Insurtech conversations are evolving from “Disruption to Tamer Notions of Efficiency and Incremental Innovation”
The Insurtech Revolution has taken a decidedly sober turn is the biggest take-away from the latest Quarterly Insurtech Briefing by Willis Towers Watson and CB Insights. While the report emphasizes that “the party is not over”, and that investment in insurtech is still at an all-time high, the consulting firm noted that incumbents within the insurance industry have made it clear that they have no intention of handing over their business to the “start-ups and upstarts”.[pullquote]$697 million of InsurTech funding in Q4 rounded off 2017 at a total of $2.3 billion, a 36% increase from $1.7 billion recorded in 2016 and the second highest total for any year to date.[/pullquote]
Rafal Walkiewicz, CEO of Willis Towers Watson Securities said: “Incumbents sent a clear message to potential disruptive outsiders: by investing heavily in start-ups and technology, (re)insurance companies appear to have assumed a semblance of control over the InsurTech revolution. During the year, conversations about disruption of the existing value chain evolved towards an efficiency-driven search for incremental innovation. However, technology revolutions rarely result in redistribution of power among incumbents. It can be argued that incumbents’ collective response to InsurTech hype has diminished their ability to recognize true disruption.”
Recent research from McKinsey & Company, included in the report, further bolsters that position, with 61% of InsurTech companies aim “…to enable the value chain, while 30% are attempting to disintermediate incumbents from customers and just 9% are targeting full scale value chain disruption.”
The following two-minute video features Rafal Walkiewicz, global CEO of Willis Towers Watson Securities, discusses the major points of the latest quarterly briefing as well as his insights on InsurTech activity in 2017.
Insurtech Investments in the Fourth Quarter of 2017
There was a 36% year-over-year increase in insurtech funding in 2017, up from the $1.7 billion invested in 2016 according to the latest data. This marks the second highest investment total for any year to date.
The following are some additional data points from the report:
- Activity reaches near record level with InsurTech funding volume totaling $697 million in Q4 2017; This is a 123% increase from $312 million in Q3 2017 and a 157% increase year-over-year from $271 million in Q4 2016.
- 53 total transactions in Q4 2017 represents second most transactions completed in any quarter to date;
- P&C funding volume increased 175% from Q3 2017 and
187% year-over-year from Q4 2016; - 45 P&C transactions in Q4 2017 represents 80% increase from 25 P&C transactions in Q3 2017 and 67% increase year-over-year from 27 P&C transactions in Q4 2016.
- This was the third highest funding volume recorded in any quarter to date with seven companies receiving $30+ million in investments.
- Lemonade raised the most amount of money closing a $120 million Series C round in December 2017.
- Incumbents and Re/insurers drove the majority of the investments in Q4, with 35 private technology investments in Q4, the most recorded in any quarter to date.
- Back-End Administration and Processing Applications Emerged this Quarter as a major area of focus for investment.
- According to data provided in the report, 64% of investment rounds closed in Q4 2017 were for companies focused on front-end processes (product
& distribution); - The remaining 36% of investment rounds closed during the quarter were for companies focused on back-end processes (business process enhancement, data & analytics and claims management).
- According to data provided in the report, 64% of investment rounds closed in Q4 2017 were for companies focused on front-end processes (product
Many the re/insurers feel insurtech innovation is “ad hoc”
The quarterly briefing also includes the results from a re/insurance survey of almost 600 (re)insurance and investment professionals conducted on the top of innovation. The majority of respondents, approximately 75%, felt their company is “moderately” to “extremely” at-risk of disruption, even as 72% of company innovation resources, on average, are devoted to incremental technologies (instead of disruptive or radical ones).
Interestingly, almost half of those survey though, characterized their own company’s innovation philosophy as “ad-hoc”, “…meaning their company is neither explicitly a first mover or a fast follower.”
In commenting on the survey results, Alice Underwood, global head of Insurance Consulting and Technology, Willis Towers Watson added: “(Re)insurers are evaluating the cost associated with early adoption of new technology; this investment can yield great reputational and financial benefits if handled well, but companies that position themselves as fast followers can reap a fair amount of benefit with relatively less risk. However, companies that wait too long may find they can’t make up lost ground once anti-selection and other competitive pressures set in.”
Boston-based Goji a featured company in this quarter’s briefing
In an attempt to get a handle on the Insurtech Universe, the quarterly report also has segmented the top 100 insurtech companies it has been tracking over the past year. The report groups the companies into four major areas of development based on each of the companies core focuses:
- Product & Distribution;
- Business Process Enhancement;
- Data & Analytics; and
- Claims Management.
In taking a look at these segments, the report highlights various companies in each of these sectors. For this quarter, Boston-based Goji was featured in an in-depth profile for the Product & Distribution section of the report.
Ranked number 10 on the list of the top Product & Distribution insurtech start-ups, the company has raised an impressive $109.9 millions in total funding with company investors including Coffin Capital & Ventures, Hudson Structured, Five Elms Capital, Thayer Street Partners, Village Ventures as well as other undisclosed investors.
As many in the Massachusetts industry know, the company has gone through various evolutions since its beginnings as Consumer United back in 2007. In 2017, the company announced the appointment of a new CEO, Peter Breitstone.
For those interested, both Mr. Breitstone and Goji’s Executive Chairman, Matt Coffin, were interviewed and asked to discuss the advantages of Goji’s hybrid distribution model as well as the companies strategies going forward.
