DI-MarthaNotaras_06202017
The insurtech industry has continued its growth trajectory in 2019, highlighted by surging valuations in the private market, emerging startups edging toward maturity and interesting M&A activity. Non-traditional insurers jumping into the game, budding international markets, and the threats of climate change are all major trends that deserve attention. Here are my 10 predictions for insurtech in 2020.
1. The Entire Ecosystem Grows Up
In 2020, the entire insurtech sector will edge toward scale and solidify its role in the broader insurance industry, as incumbents continue to partner with startups. Incumbents are moving beyond proof of concept purgatory and into real production. Next year we’ll see startups evolve their relationships with incumbents by working more closely with actual business lines, moving beyond the in-house innovation groups. As a result, insurtechs will deliver returns not just in terms of dollars, but also in time saved, losses avoided, and improved risk selection.

Maturity is the name of the game here. Consequently, expect fewer new incubators in the space and existing ones will be looking for more evolved startups (e.g., Lloyds filled its most recent cohort with startups closer to maturity than in years past).

2. Sticker Shock Will Continue, Despite Tech Unicorpses
One of the biggest stories this year was the public reckonings for many high-profile tech IPOs that failed to live up to their previously sky-high private market valuations. While there exists plenty of wishful thinking from investors hoping for more grounded valuations, I anticipate insurtech unicorns to continue growing into their valuations.

There is still plenty of capital available out there and many new funds entering the market that still want to lead rounds. Private equity behemoths like CVC Capital Partners are re-upping with new growth funds. Increasingly, the dominant players investing in insurtech are strategic investors with large checkbooks and corporate venture capital arms that are doubling down, launching second, third and even fourth funds. In other words, none of the market signs that would indicate restraint when it comes to startup valuations are there. With the IPO market proving to be rocky for many “hot” companies, expect private market values for insurtechs to continue to climb and companies delaying going public.
3. Consolidation is Coming — Full-Stack is Where It’s At
The biggest insurers will continue to make the pivotal decision to buy full-stack insurtechs to get access to modern distribution, front end, and efficient operational capabilities. Prudential’s recent $2.35B acquisition of Assurance is a clear sign of things to come. Incumbents will have to make the decision to buy companies that created full-stack capabilities or attempt to build it themselves. I bet incumbents are willing to give away upside in order to get what they want now. Not to mention that $2.35B (or $3.35B with the earnout) is just a drop in the bucket for Prudential — that amounts to a fraction of the normal variance of their investment portfolio. These giants have tons of wiggle room, and if a bold tech acquisition ends up adding anything to their existing business, it will be well worth it.

Incumbents are not alone in hunting for acquisitions: full-stack insurtechs themselves are well enough capitalized to become acquirers. With each acquisition, these companies are going to get better, faster, and stronger. Hippo recently acquired home protection platform Sheltr, and announced that it plans to make other complementary acquisitions. This may become a way to scoop up some of the smaller, underfunded insurtech startups.
4. Brokers Finally Get to Flex Some Muscle
We’ve heard it time and again: the tech industry will disintermediate colossal industries. Just as Zillow, Compass, and Redfin did not render all real estate brokers obsolete, traditional insurance brokers are still in business and are primed to become more efficient than ever before. I also liken the current state of insurance brokerage to where salespeople were twenty years ago. They didn’t have a good admin system to operate with but along came Salesforce, and in turn sales teams became significantly more powerful and efficient. I predict that along with the current crop of insurtech startups like TowerIQ and Broker Buddha, we will continue to see new startups created specifically to empower the broker.

