InsurTech/M&A/Finance💰/Collaboration
The Rise and Pivot of InsurTechs
The rapid pace of digitalization has made one thing clear: When technological developments enhance one sector, consumers expect to see those upgraded capabilities applied to other industries as well.
The insurance industry is no exception.
Indeed, traditional insurance carriers have been feeling more and more pressure to modernize to satisfy growing consumer expectations. Most, however, were slow on the draw, essentially creating the perfect window of opportunity for new players–InsurTechs–to shake up the industry through various means of innovation like AI, machine learning, telematics, automation, and many more. These distinctive tech stacks became their unique selling point, enabling them to stand out from the competition and meet customers’ expectations better than their legacy counterparts.
Though InsurTechs continue to proliferate, anchoring business models solely on product differentiation has become an insufficient way to spark significant growth. In order to sustain their market position, many of these relative newcomers have pivoted away from direct-to-consumer (DTC) approaches to instead establish partnerships with more traditional insurance carriers and agents—their former competitors.
The Rise
For the average consumer, buying insurance can be a baffling experience. Throughout the process of quoting, applying, and purchasing a policy, or within the process of filing a claim, policyholders have come to expect endless form-filling and aggravation. This reluctant acquiescence, however, has been diminishing—consumers want faster and more personalized offerings from their insurers with as little hassle as possible. But delivering a customer-centric experience has not generally been traditional insurers’ forte, as they lacked the innovative technologies necessary to tailor and optimize multi-channel services.
Enter InsurTechs, the first wave of insurance technology companies that were built to take over parts of the value chain by leveraging innovative tech solutions to meet the market demands that traditional carriers couldn’t fulfill.
InsurTechs leveraged big data and advanced analytics to assess risk and tailor insurance products to individual needs. This not only made underwriting processes more efficient, it also allowed for more reasonably priced policies. As a result, InsurTechs managed to rake in substantial investment—approximately $43 billion between 2016 and 2022.
For these InsurTechs, devising unique offerings became a signature growth strategy. While many touted their use of AI, machine learning, and big data to automate underwriting and expedite claims processes, others placed greater emphasis on fine-tuning digital channels to personalize and streamline customers’ multichannel experience. Some based their business models around offering customized products relevant to specific niche markets. There were also those who offered innovative pricing models like pay-as-you-go and usage-based insurance as a way to make insurance more widely accessible and affordable.
Sean Sell head of Digital Transformation at Sapiens
Insurtech Company Raincoat Raises an Additional $6.5M to Invest in Financial Resiliency in the Wake of Climate Disaster
Raincoat, a startup developing scalable climate insurance solutions that enable instantly processed individual claims, today announced the closing of an additional $6.5 million seed round bringing its total raised to date to $11 million. The funding round was led by TwoSigma Ventures - along with European based VC firm Mundi Ventures, Revolution's Rise of the Rest Seed Fund and EleFund. This round of capital will support the company's expansion to new markets to provide FEMA-like services – much faster than existing emergency solutions – after particular disasters such as hurricanes and earthquakes in the Caribbean, Mexico, and the Gulf Coast, wildfires in the west, and threats such as flood, drought, and excessive rain in Colombia and Brazil. This funding will continue to accelerate innovation in an industry eager for new solutions and to protect over 3 billion people and 120 million businesses at risk of being affected by natural disasters.
In less than a year, Raincoat has provided disaster relief protection to thousands of individuals and families with successfully executed payments in all of their active markets. Today, Raincoat is positioned as the fastest growing insurtech startup aimed at reinventing the industry by enabling immediate payments following climate disasters and offering coverage for losses that traditional insurance companies typically exclude. Raincoat's embedded parametric insurance model enables distribution channels to offer protection against the occurrence of a specific event given fixed parameters, such as the magnitude of the event – instead of the magnitude of losses incurred. Raincoat works with financial institutions, governments, and insurers to deploy automated, end-to-end products for protecting individuals and small businesses affected by these natural disasters.
The latest data reports that the total losses from natural catastrophes, including those not covered by insurance, were $270 billion in 2022. That is down from around $320 billion in 2021 and near the average of the previous five years.
