As the insurance industry enters the last quarter of 2019, the level of investment in the “insurtech” movement is showing no signs of slowing down. If anything, investors are doubling down on their bets that they will back the next insurtech startup to become a “unicorn:” A startup company that reaches a $1 billion investment value.
By the 3rd Quarter of 2019, more insurtech deals than all of 2019
On October 23, 2019, Willis Towers Watson issued its “Quarterly InsurTech Briefing” for the 3rd quarter of 2109. Willis reported that through the first three quarters of 2019, insurtech companies had garnered $4.36 billion in new investments. This $4.36 billion was five percent greater than all the insurtech investments made for all four quarters of 2018.
A three-year-old auto insurer and a two-year-old MGA raise $365 million and $100 million
Among the largest investments in property-casualty focused insurtechs during the third quarter of 2019 went to Root Insurance and Hippo Insurance.
Root Insurance, a three-year-old auto insurer now operating in twenty-nine states, raised $350 million in August 2019. This funding pushed the enterprise value of Root $3.65 billion. Root’s insurtech focuses on using its smartphone app to measure users’ driving behavior, such as braking, speed of turns, driving times, and route consistency. It then uses this data to assess an individual driver’s risk to price their policy accurately.
Hippo Insurance, a two-year-old MGA with underwriting authority from a Swiss Re subsidiary, raised $100 million in July 2019. Hippo focuses on homeowners insurance in twenty states using data-driven pricing using public data sets, including municipal building records to satellite imagery of physical property characteristics. Using real-time underwriting, new customers that qualify receive an accurate quote in under 60 seconds, and premium reduction up to twenty-five percent.
A trend toward business to business insurtech investments seen
Much of the insurtech investment in the property-casualty area has focused on distribution channels primarily in personal lines. E.g., Root in automobile insurance and Hippo in homeowners insurance.
However, Willis’ report did note that in the third quarter, more insurtech investment deals by number, if not by totals involved the financing of companies based on a business-to-business model and not a consumer-to-business model. These companies focus on insurtech technology to streamline the operations of legacy carriers in underwriting, operations, claims processing, customer interactions, and regulatory compliance.
Incumbent carriers will seek insurtech solutions for perceived issues
One factor that may turn insurtech entrepreneurs from attempting to find the technology to disrupt the insurance industry is that the richest reward for most insurtechs may lie in working with established carriers.
Insurtech startups can bring to existing insurers innovative technological solutions that provide better value and functionality in many areas of a carrier’s operations. Correspondingly, insurers offer such insurtechs high-quality customers purchasing high-value solutions. Such a customer base offers these insurtechs that provide such services financial stability and growth opportunities that they might not easily gain otherwise.
Also, in partnering with insurers to improve the easily identified deficiencies in the present operational models of existing insurance, the insurtechs providing successful solutions may find themselves, likely buy-out candidates.
Next week a summary of the September 2019 Report of the Federal Insurance Office on the state of the insurance industry.