Tuesday, August 14

Insurtech deals surge to record levels, “real gains” from artificial intelligence

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Don’t expect a “speedboat”, the situation for insurance firms is closer to a “big container ship” that is “finally” gaining momentum, said Dorel Blitz, head of fintech for KPMG at the OurCrowd investor summit in Jerusalem last week.

Across the world, he noted, there’s a rise of digital insurance companies while incumbents are adapting their architecture with advanced technologies.

The numbers are eye-catching: according to research from CB Insights, deal activity accelerated to near record levels in 2017. Insurtech funding volumes were at $697 million in Q4 2017, a 123% increase from $312 million in Q3 2017; 157% increase year-over-year from $271 million in Q4 2016.

And there have been real gains achieved in middle and back-end processes within existing software systems, or reinsurance company operational infrastructure; in pricing and underwriting, claims handling and administration, fraud detection, and predictive analytics.

 

Read: what one of Japan’s oldest insurers is doing with artificial intelligence and machine learning

 

In addition, gains can be credited to “implementation of, and integration with, improved software systems which have become more adept at extracting data to enable quicker and more informed decision-making leveraging artificial intelligence and machine learning”, CB Insights wrote in a recent report.

Challengers v Incumbents

Backed by investors such as Allianz Ventures, Google Ventures, and Softbank, Lemonade is a licensed insurance carrier offering homeowners’ and renters’ insurance that uses artificial intelligence and behavioral economics through a direct-to-consumer online platform.

Lemonade targets urban dwellers promising zero paperwork and instant servicing (policy issuance, claims, communication, etc.). The company closed a $120 million Series C round in December 2017.

At OurCrowd’s Summit, Lemonade’s CEO, Daniel Schrieber, explained that large players in Europe are over 100 years old handling hundreds of billions of dollars. In the US, where Lemonade operates, the top 10 competitors are 105 years old on average.

Not that there’s anything wrong with that, but they are companies with business models established in the era of the horse-drawn carriage, he noted.

“They are the outcropping of the industrial revolution and they have been able to sidestep every revolution since then,” Schrieber said. “This is classic innovators’ dilemma…it is incredibly difficult when you have a 100-year old company doing 100 billion dollars to change the substrate, the DNA of the company,” he said.

What that means is that legacy structures are a structural disadvantage.

“Insurance companies are very proud of their technology stack that they’ve built over 30 years, but today it is an albatross around their neck.”

Out of the Silo Thinking

Also speaking at the Summit was Ely Razin, CEO of CrediFi, a big data platform serving the commercial real estate (CRE) finance market founded in 2014, which has raised $23 million from VCs.

After the mortgage-backed securities market collapsed, insurance companies stepped in and are now underwriting loans for 76% of office buildings that were once funded through those bonds, said Razin.

“These loans (are) $50+ million each, and they last for 15 years. So, when an insurance company puts down a bet, it’s a massive bet and it lasts a long time, which means you better get your story straight before you put the money down,” he added.

Razin explained that many financial players operate within silos using internal data. But that’s not enough, and insurance firms are going to need data companies to deal with both risk and pricing, as well as business development.

“Bottom line is: the more data and analytics on top of that data you have, the better,” he said.

“Data companies are much better at knowing data than insurance companies are, so when you are looking at where can one actually use data in order to better the insurance product, whether a new player or (an incumbent), no matter what, you need better information to make the right decisions and build your business further.”

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