"We look forward to pushing the limits of what's possible and bringing our technology to more communities thanks to this new round of capital. Insurance should be there to protect you – and the expectation of payment after a catastrophe should not create anxiety – but rather bring ease," said Jonathan González, Raincoat CEO and co-founder. "We are innovating today for the current and future generations and look forward to working with more local and international players to make this happen," he added.
Raincoat was founded in response to the aftermath of Hurricane María, which struck Puerto Rico in 2017, and destroyed thousands of homes and businesses and left millions without power and water for months. Local residents, including families of the co-founders, waited on a slow and bureaucratic claim process only to be rejected months after submitting it. Three years later, Puerto Rico alone has $1.6 billion in outstanding insurance claims that remain unpaid.
Kettle offering parametric hurricane reinsurance in the US using Reask's model & data -
Climate analytics and technology driven risk modelling firm Reask, has entered into a partnership with InsurTech MGA Kettle, which will allow Kettle to offer location-level, wind speed-based parametric hurricane reinsurance in the US.
According to the announcement, this new partnership will allow Kettle to expand its climate-related offering to include parametric hurricane reinsurance by leveraging Reask’s market-leading hurricane modelling product Metryc.
As a result, the data supplied by Reask will help Kettle to calculate premiums more accurately, enabling it to settle pay-outs quickly and efficiently within 24 hours of an event.
In addition, Reask provides proven global tropical cyclone models to market-leading clients such as Swiss Re, AXA, parametric insurer Descartes, and ILS firms Securis and Twelve Capital.
David Schmid, Head of Parametric Products at Reask, said: “This collaboration marks the beginning of a new era in which Reask will contribute significantly to the advancement from first generation distance-based parametric covers to more accurate and cost-effective intensity-based parametric products.”
Commenting on the new partnership, Brian Espie, Chief Underwriting Officer at Kettle, added: “Kettle and Reask share a mutual vision that AI and machine learning allow for better prediction of risk in a changing climate. The seamlessness of this partnership provides Kettle with the ability to accelerate our product innovation and provide bespoke coverage solutions for customers in the greatest areas of need.”
“Our partnership with Kettle is a win-win situation; we supported them in significantly shortening their go-to-market period, while they facilitated our expansion in the US market,” Schmid added.
Meanwhile, Reask recently raised a total of $6.55 million in investment funding, with its most recent seed round reaching $4.6 million.
Federato Raises $25M in Series B Funding to Continue Catalyzing Insurance's "AI Moment"
Federato, the insurance industry's first RiskOps underwriting platform, today announced that it has raised $25M in Series B funding, led by Caffeinated Capital, with participation from Emergence Capital and Pear VC. This round comes less than a year after the company announced its Series A.
"Since leading their Seed round two years ago, we have been privileged to see the Federato team build something exceptional in P&C insurance," said Varun Gupta, Partner at Caffeinated Capital, who joins the company's board. "Federato's software is so valuable that billion-dollar global insurance companies and startup MGAs alike buy, use, and evangelize it. After hearing rave reviews from those customers, seeing the company's strong growth, and observing the team's march towards building the Industry Cloud for P&C, we are excited to triple down."
Critical to Federato's strategy has been its application of AI and Reinforcement Learning to the problem of portfolio optimization. "Federato's foundation lies in deep research around how AI can work together with humans towards complex end goals," said William Steenbergen, CTO and Co-Founder of Federato, whose graduate work at Stanford's Human Computer Interaction Group centered around these algorithms. "Our customers are proving that while generative AI has created recent buzz, many other AI use cases are benefitting from the same underpinning innovations. In insurance, the impact of helping a group of underwriters work towards the coordinated end goal of a balanced, growing risk portfolio is crucial. We are excited to be several years ahead of the curve in applying a broad range of machine learning techniques to ensure AI makes an impact in this important industry."
Federato's RiskOps provides a real-time platform for both individual risk underwriting and portfolio optimization. Key to the platform's efficacy is the underlying federated data graph, which enables a single pane of glass view of client information and allows for AI to proactively recommend next best actions to users, bridging the art and science of underwriting. Since the company's Series A, Federato has tripled its customer base, doubled spend within existing customers, and entered several new segments across both commercial and personal lines.
