(Image source: InsurTechNY.)
InsurTech has been around for the better part of a decade, depending on whether one traces it birth to 2010—as Investopedia does—or some later date. The movement has seen investors ranging from insurers who knew they needed to accelerate their trajectory to a digital destination to venture capitalists interested in the potential to profit from the insurers’ appetite for innovative technology. The way investors approach InsurTech has discernibly evolved and matured, and industry observers wonder how long the movement will continue in recognizable form. This was the theme at InsurTechNY’s panel discussion, held in midtown Manhattan on Aug. 22: Investing in InsurTech—Fad or Long-term Value.
The event brought together carriers, brokers startups and investors to discuss what investors are looking for in InsurTech, what problems in the insurance industry are worth solving by startups, and what the long-term value of InsurTech investments might be. The panel was chaired by David Gritz, founder of InsurTechNY, and included panelists Steven Ueng, Investments & Acquisitions, Swiss Re (Zurich/New York); Adam Myers, VP, Corporate Venture Capital (CVC), Guardian Life (New York); Farron Blanc, founder and CEO of eldercare concierge startup Gerry (New York); and Nitya Rajendran, Investor, Tribeca Venture Partners (New York).
Panelists defined InsurTechs variously as tech-enabled insurance companies or technology companies serving the industry, or as any technology company touching any part of the insurance calue chain. “I think that the company doesn’t necessarily have to be solely focused on the insurance industry to be included in InsurTech so long as touch the insurance industry that’s fine,” clarified Myers.
As for preference for stage of investment, the panelists tended more to early investment “Previously when I was at RGA, writing our investment function there, we were very comfortable with seed,” noted Gerry’s Blanc, who formerly held the post of Head of Innovation at RGAx (St. Louis). “I think that’s the smartest way to do it in InsurTech, you invest in the seed and take pro-rata up to the A & B. Now investing off my own personal balance sheet, looking at pre-seed deals, less than 4M valuation.”
Steven Ueng described Swiss Re as being fairly stage-agnostic. “Although we looked at a company recently where we were going to be their first institutional funding,” he added. “At the same time… we are probably more on the later stage, call it C, D, or later.”
Where the Opportunity Is
Gritz asked the panelist whether they saw more opportunity in property/casualty, life and annuities, or health insurance. “I’m actually more excited about P&C because I think the beauty of technology is that you can make things more efficient, and also use data more,” Ueng commented. “I think with a lot of the machine learning and AI opportunities you’re really talking about high frequency, low severity risk. When we’re talking about high severity, low frequency risk, very difficult to apply machine learning.”
Farron Blanc spoke specifically to the opportunities of “ElderTech” and life insurance. “I think elder care is super interesting, definitely under-invested as a percentage of GDP, population, by any metric you can think about. There is some really interesting stuff because largely it’s unregulated,” he commented. “Everything from Digital direct consumer diapers like adult diapers they suck. Like if anyone has ever worn one, they are not very comfortable. The stigma is terrible.”
“When you think about the pensions and the de-accumulation opportunities that are coming in inter-generational wealth transfer, there’s huge problems,” Blanc continued. “And then you lay on fraud and stuff like that it’s massive compared to digital direct to consumer life insurance.”
Addressing the issue of how InsurTech firms should work with their insurance customer clients should work together, Gardian Life’s Myers advised thinking outside of the box with regard to which executives within the insurer to work with. “Sometimes you need to find more innovative people than the person whose responsible for claims, distribution, or underwriting,” he recommended. “Maybe it’s head of analytics, maybe carriers have a head of innovation, maybe it’s someone on the technology side, certainly on the venture side.”
Swiss Re’s Ueng urged caution for how investors engage with executives or insurance organizations, with a view to the financial sustainability of the relationship. “When you do find an internal champion, and that’s how you measure strategic value, what happens when that champion leaves?—Your investment becomes orphaned, or someone forgets it,” he warned. “And I think that’s what we saw internally with our 2016-2017 seed investments, and that’s why, internally, we’ve kind of moved towards large strategic deals where we can measure strategic value based on commercial value.”
Will InsurTech Last?
As to whether InsurTech was likely to last long, Tribeca Venture Partners’ Rajendran insisted that the movement is not a fad. “From an innovation perspective, every industry needs to undergo innovation for it to improve and insurance is such a huge part of the underpinnings of our society, so any innovation that can be brought in to improve that is a good thing,” she said. “One element that you could say is a fad, is that the 2017-2018 valuations were very, very high for InsurTech startups,” she qualified.
“I definitely don’t think it’s a fad,” added Gery’s Blanc. “You just have to look at China—Ping-An, ZhongAn, those companies are worth billions of dollars. Unless there’s crazy stuff happening. They’ve already created wealth, and value. And even our fund—RGA’s—we’re in the 20 percent IRR, couple multiple in invested capital…We were able to extract money and generate free cash flow, and I think that will continue.”
Because the life insurance industry in particular has been very slow to innovate, huge opportunities remain in that sector, opined Guardian Life’s Myers. “Somebody’s going to figure that out, whether that is a startup company or another carrier that better utilizes technology that’s a huge risk to our business,” he said.” Or even a company like Amazon coming in—we’ll see.
“I absolutely think this is here to stay,” Myers continued. “The way we think about InsurTech investing is that the companies we invest in are probably going to create much more value from an investment perspective, especially considering that we’re managing $55 billion of assets and our fund is $100 million dollars—it’s a drop in the bucket. I think there’s real potential for some of these companies to come in and really add value to carriers and increase enterprise value very significantly.”
InsurTech Investment Shifts to More Established Innovators—Deloitte Paper