InsurTech investment surge poised to accelerate life insurance modernization has been saved
InsurTech investment surge poised to accelerate life insurance modernization
Global financing of InsurTechs has continued to surge with a record $5 billion invested during 2019. Over the past two years, there has been a subtle shift from investments devoted to the property-casualty side of the business to an uptick of funds into life and annuity focused InsurTechs.
Global financing of InsurTechs continued to surge with a record $5 billion invested during 2019, which is only five percent shy of the prior two years combined (figure 1).1 However, while $19.2 billion has poured into the sector over the past decade, investments have almost exclusively been devoted to the property-casualty side of the business.2
More recently, a subtle yet possibly meaningful shift has emerged, with an uptick of funds flowing into life and annuity (L&A)-focused InsurTechs over the past two years (figure 2). Between 2017 and 2019, this funding reached over $450 million.3
Figure 1. InsurTech Funding in $ Mn: 2008 – 2009 4
Figure 2. Funding by percentage – InsurTech Verticals 5
Indeed, more life-focused InsurTechs are emerging that can help drive innovation in business processes and models, and potentially jump start an industry that has often struggled to grow its top and bottom lines. The legacy industry could use a strong dose of innovation, given that the number of households holding life insurance is at a 50-year low,6 and that there is an estimated gap of $25 trillion between current life coverage for Americans versus what they most likely need to cover family expenses in case of a death in the family.7
Modernization counters stagnant growth
While there are some startups looking to compete with legacy carriers and underwrite life insurance policies on their own (entities that received over $200 million in funding since 2016),8 many are being launched to support modernization of incumbents and jump start the sector’s stagnant growth.
By examining the types of life InsurTechs being funded, the depth and breadth of insurer/InsurTech alignment, and the entities financing them, the sector is potentially being galvanized for transformation. Life insurers appear to be aligning with InsurTechs to reshape the industry’s value proposition, from product design, to underwriting, distribution, and client engagement.
For example, new InsurTechs are helping some life insurers reinvent a historically onerous and lengthy application process, utilizing third party data, advanced analytics, and predictive modeling to accelerate underwriting and policy issuance. InsurTechs that tap into alternative data sources to fast-track this process and make it more user-friendly by eliminating the need for invasive medical tests and examinations may help minimize ‘dropouts’ who get frustrated and don’t follow through once they begin the purchase process. Indeed, 52 percent of potential life insurance buyers said they would be more likely to buy a policy if they could skip physical exams.9 In 2019, such InsurTechs accounted for the largest portion of life-focused startup funding (figure 3).
Figure 3. Top lifetech funding in $ Mn: 2009 – 2019 10
Tapping new opportunities
Building on fast issuance capabilities, many insurers are collaborating with InsurTech entities to create opportunities to cost effectively tap into the huge uninsured and underinsured life insurance market with less complicated and more agile offerings. One example is Ethos, whose policies are issued by either Banner Life Insurance Company (A Legal & General America Company) or Assurity Life Insurance.11 Launched in 2018, Ethos uses alternative data sources such as motor vehicle and prescription drug records to support an online accelerated application for a life policy that can be completed in 10 minutes (compared to weeks for many traditional policies) and doesn’t require medical exams for most applicants.12
Meanwhile, InsurTechs such as Fabric, whose policies are issued by Vantis Life (a Penn Mutual company)13 are developing products on digital channels that are both cost-effective to distribute and designed to appeal to the underserved market. Fabric targets the 25- to 44-year-old demographic with a product that can be purchased online in minutes to insure against accidents, which pose the single highest risk of death for people in this age group. The app also gives customers the option to upgrade the policy according to health and lifestyle.14
Stronger customer relations
InsurTechs may also serve as a conduit to improving the client experience and strengthening customer relationships in an industry with negligible insurer/client interaction once a policy is purchased. They can provide insurers with the capabilities to leverage premium payments as a subscription, offering clients a suite of services and benefits rather than just a one-off insurance product.
