A new feature this year is the incorporation of inttrend technology, which integrates a repository with detailed information on the activity of insurance ecosystem startups and provides continual and accurate data updates. This contribution was central in bringing the six major headlines that the study has produced to the table.
The investment in Insurtech beat all forecasts
Investment in Insurtech went through a genuine revolution in 2019, reaching $6.3B. Another of the report’s most significant findings is that, over the past two years, insurance startups and those in other related sectors have doubled market share in terms of investments by insurance companies. Thus, half of the startups insurance companies invested in were from other sectors, such as industry and consulting, in the period from 2010-2019, and investments are now focused on insurance or related companies.
Both in terms of classification by funds raised and the number of new companies, the insurance and related sectors have shown an increase in their positions with respect to investments by insurers in new companies. This may be due to the conservative nature of traditional insurance and its aversion to risk, which may make startups seem more disruptive and strategically attractive to the industry.
Likewise, insurance companies show a certain predilection for investing in startups in different lines of business and are opting for Insurtech with Series A maturity and scalability levels.
6% of startups concentrated 67% of total funding
Despite the enormous level of funding we mentioned, the amount was mainly spread among 25 of the 238 companies, which means that 6% of these companies managed to monopolize 67% of the total available investment. We call these companies outliers. These outliers received large investments for two main reasons: the current conditions of their domestic market and the technological disruption that these companies create. Once again, we believe that technology is a determining factor when it comes to generating interest among investors.
Outliers: newcomers in the business world
One of the interesting things about these outliers is that the vast majority were only created within the last five years.
Technology-oriented outliers have a differential added value. Policyholders have been using their tech internally and externally, thus generating competitive advantages and more barriers for new participants.
Startups with disruptive technologies monopolized investments
On-demand business models and pay-as-you-go insurance, based on technologies like IoT, artificial intelligence, and cloud and mobile applications, gained ground compared to others and 90% of investments went to these startups. This proves that satisfying customer demands through the immediate supply of goods and services or creating hyper-personalized experiences and products are increasingly relevant market strategies.
Similarly, investors strongly supported startups like Lemonade, Coverhound, Next Insurance, Root Insurance, Ethos and Hippo. All are pioneers in the use of technologies that have impacted the insurance value chain in their respective lines of business.
The rise of emerging markets
Specifically, the auto business segment is set to experience the greatest technological impact. On the one hand, technologies like IoT, big data and artificial intelligence and investors such as telecom and tech giants are transforming the industry with advances that can lead to more efficient driving, which will create a serious threat to traditional car insurance.
This reality will change underwriting and pricing decisions, even customer interaction. However, it will open the door to a new scenario for insurers, who will have the opportunity to raise awareness of driver behavior and associated risks, with the incentive for the user to save money based on his or her behavior behind the wheel.
Another business sector that is generating high expectation in terms of investment is health care, specifically in the United States. American companies Bright Health and Clover account for 22% of the total investment.
In this regard, tech giants play a central role for the healthcare sector. Their technological capacity provides solutions for analyzing huge amounts of data, offering personalized healthcare services, and preventing risks in a more targeted way. This contribution covers biotechnology, genomics, and fertility, areas in which the giants are industry disruptors.
Likewise, the distribution sector will play an important role in the coming years by increasing its relationship with Insurtech.
On the other hand, we have also seen that emerging markets increasingly require their share of the industry spotlight. Educational institutions related to the smart mobility and healthy living ecosystems are paying close attention to continents like Asia and Africa as these population’s growing needs represent an increasingly important opportunity.
Organizations like Baidu, Alibaba, Tencent and Rakuten are seeing a growing number of potential clients in these sectors, which translates into ample business opportunities for providing services. In Asia, for example, Waterdrop and its smart technologies and value propositions geared towards the digital experience are focusing more on the health insurance industry. In Africa, microinsurance is emerging as the biggest opportunity for providing health care to underserved customers.
The success of common patterns
One of the most convincing conclusions we can draw is that these startups, regardless of the investment received, share patterns of success. When we define a company's “exit” as the criterion for success, a study based on 73,000 new companies and 5,000 exits, focused on understanding their behavior at different stages of growth, has identified the key variables of success. The number of investors, the range of CrunchBase and Seed series, the money raised in the first round, and the time spent between the different rounds are the best classified variables of the startups that achieve their exits.
These shared patterns predict a successful future for these startups and confirm the shifting trend in the insurance sector, which increasingly involves technology in its day-to-day, which makes it the most disruptive factor in business transformation.