Prevention & pay per outcome could be the key to Healthcare InsurTech post Trumpcare

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An apple a day keeps the doctor away. With the ever-rising cost of healthcare, the ROI of one apple a day looks pretty good. 

Welcome to pay per outcome disruption coming to healthcare Payers (Insurance companies) and Providers (doctors etc).

Nobody knows what Trumpcare will look like, but some direction of travel seems clear. Please note that this is not a political blog, please refrain from any comments like that; one cannot ignore politics when looking at Healthcare InsurTech, but our focus is the business of technology not politics.

So far we know this about the Healthcare InsurTech market:

  • It is huge (about 18% of GDP in America)
  • It is broken (ask any consumer and most doctors)
  • It is dominated by America (so what President Trump will do is critical)
  • There can be no meaningful change at the Insurance level without breakthroughs in health technology; thankfully we can see a lot of that.
  • Regulation (and therefore politics) has a massive impact, but not even politicians can change the big secular trends around technology and demographics.

The one trend that seems clear is the move from pay per procedure to pay per outcome. Consumers aka patients aka citizens/voters want this and many medical practitioners want this, but it’s a wrenching change for payers and providers, so one can expect plenty of resistance from incumbents. The most logical extension of pay per outcome is the perhaps apocryphal story of the Chinese Emperor who paid his doctor when he was well, not when he was sick, on the basis that when he was well the doctor was doing his/her job right.

Prevention may include an apple per day, but that is only a simple starting point.

A move towards prevention and pay per outcome will disrupt the U.S. healthcare business. As healthcare is about 18% of GDP, there is a lot at stake. Payers and providers will have to transform themselves to meet this emerging reality. The driver is the same as the democratization of wealth management. As investors get more information, they can make more informed decisions on their own. The same is true with patients. The strategic response from incumbents and startups is to deliver new services that improve convenience while lowering cost by leveraged big data to provide personalized solutions.

The fundamental shift is to rewarding prevention at least as much as for fixing a problem. Which brings us to the corporate self-insurers. People talk about the grand vision of insuring healthcare for all consumers/citizens/patients, but that requires a political will and is hugely complex. However, within the domain of a single large company, it is a different story.

These numbers add up. According to some estimates the

total number of employees among all Fortune 500 companies is over 26 million.

Whatever direction the politics takes us, the trend towards an increased focus on the healthcare consumer seems clear, simply because the tools are there to deliver that. Whether we move to Health Savings Accounts (HSAs), or providing tax credits (similar to what employers currently get), or mandates for the whole population, the focus will be on ensuring quality of outcome for consumers.

In this post, we look at 4 of the companies positioned to do well from a general trend to an increased focus on the healthcare consumer and pay per outcome:

Accolade

Omada Health

Sharp

Boundlss 

 

Accolade

 

Accolade describes itself as a healthcare concierge. Its customers are large, self-insured companies—as well as health insurance providers—that want to see their employees and their families make better use of the healthcare benefits they provide. People can call on the service for personalized help navigating health plan benefits, evaluating care options and other questions, all from a single point of contact. The company says its services reduce costs by 5 to 15 percent, while improving insurance usage, health outcomes, and patient satisfaction.

Their CEO, Rajeev Singh, expressed it well in a recent interview in Xconomy:

“If you’re a wealthy person in this country today, you go get a concierge doctor and you pay $35,000, $40,000 a year for that concierge doc. They are your central point of navigation. Anything goes wrong with anybody in your family, you call them and they fix it. This is fundamentally the democratization of that idea.”

Accolade recently raised $70 million in new capital from Andreessen Horowitz and Madrona Venture Group, among others, bringing the total venture capital raised by to $160 million.

Disclosure: I have an indirect financial interest in Accolade.

Omada Health

Omada Health  focusses on prevention related to obesity, which the company describes as an epidemic and pegs as a $500 billion a year cost for employers, insurers, and consumers/patients.

Their product name – Prevent – says it all. Prevent is a digitally-based lifestyle intervention that helps individuals reduce their risk for obesity-related chronic diseases such as diabetes and heart disease.

When people sign up for Omada, they receive a wireless, digital bathroom scale, pedometer, resistance band, and tape measure. Customers are also paired with health coaches and are given a proprietary health-related curriculum and connected to a like-minded online peer network.

Omada operates on a pay-for-outcomes pricing model and has been tackling the obesity epidemic with a lot of scientific evidence, published in its own clinical two-year study in the Journal of Internet Medical Research.

Their last funding round was a $48 million Series C in September 2015 led by Norwest Venture Partners. Its strategic investors include two Omada customers and health care leaders – Humana Inc. (NYSE: HUM) and Providence Health & Services, as well as prior investors US Venture Partners, Rock Health, and Andreessen Horowitz, and new investors GE Ventures and dRx Capital.