For example, InsurTechs that can harness IoT connectivity may be able to offer insurers the ability to insert themselves into the everyday lives of policyholders and offer ongoing services beyond merely a death benefit. This may include rewards for reaching fitness or healthy consumption goals, real-time recommendations for lifestyle choices, as well as personally focused advertising and marketing, all thanks to connected devices provided along with the life policy.
For example, John Hancock is building an ecosystem of providers to fuel client connections that includes IoT apps and devices, including Vitality One, which tracks health and wellness, and the Apple Watch®* wearable device. Policyholders that maintain a top health rating for three years are typically rewarded with free Amazon Prime subscriptions. This initiative has reportedly increased policyholder interactions from once or twice a year, to an average of 40 proactive engagements per month.15 The insurer is also aligned with Human API, so customers can share their health records and accelerate the purchase process.16
Supporting existing channels
While consumer experience has become a top priority for many carriers, it can also be important to collaborate with InsurTechs that support life insurance distributors, who often remain critical to client acquisition and service even in an increasingly digital economy. For example, Insquik offers agents a white label solution to agents to create their own online stores, while Hearsay Systems helps advisors improve their digital capabilities rather than be displaced by virtual outlets.
However, some life carriers are leveraging InsurTechs to shift from traditional agent-driven distribution to multi-channels or even agentless solutions. LINK allows consumers to buy policies directly from Prudential via the LINK website, while offering the option to interact with a live insurance professional if necessary.
As life insurers increasingly come to terms with the impact of technology and the speed at which it is changing the rules and even the playing field, they will likely need to embrace a combination of some or even all of these InsurTech-driven capabilities, as well as technology not specifically focused on the insurance industry to create a holistic support system and reinvent their operating models.
For example, Northwestern Mutual (NWM) invested in Ladder, a life insurance company focused on InsurTech. The company collaborates with a broader group of fintechs to create an ecosystem of value-added services, including financial planning, student loan refinancing, mobile banking, social media, cloud, a healthcare database, and digital marketing platforms. While correlation may not necessarily equate to causality, it is interesting to note NWM was ranked highest in J.D. Power’s 2019 US Life Insurance Study for Individual Life Insurance.17
InsurTechs may also serve as a conduit to improving the client experience and strengthening customer relationships in an industry with negligible insurer/client interaction once a policy is purchased.
Going beyond financial investments
Life-focused InsurTechs are being funded by both incumbents and non-insurance investors, such as private equity, angel investors, and venture capital funds. While non-industry investors fueled much of the uptick over the last several years, legacy carriers were the largest source of investment in 2019 (figure 4), which indicates insurers are starting to recognize the potential of InsurTechs to spur transformation and are willing to put skin in the game.
Figure 4. InsurTech funding in $ Mn – Life Insurance 18
However, InsurTech collaboration can and likely should involve more than just funding. InsurTech development is a complex journey, from finding startups that are a suitable fit with a carrier’s business strategies, to nurturing them during the growth process, and finally reaping the benefits through meaningful partnerships.
Over the past decade, several life insurers have established venture capital entities devoted to finding the most relevant and meaningful InsurTech development opportunities. New York Life, for one, formed New York Life Ventures, which has screened more than 1,800 startups and facilitated over 175 proofs of concept.19
Insurers may also consider setting up or engaging with accelerators to help identify and vet potential InsurTech partnerships. In November 2018, Allianz Life Ventures and Securian Financial invested in the OnRamp Insurance Accelerator by Gener8tor. In June 2019, the accelerator shortlisted five InsurTechs out of 545 applicants, which offered solutions such as predicting customer churn and digitizing direct mail.20
Others may look to integrate InsurTech capabilities through an acquisition. In 2019, Prudential Financial purchased Assurance IQ, a data science and machine learning driven insurance provider, for $2.35 billion. This gave the insurer access to about 17 million customers who needed life coverage. Prudential anticipated that the deal will likely generate cost savings worth $25-to-$50 million in 2020, and between $50 million and $100 million by 2022.21
New life added to the industry
One way or the other—whether via investments, acquisitions, or co-development partnerships—life insurers are increasingly becoming players rather than spectators in the world of InsurTech. Solution-driven startups are helping many legacy carriers identify and mitigate the frictions and gaps that may be discouraging prospects, while striving to provide an enhanced experience for both internal and external stakeholders. InsurTechs could also hold the potential to refresh and upgrade the industry’s aging talent pool with more innovative skill sets, as well as change life insurance culture to one that is more agile, proactive, innovative, and open to change.
