A major thesis at Daily Fintech, outlined in our first post on 29 June 2014, is that we are witnessing a transformation driven by Fintech that is similar to when the PC stack replaced mainframes. We moved then from vertical integration (mainframe vendors controlled the whole stack) to horizontal layers (Intel, Microsoft, PC Manufacturers, Applications).
In Fintech we are moving from vertically integrated banks, brokers and insurance companies that control the whole stack to a horizontal stack with services at the application layer by consumer facing born-digital ventures.
Despite the historical parallel to the Wintel stack, we see little chance that any one or two companies can control the bottom of the stack like Microsoft and Intel did in that era.
This big shift is happening even faster in Insurance than Banking thanks to Reinsurance As A Service.
Reinsurance As A Service
The insurance industry works through a 3-layer stack:
- Layer # 1: Brokers. Their job is to gather premiums from customers.
- Layer # 2: Insurance Companies. They take in premiums via brokers, invest the cash flow and pay out claims when needed. Their primary job is claims processing.
- Layer # 3: Reinsurance Companies. They are the payers of last resort. They insure the insurance companies. Their job is to have enough capital to pay out claims, even if the models did not predict the volume of claims.
Reinsurance companies have five things needed to become an insurance platform:
- Regulated status.
- Global footprint.
- Domain experience.
- Data and models used to price premiums.
Let’s move from theory to practice.
Other Reinsurance companies are also active, but MunichRe is ahead of the pack so we analyze their portfolio first.
MunichRe created Digital Partners (DP) in May 2016 as an intrapreneurial startup within MunichRe to connect with consumer facing InsurTech startups. DP has a global mandate and operates across all retail and small company business classes from offices in London, Cincinnati & Palo Alto.
MunichRe have announced partnerships with 8 exciting InsurTech ventures:
This is interesting as they target niches within commercial insurance such as Commercial Photographers and Personal Trainers. Risk data is domain sensitive, so a niche by niche strategy makes sense. Before Reinsurance As A Service it would have been hard to imagine the economics of this niche by niche strategy working out. Look at the explosion of innovation at the Application layer on top of platforms such as Microsoft and Apple App Store.
This is another example of a niche play on top of a platform. They focus on flight interruption insurance with a value proposition around real time resolution, claiming to proactively alert and rebook your flight at no cost if cancelled/delayed. As there is no claims process, the issue can be resolved in real time. They get distribution through travel partners looking for ancillary revenue.
We have profiled Bought By Many here. Again, this is about niche segments, in their case enabled through collective buying power. Examples include pet insurance for rare breeds and travel insurance for people with medical conditions. The company claims over 250,000 users and year-on-year revenue growth of over 100%. They use customer feedback via social media to co-create products.
We profiled Simplesurance here. It is interesting that their lead investor is Allianz. These are clearly non-exclusive relationships.
Slice Labs focus on insurance for the sharing economy, because on-demand workers, such as those that work for ride share companies, are typically uninsured or underinsured. They are still in private beta. The level of product complexity, mixing disciplines from consumer and commercial insurance, would be tough for a startup without a platform and the level of agility to go after new markets like this tends to defeat incumbents.
So-sure is short for social insurance. You can “introduce your friends and benefit when they and you look after your items: the less you and your friends claim, the less you pay.”. An example is iPhone insurance. Again, imagine doing this without a sophisticated data and models to price the risk properly.
We have profiled Trov here. They focus on on-demand insurance for single items for whatever duration they want, such as sporting equipment, jewelry and valuables.
Wrisk is in stealth mode.
2016 was a year of Cambrian explosion for InsurTech. Investors all agree that InsurTech is the space to be. We could take an Eeyore view that it is all a bubble, but we incline to the Tigger case that we are just getting started. A big reason for optimism is the level of support for pricing risk properly that Reinsurance As A Service offers. A classic Eeyore comment would be “all this cute mobile stuff is all well and good but pricing risk is hard and needs a lot of experience and data and you need the capital to back that up”. Reinsurance As A Service fixes that.
If you want to see these insights before your competitors, join over 16,500 of your global peers who subscribe by email and see these trends reported every day. Its free and all we need is your email.