"The difference between RiskOps and what has traditionally been called an 'underwriting workbench' is as big as the difference between ChatGPT and the Google Search we've used the last 25 years," said Deb Smallwood, Founder of Strategy Meets Action, and longtime insurance technology analyst. "Bringing the power of AI to portfolio management represents a fundamental step forward, and we believe insurance is about to have its 'AI Moment' with Federato at its core."
News
Insurance industry demonstrates resilience against market challenges:
The insurance industry is demonstrating its ability to withstand potential adverse market or economic developments, according to panelists at the 39th Annual S&P Global Ratings Insurance Conference.
Resilience amidst concerns such as higher inflation and fluctuating interest rates, industry leaders shared insights on how different segments within the insurance sector can navigate these challenges and capitalize on opportunities.
Countercyclical brokers and life insurers, in particular, stand to benefit from higher rates in the long run, albeit with potential short-term hurdles.
Greg Williams, Co-Founder, Chairman, and CEO of Acrisure Holdings Inc., emphasised that macroeconomic risks like higher inflation act as tailwinds for the broker industry.
Charles Lowrey, Chairman and CEO of Prudential Financial Inc., noted that while higher interest rates may cause initial difficulties for life insurers, those that survive can ultimately reap long-term gains.
However, panelists cautioned the need for underwriters to maintain discipline and avoid the return of cash flow underwriting, which was popular in the 1990s.
Cash flow underwriting, an approach that loosened underwriting standards and priced products lower than necessary, had negative consequences in the past.
John Marchioni, President and CEO of Selective Insurance Group Inc., expressed optimism that the industry has learned from past experiences and is unlikely to see a resurgence of cash flow underwriting.
The reinsurance market was a focal point of discussion, with panelists acknowledging the sustained increases in reinsurance rates, especially in short-tail lines such as property and property catastrophe.
This shift is attributed not only to loss trends but also to investors’ expectations of better returns on their capital.
While the reinsurance market faces challenges, demand from primary insurers remains resilient, though they may experience increased volatility as reinsurers adjust rates and capacity.
Reinsurers have made fundamental changes to their catastrophe (cat) offerings, resulting in an optimistic outlook for this segment.
However, the casualty side is experiencing margin erosion, prompting companies like RenaissanceRe Holdings Ltd. to shift their focus towards specialty lines.
Despite holding a negative sector view on global reinsurance, analysts suggest that the pricing and underwriting adjustments being made have the potential to positively impact reinsurers’ profitability in the current year.
If reinsurers can maintain discipline and exhibit the ability to consistently generate returns that cover their capital costs, there is a possibility of revising the sector view to stable.
U.S. traffic deaths see fourth consecutive quarterly decline
The first quarter of 2023 saw 3.3% fewer traffic deaths compared with the same period the year prior, according to the National Highway Traffic Safety Administration (NHTSA). This was the fourth consecutive quarter with a drop in roadway fatalities.
The drop in roadway deaths came at the same time U.S. drivers were hitting the road more, according to the NHTSA, which reported vehicle miles traveled were up 2.6% during the quarter.
According to the agency, 32 states saw traffic deaths decline during the first quarter, while 18 states and Puerto Rico had increases. The rate of traffic deaths in Washington, D.C., remained unchanged compared with the year prior.
“This is very good news, but we know that far too many people are dying on our roadways in preventable crashes,” NHTSA Chief Counsel Ann Carlson said in a release. “We are taking significant action to reduce traffic fatalities, including moving forward on new vehicle standards to make cars even safer, investing millions of dollars to improve infrastructure and roadway safety, and working with our state and local partners to help drivers make safe decisions on the road.”
Requiring AEB for heavy trucks
The NHTSA also released a proposal that would require heavy vehicles to have automatic emergency braking (AEB) systems, which would reduce the frequency and severity of rear-end crashes, according to the agency. The AEB systems would be required to work in low- and high-speed situations, ranging from 6 mph to roughly 50 mph. The rule would apply to new commercial motor vehicles over 10,000 lbs., including large tractor-trailer trucks and Class 3-6 trucks such as box trucks and delivery vehicles.
Each year, there are around 60,000 rear-end collisions in which a heavy vehicle is the striking vehicle. The NHTSA projects requiring AEBs in heavy vehicles will prevent 19,118 crashes, saving 155 lives and 8,814 injuries annually.
