The Insurtech investment industry is hot. Globally, it’s grown from under $1 billion in capital investments in 2015 to $4.6 billion so far in 2019. And the rise is even more staggering in Israel, where investments have grown from just $32 million in 2015 to $689 million so far in 2019. The country has seen major investments in the industry, including companies like Lemonade, Hippo, and Next Insurance.
As the numbers show, there are ample opportunities to innovate and monetize in Insurtech. In this article, I’ll analyze the fundamentals that drive these opportunities: predominantly society’s ever-increasing ability to create, analyze and leverage data.
The insurance industry revolves around data. Providers profit when they develop a unique understanding of likely outcomes and their costs, and can thus offer insurance products and price them profitably. Data is also used in other aspects of the insurance industry: with more and better data you can prevent fraudulent claims and pay legitimate ones faster and with fewer resources.
You can sort Insurtechs into three main buckets that describe how companies are interacting with data: data buyers, data sellers and data interpreters.
1. Data Buyers
The most straightforward way for companies to get their hands on data is by becoming the insurance provider or broker. This allows companies to form direct relationships with their customers (either consumers or businesses) and extract the data they need through a first-hand approach. There are two ways of going about this – either through the launching of a full-stack carrier or a Managing General Agent (MGA).
Launching a full stack carrier
The most ambitious way of getting hold of data is by becoming a full-stack carrier. This means actually providing insurance policies directly to customers. Lemonade is one Israeli company that is doing exactly this, but in some ways much better than others. Not only does it have a unique incentive structure, AI-driven claims processing and great marketing, it also accumulates tons of data it can re-plow into its marketing, underwriting, pricing and claims processing. Granted, this strategy comes with a hefty price tag – accumulating data is expensive (not to mention the cost of keeping up with regulatory capital requirements).
Launching an MGA
In between the insurance carrier and the customer, the traditional industry sometimes features agents. In the MGA model, these agents are companies that operate their own branding, pricing, and claims experience. Indeed, they let others cover the capital requirements, but they get to keep all the data – arguably a much more valuable asset, making them more capital efficient, which is quite important in early stages. One Israeli company doing this well is Hippo.
We still believe there are opportunities for MGAs to disrupt insurance markets by intelligently leveraging data, especially in areas such as cyber insurance and SME insurance.
2. Data Sellers
Data is also a precious resource for algorithms. For example, if you want to sell to a carrier an innovative underwriting or marketing algorithm, you need the carrier to share the data to train the algorithm. This creates a classic chicken and egg problem: the carrier will not share its hard-earned data without knowing your algorithm works, and how will the carrier know your algorithm is any good without training it with the carrier’s precious data?
Some Israeli companies have been finding innovative solutions to this problem: instead of using the carriers’ data, these companies are applying AI to extract “insurance insights” from publicly available sources and then selling that data to insurance providers that use it to underwrite, analyze claims, onboard, detect fraud, etc. One Israeli company excelling at this is Planck – given only a customer’s name and address, the company intelligently scours the internet and publicly available records in real time to deliver valuable insurance insights. We believe that this is just one example, and there are other opportunities to leverage external and publicly available data sources to infer insurance insights that carriers crave.
3. Data Interpreters
Some Israeli companies are finding new ways to source, interpret, and deploy data, empowering them to create truly innovative insurance products. In many of these cases, companies marry high uncertainty areas – from agricultural yield to AWS downtime – with the innovative usage of data and sometimes also with a proactive preventive approach in order to create these products.
Relying on a single-source of truth
In industries where there is a single source of truth – that is, all parties can agree on the chain of events that lead to a claim being filed – Israeli companies are getting creative. For example, Parametrix is offering insurance to e-commerce companies that are heavily reliant on cloud services, protecting them against lost revenues in case their partner software goes offline. Because of the new data sources – websites that can reliably confirm whether or not the partner software indeed went offline, for how long, and when – Parametrix is able to offer its innovative insurance products to an underserved market.
Utilizing proprietary technology for data collection
When there’s no single source of truth, Israeli companies are filling in the gaps and procuring their own reliable data. For example, Israeli startup Windward sources data through telemetry and aerial imagery to predict and insure maritime voyages. It not only can predict the likelihood of a transportation vessel sinking in the Atlantic or its cargo being spoiled by bad weather, but even the chance that the ship will be set upon by pirates. All because it got creative with the way it acquires its data, and the way it deploys it to reduce uncertainty.
Taking a proactive approach to intervention
Some Israeli companies are disrupting the traditional insurance market by relying on data and taking proactive measures aimed at reducing risk. Since these companies can measure the risk reduction, they price their insurance better and more efficiently.
For example, Assured Allies operates in the long-term insurance care space. It uses its big data and AI to predict the likelihood of customers needing to file a claim and actively mitigates those risks. It will send its professional advisors to a customer’s home, for instance, to install anti-slide carpets if they are at risk of falling or bathtub railings to help keep them safe on a slippery and dangerous floor.
The formula is being replicated by Israeli companies operating in different insurance verticals: crop yield insurance providers can use precision aerial surveillance imagery, such as that being employed by Taranis, to prevent crop yield loss due to insects, crop disease, weeds, and nutrient deficiencies. Cyberwrite does something similar in cyberspace – not only does it collect millions of unique data points across the internet to identify clients’ exposure to cyber attack, but it also actively lowers the likelihood of cyber attacks and the associated losses with its proprietary technology.
Viola’s View on the Insurtech Industry
Israeli companies have had remarkable success in their attempts to disrupt what has traditionally been a sleepy insurance market. They are creating innovative products and are monetizing them in new industries. At Viola, we’ve already invested in 3 insurtech companies – Earnix, Planck and Inshur – and we’re always on the lookout for more data sellers, buyers and interpreters that are looking to shake up the insurance world.