InsurTech's hot streak continues

By Sam Evans, Founding Partner, Eos Venture Partners

Sam Evans, Founding Partner, Eos Venture Partners

The InsurTech market continues to attract significant investment, and we expect to see funding continue to pour into the market over the next two to three years. Leading propositions are building strong market positions and are therefore able to command significant valuations and investment. Recent companies that have hit the $1bn valuation mark include Lemonade, Root, and Hippo.

Simultaneously, as incumbent, investor and customer expectations increase, we also see an increasing number of failures and down rounds as many new businesses struggle to gain momentum.

The market will naturally bifurcate with the majority of funding directed to a small percentage of businesses, while the rest are forced to return to the drawing board.

As the market continues on its spree toward maturity, there are two key trends, where we expect to see rapid development over the next 12 months.

The first relates to affinity partnerships, where affinity is defined as “a natural liking for and understanding of someone or something”. In near future, affinity is expected to become increasingly important for insurers. At the moment, a number of key challenges exist for incumbents—they lack strong customer relationships, suffer from a shortage of real time and accurate information about individual or company behaviour, and have limited ability to engage with customers through their preferred channel. Insurance is very rarely the thing that captures someone’s imagination.

This is why we believe affinity relationships and partnerships can play a key role. Firstly, the affinity partner has a strong and trusted relationship with the customer; by definition, there is a natural connection. Secondly, the company often has access to a significant amount of data on the underlying users that prove helpful in understanding different customer behaviours, relative risk profiles, and proactive management on how to reduce accidents. Finally, the affinity partner has an established digital communication channel with the end users.

A number of InsurTech’s are now capitalising on this model and focusing on the strength of the relationship to understand customer needs. They further comprehend the many ways to reduce risk by creating strong propositions, where often the actual insurance pushed to the background.

A leading example is Player’s Health, a US and Canada based company, in which Eos invested earlier in 2019. Player’s Health is focused on the amateur sports market. They have built a comprehensive risk management platform that enables organisations to better understand and improve their governance, oversight, safety, wellbeing, and health of athletes. Areas of support include leading return to play protocols, particularly for injuries like concussion, the ability to report and manage abuse, improved treatment at tournaments, and risk management guidance developed with leading sports institutions.

It’s a great product and a clear market leader. However, without the ability to reach athletes the platform will struggle to deliver on the promise. This is where affinity relationships come into play.

Player’s Health has partnered with sports governing bodies including US Club Soccer and the Canadian Football league that support adoption throughout their organisations. In addition, Player’s Health is also partnering with the companies that deliver sport relationship management to the underlying organisations. Through these alliances, Player’s Health reached over 40 million athletes in the US alone.

The second trend that we wanted to highlight is in relation to the sharing economy that reaches many areas of the overall economy, including transportation, healthcare, consumer goods, and professional services. It is estimated to be worth $335 billion by 2025.

McKinsey estimates that in the U.S. and Europe alone, 162 million people or 20-30 percent of the workforce is providers on sharing platforms, and in the US this is expected to increase to 40 percent by 2020 and over 50 percent by 2027. Gig economy workers are not typically employed by the various platforms, and therefore don't receive conventional employee benefits, such as insurance or retirement options.

This creates both a significant challenge and opportunity for the insurance industry. Presently, the vast majority of products and customer engagement channels are not suited for these flexible working arrangements and/or use of goods and services. There is massive under insurance.

The current confusion in the ride share sector in the US is a good example, with drivers subjected to different periods of cover and confusion over whether their personal or commercial insurance policy is effective. Naturally, the regulators are concerned.

Again, InsurTech’s are stepping into the breach and leveraging the data being captured by the sharing economy platforms combined with machine learning capability to understand and price for risk, whilst at the same time creating products with sufficient flexibility to cover these emerging risks often on a real time basis with a usage based policy.

At Eos, we continue to explore and investigate both of these areas and expect to deploy capital in the future.

Weekly Brief

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