According to the Insurance Institute for Highway Safety, AEB systems can reduce large truck front-to-reach crashes by 41%. Across vehicle types, AEBs also reduce claim rates for damage to other vehicles by 14% and lead to a 24% reduction in claim rates for injuries to people in other vehicles.
Traffic fatalities, violations have spiked since 2019: TransUnion
Roads are getting more dangerous, and auto insurers need to keep an eye on traffic violations, according to a new report from TransUnion.
The report, "Life on the Road: How Better Data Helps Carriers Respond to an Altered Driving and Law Enforcement Landscape," highlights the significance of the predictive nature of previous traffic violations data for projecting potential auto insurance losses and indicates a link between a 13% decrease in traffic enforcement and the 22% increase in traffic fatalities.
The data, recorded with the TruVision Driving History solution that assesses historical data collected from public driving records, was compared with death rates reported by the U.S. Department of Transportation and National Highway Traffic Safety Administration from January 2019 to January 2023.
According to TransUnion's findings, data from 2022 shows that 51% of accidents involved drivers that received traffic violations within a three-year period – a statistic that has increased by 9% since 2019.
"Ultimately, without traffic violation data, insurers aren't able to accurately assess and underwrite a driver's risk," said Mark McElroy, executive vice president and head of TransUnion's insurance business in a press release. "With the compounding cost from accidents, carriers are now increasing rates for everyone, meaning we are all paying for this problem."
The study reports on a number of driving behaviors that hold potential for losses – 38% of Gen Z drivers and 33% of Millennials admit to texting while driving, for example. An increase in distracted driving has persisted in the U.S. since the start of the pandemic, according to the CCC Intelligent Solutions' 2023 Crash Course report. A Travelers 2023 Risk Index has also reported that survey respondents believe that distracted driving is a greater issue now than it was just a few years ago.
Westfield Unveils MissionSafe® Safe Driving Rewards ProgramWestfield Unveils MissionSafe® Safe Driving Rewards Program
Sixteen percent of auto insurance customers participate in a usage-based auto insurance (UBI) program, according to the J.D. Power “2022 U.S. Auto Insurance Study," which was double the amount from 2016. And with significant auto insurance premium increases, UBI is appealing to a range of consumers.
MissionSafe® is Westfield's new safe driving rewards program that gives eligible personal auto insurance customers feedback on their driving and provides incentives to encourage safer driving habits.
Also, customers are not adversely impacted by a low driving score. MissionSafe uses the overall driving score to calculate eligibility for renewal insurance discounts but does not impose a premium surcharge based on a low driving score. Even with the lowest driving score possible, the policy premium would be the same base rate that Westfield would have quoted if the customer had not participated in MissionSafe.
COVERAGE DETAILS: MissionSafe engages customers to enhance safe driving practices while earning a discount. Customers receive an automatic 10% premium discount upon enrollment and can earn up to a 40% discount at renewal. The average expected savings are 20%.
In addition to reducing the price of their coverage, insureds can use premium discounts for gift cards and charitable donations. Also, MissionSafe allows families to participate in safe driving activities together by sharing driving behaviors to encourage coaching opportunities within the family unit.
Insured losses from thunderstorms up to $10B: CoreLogic
Severe thunderstorm activity from June 11-15 caused $7 billion to $10 billion in insured losses, according to a report Monday from data and analytics company CoreLogic Inc.
This loss estimate includes damage to residential, commercial, and industrial property, as well as automobiles, but excludes damage to infrastructure such as roads, utilities and governmental facilities.
Hail is estimated to make up 95% of losses from this event, making it one of the largest hail losses in history.
The storms brought straight-line winds, record-sized hail, and tornadoes, causing “substantial” damage to property across several states, CoreLogic said. Wind speeds in excess of 100 mph and hail greater than four inches in diameter were recorded in Denton County, Texas.
Inflation, cat losses prompt reserve concerns: Report
Higher inflation and catastrophe losses are raising concerns about insurer reserve adequacy and could extend or exacerbate current hard market conditions in non-life insurance, Swiss Re Ltd. said in a report issued Monday.
The recent pandemic, the war in Ukraine and inflation shocks are pushing claims higher and prompting questions about reserve adequacy, and in response insurers have increased the share of incurred-but-not-reported claims, Swiss Re said.
