An eon ago in March 2015, we wrote Not that many InsurTech startups – yet. Since then we have seen an explosion of startups including two very high profile ones – Lemonade and Metromile – hitting the headlines in recent weeks. InsurTech is now so hot that a sentiment crash (a turn in the hype cycle) cannot be far behind.
Today is about Metromile and the promise of personalized Auto Insurance.
TL:DR. Hype cycle and reality cycle are disconnected. InsurTech is real even if some expectations have lost touch with reality and we may soon have headlines debunking it.
Metromile and the promise of personalized Auto Insurance
The idea that in-car sensors can deliver the data to enable personalized Auto Insurance is sound. The status quo – that all of us have equal risk profiles, differing only by age and location, is clearly wrong. It took in-car sensors to deliver the data to change the game.
Metromile is the startup to watch. This is a full stack startup that competes head on with existing carriers. They raised $191.5m to buy an existing carrier. Their consumer pitch is “pay per mile” (which is one aspect of personalized Auto Insurance), but as a full stack play, Metromile has the opportunity to incorporate whatever innovation is needed and enabled by in-car sensors and wearables to compete head on with existing carriers.
Metromile is perfectly positioned for the ride sharing change (aka Uber and Didi). This is not good news for people who make money driving others; pay per mile must increase their premiums.
InsurTech has hit the hype cycle.
All this excitement has turned boring old InsurTech into the latest hot new thing. InsurTech has gone from ignored to top of the hype cycle in less than two years
Hype cycle and reality cycle are disconnected. The Insurance consumer needs are real and the tech enablers are real. That is also true in P2P Lending, but that did not prevent a sentiment crash in P2P Lending after a minor scandal at Lending Club. A sentiment crash in InsurTech will probably come soon. If it happens in the private markets it will be muted (no shorting allowed in private stocks means down rounds get little media attention).
Incumbents are not asleep at the switch in Insurance
P2P Lenders could innovate while Banks were asleep at the switch. In contrast, Insurance companies are alive to the threat and opportunity.
Insurance Incumbents with large agent networks are like Banking Incumbents with large retail branch networks. They may see the change coming but their hands are tied – the Innovators Dilemma is tough.
Imagine an Incumbent without that legacy constraint.
That is what we see in Auto Insurance where two Auto Insurance carriers – Geico and Progressive – can innovate without the constraints of an agent network. We profiled Progressive here.
Banking & Insurance are cousins
We view InsurTech as a subset of Fintech. That is why Daily Fintech dedicate one day per week – Thursday – to InsurTech. There are many points of intersection:
- Citigroup was formed by combining a bank – Citicorp – and financial conglomerate – Travelers Group – that originated as an Insurance company. This heralded the end of the Glass Steagal era.
- What both Sandy Weil (who created Travelers) and Warren Buffet figured out is that collecting Premiums upfront leads to cash flows that can be invested. One part of Insurance sits within the Wealth Management business.
- Life Insurance companies started pitching their product as a Wealth Management tool.
Who will buy who first?
In banking, the assumption is that incumbents will buy startups. Metromile buying Mosaic Insurance shows that we are in a new era when the reverse is just as likely. Given that Metromile faced agile incumbents such as Geico and Progressive, this was an essential move.