.
Furthermore, Digital Afterlife Services should find opportunities to collaborate with businesses outside the afterlife industry to remove the friction of using their services. There is no clear industry leader in Digital Afterlife as it is still in its nascent stage. In order for Digital Afterlife Services to thrive, collaborating with government and businesses and educating the public is the next step forward.
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