Five Takeaways from the Global InsurTech Landscape

Five Takeaways from the Global InsurTech Landscape

The financial services industry is going through an exciting time of profound technological change. Innovations and breakthroughs have brought about paradigmatic shifts in many areas, such as the way we pay, get credit, manage our wealth, and track our personal finances, to name just a few. Finance has long been a pioneer in adopting new technologies, from the Internet in the 1990s to artificial intelligence today. This ability to embrace change helped fuel the development of FinTechs. Other industries are inevitably following suit as they are hit by similar waves of technological change. One example: the insurance industry and the rise of InsurTechs.

The BCG FinTech Control Tower (FCT) now maps the global InsurTech ecosystem. Approximately 900 core companies, which together had raised a total of about $10 billion in equity funding as of the third quarter of 2018, are included in its main database. The FCT monitors the InsurTech industry on a constant basis, and this evolving dataset provides the foundation for a yearly report highlighting the latest developments, funding trends, and key players shaping the space.

State of InsurTech 2018, published in December, was produced in cooperation with the BCG Insurance practice area. Broken into two sections—the first focused on InsurTechs, the second on traditional insurers—the report covers the period from 2000 through the third quarter of 2018. The research touches on multiple topics and offers deep dives into each subcluster of activity, but if I had to summarize it, I would focus on five takeaways:

•          InsurTechs are highly attractive for VCs.

•          InsurTech is growing faster than FinTech.

•          The entire value chain has been disrupted.

•          Artificial intelligence (AI) and Internet of Things (IoT) are the leading technologies in the space.

•          Incumbents are using multiple approaches to engage with InsurTechs.


1. InsurTechs Are Highly Attractive for VCs

Over the last four years, an unprecedented amount of funding has poured into InsurTech firms. In the first three quarters of 2018 alone, global InsurTechs raised ~$1.96B of equity investments matching the previous year’s total. Investments in health insurance accounted for approximately half that total, thanks in large part to two mega-rounds of funding closed by Oscar Health and Devoted Health of $375 million and $300 million, respectively. With fourth-quarter data now available, I am excited to confirm that 2018 was a record year for the industry, which collectively raised around $2.3 billion.

Paolo Cuomo, a BCG Senior Director in London, has worked with InsurTechs, incumbents and innovation incubators, endorses that ‘equity funding for InsurTechs has risen steeply over the past four years. We see that VCs and corporates who were wary towards InsurTechs in the early-to-mid-2010s are now working hard to identify the most relevant ones to invest in and partner with.’

2. InsurTech Is Growing Faster than Fintech

What stands out in the report is not only the unprecedented amount of funding the InsurTech industry has attracted, but also the rate at which it is growing. The global core InsurTech ecosystem has been advancing at an overall CAGR of around 35% over the past year and a half, compared with 22% for FinTech. Two subclusters —health and life insurance — have led the way, with CAGRs of about 267% and 41%, respectively. Property and casualty (P&C) and multiline grew at a more moderate but still remarkable pace, with CAGRs of about 28% and 26%, respectively. High personalization of risk premia and more aggressive pricing enabled by wearable technologies and gamification strategies were the main drivers of the recent growth.

3. The Entire Value Chain Has Been Disrupted

In addition to mapping InsurTechs according to their product offering, the FCT has been able to tag them according to their value chain segment: multifunction, sales and distribution, claim management, risk assessment, product development, policy administration, and reinsurance. According to the latest FCT data, multifunction and sales and distribution are the main areas targeted by InsurTechs, accounting for approximately 41% and 28% of total equity funding, respectively, as of the third quarter of 2018. Investments have flowed to multifunction InsurTechs focused on health, life, and P&C and to sales and distribution companies working in all four of the product lines.

4. Artificial Intelligence and Internet of Things Are the Leading Technologies in InsurTech

A similar tagging system has been developed for the key technologies used by InsurTechs: AI, IoT, distributed ledger technologies (DLTs), and robotic process automation (RPA). Among these, AI and IoT have been the most commonly adopted. About 110 companies, which together raised approximately $2.8 billion with a CAGR of about 44%, use AI as a core technology. A similar number of InsurTechs use IoT; together these companies raised about $1.2 billion with a CAGR of 35%. It shouldn’t be surprising that AI and IoT are the most popular technologies: IoT devices such as smart sensors are used to collect huge volumes of data (steps per day and heart rates, for example) that must be processed by AI-powered engines to be of any value.

BCG has benchmarked the most successful paths for all types of traditional carriers to engage with InsurTechs. Christian Maas, a BCG Digital Ventures partner, confirms that timing is key: ‘Our clients firmly believe that the sooner the engagement starts, the more rapidly impact will happen. Especially in areas where first mover advantages can be reaped or where large data-sets can be collected and utilized, such as IoT, digital ecosystems and the application of AI.’

5. Incumbents Are Using Multiple Approaches to Engage With InsurTechs

Christopher Freese, a senior BCG partner and head of digital in Insurance, sees there is real urgency among incumbent insurers to innovate. C-Suite members he talks to are seeing traditional acquisition and service costs on the rise, increasing regulation, and mounting competitive pressures as InsurTechs introduce cutting-edge innovations, which can be leveraged by first movers.

Incumbents are using a number of different approaches to engage with InsurTechs, from accelerators and investments to strategic partnerships and acquisitions. Success often depends on the starting position of the incumbent (such as its level of digitization and investment capacity) and on its focus and dedication to the approach (support from C-suite-level sponsors, for example). BCG has benchmarked the most successful paths for all types of traditional carriers to engage with InsurTechs.

While the State of InsurTech 2018 offers key insights about the year just ended, we also should look toward the year ahead. It’s not easy to forecast precisely what will happen in such a fast-paced industry—the variables to control for are countless. However, the outlook is positive, and InsurTechs, regulators, and investors should cooperate and build on the current momentum to foster innovation and ensure customer satisfaction.

We hope our research would be a starting point for discussion and debate, and we welcome any feedback or comments. 

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