Editor's note: The rise of insurance technology (InsurTech) is a game-changing opportunity for insurance innovation, a transformation that will improve insurance-related products and sustain their development. InsurTech investment is moving in step with overall FinTech investment.
Now we need to become familiar with another term: insurance technology (InsurTech). InsurTech belongs to the FinTech category, and its rise is bound to disrupt the traditional insurance industry.
According to a PwC survey, 90% of traditional insurers believe that some of their business will be eroded by FinTech within the next five years, though they concede that FinTech helps reduce costs and differentiate.
A U.S. Treasury Department insurance research report released in September said total insurance assets this year will be set at more than US$8 trillion.
In 2015, the U.S. insurance industry's net premium income was US$1.27 trillion, accounting for 7% of GDP. Of this, 55% of premiums came from life and health insurance, and 45% (about US$519.8 billion) came from auto, home and commercial insurance (all property and casualty categories); of the US$519.8 billion, US$290.6 billion came from property damage coverage.
Some new platforms are also ramping up their InsurTech presence. Manhattan-based U.S. P2P insurance startup Lemonade launched a promotion in New York last month for its mobile app product, providing insurance services to individuals. Reportedly, premiums are as low as US$35 per month for homeowners and just US$5 per month for renters.
Lemonade's founders want to use machines and machine learning to change the traditional insurance broker model. Before Lemonade, few could associate the words "insurance" and "revolution." Lemonade is the world's first P2P insurance company; at the end of 2015 it received US$13 million in seed funding from Sequoia Capital. Sequoia partner Haim Sadger said investing in Lemonade required no thought, because Lemonade is destined to disrupt the insurance industry landscape.
He added: "We bet that Lemonade will not only gain market recognition but further reshape the insurance industry. We shall wait and see."
Lemonade co-founder Schreiber said: "We want to build a down-to-earth insurance company and rid the industry of its bad practices."
Beyond Lemonade, there are also entrants in insurance sub-sectors. In September this year, Bloomberg reported that Metromile, a San Francisco auto insurance company, had raised US$191.5 million in funding from investors including Canada's Intact Financial, China Pacific Insurance, global venture capital firm New Enterprise Associates, First Round Capital, Mitsui, SV Angel, Metromile founder and chairman David Friedberg, the owner of the NBA's Dallas Mavericks, and Shark Tank's Mark Cuban.
The US$191.5 million funding amount was hard for analysts to believe. Metromile CEO Dan Preston said: "The funds will mainly be used to acquire the insurance operating license of insurer Mosaic Insurance and to build an insurance sales platform to be promoted in more countries."
In traditional auto insurance, the premium is fixed regardless of how much one drives, which is clearly unfair to those who drive less. Metromile CEO Dan Preston said: "65% of drivers pay high insurance premiums to subsidize the minority who drive the most. Our current market strategy is to focus on big cities, aiming to build a well-known brand in each city. People choose pay-per-mile car insurance according to their needs; they may use multiple modes of transportation—walking, cycling or even ride-sharing to get to work—and for them this type of coverage makes more sense."
Founded in 2011, Metromile is a pay-per-mile car insurance platform. Metromile is committed to developing an intelligent system that changes the traditional fixed-fee model, automatically calculating premiums based on the distance a user's vehicle travels, so that those who drive less pay less—achieving personalized pricing on the mileage dimension.
Metromile is trying to obtain operating licenses in all 50 U.S. states. Metromile will also cooperate with large insurers such as Geico, Progressive and State Farm. However, Metromile is not currently the only company doing this; other companies also use the pay-per-mile model.
Dan Preston believes Metromile's different model will undoubtedly bring new dynamics to transportation, driverless cars and car sharing—both an opportunity and a challenge for Metromile.
In March this year, international accounting firm PwC released a report stating that insurance innovation is "a golden opportunity." The report's authors explained:
"The rise of InsurTech is a game-changing opportunity for insurance innovation, a transformation that will improve insurance-related products and sustain development. InsurTech investment is moving in step with overall FinTech investment, and as more participants and investors get involved, we expect investment in this area to continue increasing."
PwC's advice to startup InsurTech platforms:
"Think like a disruptor, act like a startup."
Also worth mentioning is Lloyd's of London, the global insurance giant with a history of more than 300 years. Lloyd's is one of the world's largest specialist insurers and reinsurers, known as the aircraft carrier of world insurance. It is not an insurance company but the world's largest insurance trading market, composed of 124 insurance syndicates.
If Lloyd's and its membership structure allow high-net-worth individuals to join syndicates, then this structural change would be an innovation for P2P insurance. Lloyd's chairman John Nelson said in a speech earlier this year that Lloyd's outdated membership structure needs reform.
Nelson also has a favorable view of China's insurance market. In March 2015, Nelson visited Beijing and said that while the global insurance market currently faces challenges and premium rates are falling rapidly, China will remain the world's most important long-term growth insurance market, with huge potential in the specialty insurance market.
Canaan Partners, a venture capital firm in the FinTech space, has also identified InsurTech as its next major investment opportunity. The firm believes the era of insurance brokers is outdated and has long lost its appeal to insurance buyers.
"The biggest opportunity for InsurTech is not simply to digitize existing insurance products, but to fundamentally change the product or the underwriting process, greatly improving the customer experience."
The next few years will be important for InsurTech development. How to provide low premiums while guaranteeing quality service is a question these platforms should think about. As for who will be left standing when this tide recedes, to quote Sequoia partner Haim Sadger from earlier: we shall wait and see.
Source: Jinrongzhijia.com 2016-10-30