There will also be some consolidation around broker service. Applied Systems, which is part owned by Google, just acquired broker platform Indio, which allows them to offer Indio’s digitized commercial insurance application and renewal process to thousands of brokerages. This pattern will extend into 2020.
5. The Divide Between The Winners and Everyone Else Will Become Clear
The sheer size and market opportunity of the insurtech industry has spawned an astounding number of players all fighting for a slice of a big pie. In 2020, we will start to have clarity on who the winners and losers are. In truth, the casualties have been few but what is clear is that full-stack insurers and carriers are winning. Other insurtech plays that are seeking to rebuild things that have already been built, but better and more efficiently, are faring decently but not dramatically successful yet. Who is thinking about insurance in a new and novel way? Who can get the attention of incumbents with a compelling solution to enable more efficiency, lower risk and higher profits? The companies that can answer those questions are primed to win in 2020 and beyond.
6. Apple, Google, Amazon, & Facebook Will Double Down in the Space
In 2018, I predicted that the FAANG companies would use their deep troves of customer data to enter the insurance market. Since then, Google bought Fitbit, Facebook announced its Preventative Health tool, Amazon announced Haven — its joint healthcare venture with J.P. Morgan and Berkshire Hathaway, and Apple announced a series of health tracking studies and tools.

These companies are totally unencumbered by legacy products, and they can easily build risk profiles based on all the metadata they have. For example, Apple and Amazon can already see what we buy, how active we are and what we eat via Apple Pay, Apple Watch, Amazon Fresh and Whole Foods. Their continued penetration into healthcare is going to be something to watch closely and will have ripple effects through the insurance industry.
7. Climate Change Will Have Huge Implications on the Value of Data
Climate change is one of the biggest factors facing the insurance industry not just in 2020, but in the decades to come. Wildfires, rising sea levels, changing weather patterns, etc. all will massively impact property insurance for individuals and businesses alike.

Insurance traditionally asks: “Based on what has happened historically, what will happen in the future?” The problem is that climate change is taking away the validity of historical information. Using an example close to home, in the past several years, California has experienced a massive increase in the number of wildfires and the resulting damage. And the state just banned insurers from dropping policies made riskier by climate change.

How do insurers accurately assess the risk to homeowners in the state when historical data is no longer informative? Insurtech winners will be providers of real-time and near real-time data.
8. AI Finds Its Place
Artificial intelligence and blockchain technology have both been trumpeted as game-changing technologies that were going to have an immediate impact across virtually every industry. Admittedly, it’s been difficult to separate the hype from what has real potential, but in 2020, we’ll start to get answers. AI may be played out in other markets, but it is just beginning to impact insurance. There are so many repetitive processes, from risk analysis to decision making, and we are starting to see breakthroughs. Insurers have been previously wary of AI due to its “black box” stereotype and the inadvertent discrimination that can occur based on historical prejudices. However, AI can be easily applied to other areas, like internal processes and core operations.
9. The New Kids on the Blockchain Will be Focused on Reinsurance
We’ve heard for years about how revolutionary blockchain will be, but so far nobody seems to be doing anything with blockchain with measurable success. RiskBlock Alliance, which built its entire brand around blockchain, recently changed its name to RiskStream Collaborative and indicated that it is expanding beyond blockchain technology. B3i is another organization that seeks to use blockchain to improve insurance and reinsurance efficiency, and it has an impressive number of pilots underway - but no demonstrable impact yet.

Where I see a place for blockchain is in reinsurance. Given the highly structured nature of reinsurance and that all participants are sophisticated institutions with a trusted network and the highly structured nature of reinsurance, if blockchain can’t make it there, it can’t make it anywhere.
10. Cyber Insurance Market Poised For Massive Growth
Cyber risk is one of the biggest threats to businesses and individuals alike, and that threat will only continue to increase. So the industry will experience significant market growth, which will be enabled by third-party tools that insurers rely on for more information to underwrite. We have seen the beginning of useful analytics from Cyence (now part of Guidewire) and CyberCube, and cyber MGAs have commanded astonishing valuations, but have yet to deliver the anticipated premium growth. As cyber losses continue to mount, either a regulatory push or catastrophic event will force buyers to adopt more cyber coverage than ever before and some of those cyber MGAs will deliver on their promise.

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