Do you want insurance with that? Insurance will be embedded in every financial & retail transaction
Since no one loves shopping for it, we will see more insurance being sold as part of another transaction, where the user has a high intention to buy. Embedded has been a buzzword in fintech for several years, best illustrated by Buy Now Pay Later (BNPL) players like Affirm and Klarna. Embedded insurance started with travel insurance and extended warranties sold at point of sale, like Square Trade and Assurion. Branch Insurance now sells home and auto as part of the mortgage process and Matic is embedding with mortgage servicers. 2021 will bring opportunities to embed insurance into transactions, with the end goal being delivering a seamless experience of product plus protection.
2021 will be the year for Plaid for Insurance
The original Plaid provides infrastructure to connect banks to financial apps like Venmo, which need access to a consumer’s bank account, so the user can take money from their bank and send it via Venmo, to the recipient’s bank. The explosion of financial apps drove dramatic growth at Plaid. Yes, the Department of Justice has sued to block the acquisition of Plaid by Visa. Worst case: Plaid is forced to go public at a valuation way above the $5.3 billion offered by Visa. In 2020, at least seven “Plaid for Human Resources” were funded. Data connections and enablement are critical across life, health, and P&C insurance. In 2021, we will only see more pitches for Plaid for Insurance, and some of those pitches will be winners.
The robotic uprising: Automation will take over routine processes & improve customer experience
Automation will be used to support and empower the humans who are still in the process, starting with claims. Startups will accelerate the sale of automation to incumbent insurers, leading to improved customer satisfaction. Who wants to call their insurer to check whether the policy includes glass coverage? Consumers prefer to use their cell phones to text or speak, submit the claim, and schedule the windshield replacement service. To show how quickly this change is happening: In 2019, State Farm ran ads mocking Lemonade’s bot; in 2020, State Farm led a venture investment in Replicant, which provides Voice AI to support human call centers. Faster, better customer service, which is cheaper for the carrier: automation is a win-win with unstoppable momentum.
Playing for keeps: Deeper partnerships between iIncumbents & startups, accelerated by the pandemic
At the beginning of the insurtech phenomenon, way back in 2015, insurers responded by creating innovation groups and adding innovation KPIs to employee reviews. Following the law of unintended consequences, the result was incumbents starting a lot of experiments and proofs of concepts with startups. It was frustrating all around, and many of those experiments failed. Now, insurers have moved the decision making back to the operating teams, and those teams are choosing partners to last. The pandemic has focused the efforts of incumbents. That focus will only get stronger going forward, as incumbents understand that they are dependent on startups to deliver the organization’s goals.
More startups will go full stack
Insurtechs will continue to take off their MGA training wheels. Following the high profile IPOs of Lemonade and Root, 2021 will see full stack carriers multiply. While the Managing General Agent model has the advantage of being capital light and enables a startup to get to market quickly, structuring as full stack gives the startup maximum control over its product and customer experience. Capital is available to build a carrier, coming from multiple sources, as evidenced by sizeable fundraises by Pie, Kin, Hippo, and several life insurance startups.
SME market will finally get the solutions it needs
At the end of 2019, I swore it was the last time I would predict the success of insurance solutions for SME. But there are finally some serious signs of success and traction in this market. Embroker, Vouch and Next Insurance continue to grow. And Bold Penguin has integrated with the flow of existing insurers, delivering value where incumbents could not. Finally, SME will have some good choices in protecting their businesses, thanks to persistent insurtechs!
Achieving scale with coretech
Incumbents are yearning for alternatives to existing core systems, with an average age over 15 years, antiquated programming languages and vendor implementations measured in years. Two trends are providing hope here: no code/ low code and coretech, delivering cloud-native core capabilities. The challenges of 2020 encouraged more incumbents and insurers to start limited implementations of no code and coretech. In 2021, we will start seeing a few insurers adopt these new approaches at scale.
Cyber insurance will lead the market in delivering dynamic risk protection
There have been many startups in cyber insurance, covering one of the existential threats for companies. Some startups have struggled by aiming at companies that are too small to afford the premium; others have chosen the wrong threat assessment partner and taken unwarranted risk. The whole market continues innovating and growing, which is good news, because cyber threats are also increasing. By combining real time threat assessment with insurance, startups cyber insurers will deliver dynamic risk protection, enabling their customers to reduce risks as soon as they are identified. That may be a model for future real-time risk coverage in other business lines.
Parametric coverage will surge
Insurtechs will tackle claims costs and delays by eliminating the claims process, via parametric solutions. Defining a loss by reference to a standard objective index like rainfall in a specific geography is no longer reserved for markets like drought risk in developing countries. Now, insurtechs are delivering parametric cover for a range of risks, including earthquake, wind and cyber outages in developed countries. One driver is the user experience, where the insured no longer needs to trust the insurer to pay an indemnity claim promptly. Look for more kinds of risks to be covered by parametric solutions in 2021.
Record support for insurtechs at all stages
The pace of both early and later stage investments in insurtechs proves that investors remain enthusiastic about the market. Valuable business models built in Fintech will serve as examples to its younger sibling, Insurtech. There is still plenty of insurtech innovation to go around, and abundant capital to support it. We will see new launches and a record amount of capital raised across insurtech in 2021.
More big exits
The public market in 2020 has been the story of hot money looking for a home, and eager to pay up for future growth. Insurtech carriers Lemonade and Root went public via IPO, and Hippo is expected to become public either via IPO or SPAC. Metromile became the first insurtech carrier to be acquired by a SPAC. These successful exits will drive continued investment in insurtechs that are taking big swings, and we will see more public exits.We can also expect more insurtechs buying insurtechs, like Bold Penguin’s acquisition of Risk Genius and Next Insurance’s purchase of Jupiter Labs. The target will be filling a specific strategic need for the acquirer and buying is faster than building. In addition to going public, insurtechs will find other options, including strategic exits. Prudential’s 2019 acquisition of Assurance IQ created a lot of hope, but insurers have not yet shown a broad willingness to pay startup valuations. Brokers, always ready to spot the main chance, have made a couple acquisitions, and can be counted on to find deals that deliver focused value to their existing clients. Verisk, Duck Creek, Guidewire all have public currency and at least the latter two have created long lists of partnerships with startups. There will be multiple insurtech exits in 2021, ranging from additive deals between insurtechs all the way to more IPOs.
Source: Martha Notaras Partner, XL Innovate, Digital Insurance
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