Uncertainty over future claims suggests reserves are at risk of being insufficient despite the solid buffer currently in place, the report said.
Former Root CMO Ordered Detained for Contempt
Root Inc’s former chief marketing officer – accused in a lawsuit by the company of syphoning $10 million from it – was ordered detained for contempt of court, and he will need to find another way to pay his attorneys.
Brinson Caleb “BC” Silver, Root’s CMO from November 8, 2021 to November 9, 2022, was ordered detained June 20 by U.S. District Court Judge Sarah D. Morrison in the Southern District of Ohio “until he produced information and documentation to the satisfaction” to a receiver – a custodian for Silver’s personal property, monetary, and real property assets.
Earlier this month Morrison granted a motion from Root Inc., parent company of Root Insurance, to appoint a receiver. The motion was filed by Root once it was found that Silver was trying to sell one of the properties and was spending “lavishly.”
Commentary/Opinion
Root InsurTech gets a bid, management should take it if it’s real cash
“Tomorrow will be a better day.” “Next year will be a better year.” “The coming decade will be when this industry realizes its true potential.” We hear the same for most public enterprises...
If you have ever looked at forward earnings estimates, they always seem to show things are headed up, never going down. In fact, humanity is based on the expectation and the optimism that “this will get better in the future.” Sometimes it can get in the way of reality, and, on the whole, it doesn’t really pan out, at least with regard to future earnings expectations.
Cash is real; projections are illusory, hence the saying: one in the hand is better than two in the bush. This can easily apply to the conundrum of whether or not to sell at a perceived loss. Do you take the offer, or do you stick it out and hope things will live up to the earnings estimates one or two or even a few years out?
On Wednesday, the Wall Street Journal reported that Embedded Insurance has made multiple approaches to acquire Root at $19.34 per share ($275mn total), which translates into a greater than 3x multiple compared to Root’s price before the announcement. Since that news broke, the stock traded up to a high of $14.80/share closing at $12.90 yesterday.
Root IPO’d on October 28, 2020 at a split-adjusted price of $486/share. Recall, the company had reverse split 18-to-1 in mid-2022, and after a temporary reprieve, the share price slump continued and closed at $6.02/share on Tuesday, prior to the WSJ story on Wednesday.
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Why automating FNOL may retain insurance customers
A single bad transaction or interaction can cost a business dearly in terms of the ability to retain customers.
With precious few opportunities to interact directly with customers or policyholders (think premium or claims payments), insurance companies are especially susceptible to this fact. And, in an industry where net new customers are like the proverbial white whale, creating happy, loyal customers is critically important.
Speaking of claims payments, manual first notice of loss (FNOL) processes continue to result in inaccurate data, slow turnaround times, and customer churn. Ensuring claims are captured, processed, and settled quickly and efficiently is key to holding on to customers who might otherwise be enticed by more agile providers.
Insurers today face competition from every corner, not just the nimble, innovative-looking insurtechs. In fact, recent Accenture research shows that 27% of consumers are just as likely to buy insurance from big tech companies, like Amazon and Google, and 24% from big retailers, as from actual risk-bearing insurers. Traditional insurers wanting to stay competitive must look to boost efficiencies, and this means moving away from the manual process-heavy ways of the past.
Jamie Peers, Vice President Of Business Development And Alliances, Synatic
Canada
OFFICIAL LAUNCH! Canada's Most Senior and Influential Event, The Future of Insurance Canada 2023
OFFICAL LAUNCH! Canada's Most Senior and Influential Event, The Future of Insurance Canada 2023
Insurance today is anything but as usual. Spirallng costs, accelerated customer expectations, and mounting tech debt leave carriers struggling to reach profit targets. Failure to reimagine digital experiences, develop agile products, and inject innovation today means carriers risk extinction tomorrow.
To grasp the opportunity today's uncertainty offers, all major Canadian carriers will come together on November 15-16 to optimize tech, enhance retention, and nurture growth at The Future of Insurance Canada 2023. Featuring 300+ decision makers, 50+ industry expert speakers, and 20+ critical case studies, leave with the answers to revolutionize the entire insurance value chain.
Have you got everything set for your transformation? We do!
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