InsurTech - Is It Making A Difference?
Thanks to a thought provoking post from Bryan Falchuk , Bryan pointed out that most of the insurtechs formed over the past few years focused on P&C as compared to life insurance. That caused me to do a little research to see if we can measure whether or not insurtech investment has made any impact on the insurance industry.
This is by far not a comprehensive study, but I pulled together some data from iii, St Louis Fed, and CB Insights and created a graph.
Since InsurTech investment started growing in 2015, P&C premiums have gained ground relative to GDP while life and health has lost.
Life v Health Insurance
I used life and health premiums combined in the data above. At the time of this writing, I did not have comprehensive enough data to compare life to GDP. A general finding is that health has taken a larger share of combined life & health premiums total over time. This means life has lost even more ground against GDP than the graph would indicate.
Making An Impact
While the data shows correlation, that does not prove causation. A deeper study on this subject might look to better understand the root causes for P&C premium growth. Possible causes:
Recommended by LinkedIn
Is There Opportunity for Life-Focused InsurTech?
Life insurance is known as a product to be sold, not bought. With that said, as Millennials are starting to grow families, buy houses, and take on growing businesses and careers, they will start to better appreciate the need to provide financial protection for their families. It just may be a good time to focus on expanding life insurance, but it will need to be done differently. Millennials have different buying habits. This is not news.
Personal lines P&C has been investing heavily in improving the customer digital experience and are better positioned to address the needs of Millennials today than they were 5 years ago.
The life insurance industry can now decide to be a fast follower from P&C path blazers, or they can look to leapfrog. To leapfrog, it's time to start looking at the Zillennials - the newest group entering the workforce. Zillennials are the last 2-3 years of Millenial generation combined with the first 2-3 years of Gen Z. There is a difference. This is the generation who does not know life with internet, social media, and mobile phones. How does insurance need to evolve to address their needs?
What About The Future of InsurTech?
I've always been bad at crystal ball predictions. The real question here is "Can insurtech make a difference in the future?" The answer to this question has many angles to evaluate, but I will close with this - insurance innovation has seen significant investment since 2015, both corporate and entrepreneurial. Premium increases or not, the world of insurance is spinning a little faster now, and that is huge! Consider this:
If insurance were a country, it would have the 3rd largest GDP in the world.
Now is the time to push the pedal a little harder, to move a little faster. If we do that, we will make a difference.
What Is Your Opinion?
Please share your thoughts in the comments below. Others are curious, too.
Stacey - Looking forward to seeing a new version of this in 2023, with the data for 2021 and 2022 included. Of course, as a #InsurTech #AI #PropertyInsurance #wildfire #RiskAssessment tool, Athena is very pleased to see the upward trend in P&C ... but (from a #startup perspective, long sigh) investment types fall in and out of favor quickly, so we look forward to you or #InsurTechHartford posting an updated chart in the #NewYear.
I believe insurtech both P&C and Life are modernizing but not truly innovating. Most of the progress that has been made is automated underwriting, using data integrations/enrichments in novel ways for pricing/cost savings, distributions especially via APIs and of course relationships. Kyle Varrone, CFA and I were just discussing the frequency of P&C companies coming to the scene but less so on the life side especially in the past year which are either investible OR at a price point where it makes sense to be acquired. I think there could be an interesting play with data enrichment/integration for group life. Some noteworthy life insurance insurtechs on the scene: Pendella-Highly personalized quotes Walnut Insurance- Offering unique benefits to policy holders Dundas Life- Doing unique things with lead generation for life insurance Amplify Life Insurance- Building wealth through life insurance Ethos- D2C Life insurance focused on fairness & transparency
Global wealth in 2022- $361 Tn- backstopped by insurance Global debt in 2022- $253 Tn- backstopped by insurance (in most part doesn't exist without insurance) Global insurance premiums- approx $6 Tn Insurtech-oriented deals over the past five years- approx $10 Bn? Insurance innovation even at its height was a tiny fraction of insurance as a whole, and even smaller part of global capital. Yet- as insurance is a vital part of any economy insurance innovation is a key driver of insurance discussion, and will remain so. Now- can that discussion and funding allocation be better channeled to the 3.5 billion global residents in underserved markets? Excellent discussion piece, Stacey Brown, MBA
Interesting questions, Stacey. The sheer size of the P&C industry relative to life insurance has supported more startups in this sector. Also, the immense focus in personal lines on client retention and expense reduction has naturally aligned with the opportunities that machine learning and data analytics present. I have seen tremendous innovation in the life and retirement space over the last several years. However, the startups on the P&C side have been able to grow revenue much faster. I do think any startup in the insurance space should carefully reexamine their funding model to allow more pivots before going raising large rounds or going public. Driving change in this business takes a long time and it isn't a straight road that outside investors will typically understand.
Nice article, Stacey and impressed by your commitment to the topic at 1am on a Saturday 😀 - Your analysis on whether insurtech is making a difference only relates to premium growth. I believe roughly 50% of insurtech investment went into distribution, hence another 50% is solving other value chain issues not directly related to premium growth. - Building on the point above, if you really wanted to see the impact of insurtech towards premium growth, I would encourage you to look at less mature insurance/emerging markets. - Re: the life and health point, I believe health insurance premiums in US would have grown over the last number of years due to ACA/Obamacare and the individual mandate (regardless of any insurtech). - On the life side, carriers have been focused on data/accelerated underwriting to make the underwriting process easier (i.e. no bloods/fluids). This hasn't changed much in way of increased premium. Life insurtechs that were D2C are all moving to agency. Millenials aren't getting married/buying homes as much so whether they 'appreciate' life insurance remains to be seen!