Insurance is information. Tech is technology, or innovation. Insurtech is innovation derived from information, but with one unique caveat—it exists for the benefit of the consumer, not the company. In the context of traditional insurance, the term disruptive is putting it politely and politically correct.
Insurtech has been with us for only a decade, but it took nine years until 2019 for it to reach its first zenith. This article will focus on a rapidly growing segment within the global insurtech space, property. There were nearly 50 such deals and 1.2 billion USD in funding in 2019. Notable deals included Lemonade, Hippo and Kin Insurance (we will get to these names later).
Cumulatively, there has been 2.7 billion USD invested in property insurtech. Throughout these last eight years the three key segments of the insurance industry to feel the disruption are: renters, homeowners and personal property.
Renters insurance provides financial reimbursement in the event a tenant’s possessions are damaged or lost to fire, theft or vandalism. Often the liability of a visitor’s injury whilst on the premises of a tenant is also covered. This is an extraordinary new market given the influx of new millennials and zoomers (Gen Z) flooding more expensive urban areas such as: Austin, Boston, New York, San Francisco and Seattle.
They typically cannot afford to rent their own place let alone purchase their own property, which makes co-living and renting necessities. The goal therefore of the insurtech is to offer comprehensive coverage at a competitive premium—through technology. The magic is in the effective mix of on-demand coverage, mobile phones and chatbots.
Clients video or photo their belongings so insurers have reliable inputs on their replacement values, what they exactly are, and what the statistics and probabilities are as it concerns predicted losses; in addition to any other ‘big data’ out there. Chatbots replace humans since the key is data, not specifically trained expertise such as law or medicine.
The world’s first big insurtech IPO debuted in July 2020 at a company-determined initial price of 29 USD per share. By July 2, that price was 69 USD. They are the champion of the renters insurtech space with policies starting at 5 USD monthly.
Remember the theme of making it about you and not the company? This, and the extensive use of mobile tech, big data and artificial intelligence (ie chatbots), is why the share price skyrocketed. Beneath the surface, there is a second and more profound point to their purpose. The insurance industry has typically been associated with stinginess, greed and an overall unwillingness to pay out claims. What is Lemonade saying here? They pay claims quickly (1) and they care about the well-being of others (2).
These policies are intended to pay out for repairing or rebuilding homes in the event of fire, hurricane, hail, lightning, or similar disasters which are explicitly spelled out in their respective contracts. Floods and earthquakes are usually not covered due to their likeliness of occurrence and sheer total damage.
Where does innovation come in? Through the internet of things (IoT), or the network of typically small devices all connected to the internet. Think: Google Home, Amazon Echo, August Doorbell Cam, Nest Smoke Alarm, Nest Thermostat, Whirpool Smart Oven, Apple Watch, and so on. It all comes back to one core centre: data. How often are you home? Do you have many visitors? Has the smoke alarm ever gone off? What are your cooking habits?
To a good analyst the questions are endless. This makes predicting catastrophic events much easier, especially when combined with city, municipal and county data. How much of the data is confined to your knowledge or made available to others is a grey area, but in the context of insurtech, more data equals lower premiums.
Recently valued in July at 1.5 billion USD after raising 150 million in a Series E funding round, this company is still quite hungry, and just getting started. Their business model is entirely centred around the IoT concept. They provide their own home monitoring kit as part of their policy, which stays valid so long as the kit is active.
This is not the primary source of revenue for an insurtech, but a secondary offering to renters or homeowners insurance. Lemonade and Kin Insurance (which has cumulatively raised 86 million USD already) both offer personal property insurance. When it comes to claims, its much more about sending photos or videos to advanced chatbots then holding on the phone for humans. Lemonade even asks for a video documentary to describe a theft if that indeed happens, dispensing away with forms.
There’s a clear gap in the market as shown by the astounding success of Lemonade’s IPO. How will the next IPO fare? Will it be as successful, or will it flop under the pressure of the hype? The wake of coronavirus told us all that anything can be done online, even insurance.
Some will go to market, some may not last. Market consolidation is likely as consumers start to understand the ‘tech’ of insurtech in our lives. Eventually this high demand necessitates scale. The key takeaway for today, however, is not to miss an investment opportunity grounded in sound analysis yet driven by true disruption. Get in touch with us to learn more about our investing approach.
Disclaimer: The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech and entertainment. Mr. Chalopin is Chairman of Deltec International Group, www.deltecbank.com.
The co-author of this text, Conor Scott, has been active in the international private banking industry since 2012, focusing on relationship management, investment advisory and research. Mr. Scott is a Business Development Analyst at Deltec International Group, www.deltecbank.com.
The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees.
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