1 Deloitte analysis of Venture Scanner data
6 Gerv Tacadena, “What can breathe new life into the waning life insurance industry?” Hannover Re in association with Insurance Business Magazine, April 19, 2019 (https://www.hannover-re.com/1403817/what-can-breathe-new-life-into-the-waning-life-insurance-industry.pdf)
7 Swiss Re Institute, Expertise publication: Life underinsurance in the US: bridging the USD 25 trillion mortality protection gap (https://www.swissre.com/dam/jcr:e8ea66fe-cc60-426f-8562-9fafbb4b4d83/expertise_publication_life_underinsurance.pdf)
8 Deloitte analysis of Venture Scanner data
9 “Facts About Life 2018”, LIMRA, September 2018 (https://www.limra.com/globalassets/limra/newsroom/fact-tank/fact-sheets/facts_of_life_2018.pdf)
10 Deloitte analysis of Venture Scanner data
11 “Life insurance basics” Ethos Life website, accessed February 2020 (https://www.ethoslife.com/life/life-insurance-basics/)
12 “Ethos Life Insurance Review”, NerdWallet, January 02, 2019 (https://www.nerdwallet.com/blog/insurance/ethos-life-insurance-review/)
13 Benerice Magistretti, “Fabric raises $2.5 million to simplify life insurance”, Venture Beat, March 21, 2017 (https://venturebeat.com/2017/03/21/fabric-raises-2-5-million-to-simplify-life-insurance/)
15 Taylor Telford, “Could a bold move by John Hancock upend the life insurance industry?”, The Washington Post, October 04, 2018 (https://www.washingtonpost.com/business/2018/10/04/could-bold-move-by-john-hancock-upend-life-insurance-industry/)
16 Nicquana Howard, “John Hancock partners with startup on health data sharing”, Digital Insurance, January 14, 2020 (https://www.dig-in.com/news/john-hancock-partners-with-startup-on-health-data-sharing)
17 “U.S. Life Insurance Study – Individual Life Insurance (2019)”, J.D. Power, October 31, 2019 (https://www.jdpower.com/business/ratings/study/U.S.-Life-Insurance-Study-%E2%80%93-Individual-Life-Insurance/10214ENG)
18 Deloitte analysis of Venture Scanner data
19 “Emerging LifeTech ecosystem promises profound impacts on life insurance” New York Life, September 25, 2019 (https://www.newyorklife.com/assets/newsroom/docs/pdfs/EF6259%20NYL%20Whitepaper%20S26.pdf)
20 Maddy Kennedy “Meet the Startups in gener8tor’s First OnRamp Insurance Accelerator”, American Inno, June 24, 2019 (https://www.americaninno.com/minne/inno-news-minne/meet-the-startups-in-gener8tors-first-onramp-insurance-accelerator/)
21 “Prudential Financial to acquire Assurance IQ, Inc., a leading consumer solutions platform for health and financial wellness needs, for $2.35 billion”, Prudential Financial Newsroom, September 05, 2019 (https://news.prudential.com/prudential-financial-to-acquire-assurance-iq-inc-leading-consumer-solutions-platform-for-health-and-financial-wellness-needs-for-235-billion.htm)
QuickLook is a weekly article from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this article are those of the author and not official statements by Deloitte or any of its affiliates or member firms.
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