Sherpaa

Sherpaa is a New York City-based digital healthcare service that offers a back to the future relationship with your doctor – ye olde family physician. In their words:

“Sherpaa is your own personal primary care doctor, online. You use Sherpaa doctors for issues a primary care doctor or urgent care center would treat. Just subscribe, fire up our app, communicate, and get care. Our doctors diagnose, order tests, prescribe, treat, refer if we need to, and check in until you’re all better.”

They make two statements that few patients/consumers would argue with:

– Communicating with your doctor should be as easy as communicating with your friends, family, and co-workers.

– A consistent doctor helps you best.

Boundlss

Boundlss, from Australia, offer staff wellness programs to improve outcomes for Insurance carriers, corporates and individuals. They offer an AI powered chatbot personal coach called Loyd who can make customized wellness suggestions.  The platform connects to over 150 wearables and apps already tracking health metrics for a user, which it no doubt leverages to makes its custom suggestions. (We covered them earlier in this post)

Health insurance is all about data.

Buying Health & Life Insurance today is like filling in a form to tell Netflix what movies we say we like at that moment in time – versus what movies we actually watched recently. You fill in a snapshot report of your health, with blood samples and other tests run by a doctor and the premium is set. The fact that you later put on 40lbs and developed diabetes – or gave up smoking and alcohol and ran a marathon and reduced your blood pressure – impacts Insurance risk but is ignored by Insurance companies today.

Wearables and in-home sensors (such as in bathroom scales) could change all of that and revolutionize health and life insurance by a) personalizing insurance and risk and b) changing the delivery of healthcare by augmenting the intelligence of healthcare workers through cognitive computing linked to this avalanche of data and c) improving health outcomes by engaging patients with personalized but automated coaching.

Our premiums would go down as we became healthier. Becoming healthier would not only make us feel better, it would also save us (and our employer) a lot of money.

Imagine an exchange like this over chat bot:

  • Patient: I am not feeling well.
  • Healthcare worker: I can see why; your xxx vital sign does not look good. I suggest you do yyy right now and let’s schedule some time so I can run some more tests.

Wellness programs

We see an increasing trend for digitally savvy wellness programs to partner with insurtech ventures. For example, Limeade partnered  with Accolade.

Outside the US, VitalityHealth, originally from South Africa, is an insurance carrier that was early pioneer of wearables before they were called that. They have expanded globally through partnerships; they moved into the UK, with Pru Health and China with Ping An. In the US they have the novel strategy of partnering with 6,000 gyms; they can track actual attendance from a swipe of their membership card.

Australian insurer Medibank has partnered with loyalty program flybuys, offering bonus points for fruit and vegetable purchases. In addition bonus points can also be accrued for every 10,000 steps made a day, measured by linking up your Fitbit device. Like Vitalit Health they have has also partnered with local gyms via its GymBetterprogram.

Healthcare is massive and massively complex

Fixing something as big and complex as the healthcare business was never going to be easy. There is no simple Uber like app to fix this and many early VC funded attempts hit issues such as 23andMe, Theranos and Zenefits. The prize is still big but it will be like scaling Everest – very, very hard and it takes time. For example, it takes many years for an innovation like Telemedicine to go mainstream, but when it does it will be a game-changer and with almost ubiquitous high bandwidth, it is inevitable if not imminent.

Two big hurdles face the data driven healthcare changes:

  • Hurdle # 1: PreExisting Conditions. One lasting legacy of the Affordable Care Act (aka Obamacare) is that consumers cannot be denied coverage based on a pre-existing condition. That is a problem if the wearables data shows we have a new condition that could have been present but indetected at time of application. We want our Insurance to go down when our health improves, but we don’t want it to go up when our health declines.
  • Hurdle # 2: Data Privacy. Privacy regulation varies by jurisdiction, with Europe tending to tougher than USA; but even in USA in some States you must communicate to consumers if you use factors such as gender, age, zip code in pricing.For wearables and in-home sensors to impact Insurance premiums, policyholders must be willing to share data with the Insurer. This may be an area where Millennial attitudes to privacy (it’s done, put a fork in it) may rule. Or there may be consumer and regulatory backlash as the data is so sensitive. The companies will need to prove that their aggregated anonymous data cannot be reverse engineered to create Personally Identifiable Information (PII); any hacker that breaches that will create a reputation crisis, so it has to be really secure.

These are real obstacles, but entrepreneurs treat obstacles as something that defines their action list. They find a way to solve those problems. Given the scale of the opportunity, somebody will surely solve them.

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Parsing Lemonade PR to see if P2P insurance is game changer or a mirage

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One of our 2017 Insurtech Predictions was:

#2 P2P Insurance does not (yet) live up to its promise.

We will see many drop out, leaving one or two well positioned to win big in 2018 and beyond. The term P2P Insurance will fall into the slough of despond.

Today we dig deeper into that subject.

A lot of the InsurTech innovation we see can be coopted by the incumbent carriers relatively easily. Knowing how to build a compelling digital user experience is not enough to create a moat and sustainable advantage. So a lot of people are looking at P2P insurance as the disruptive game changer. 

Ever since Lemonade did their $13m Series A funded by the hot hands of Sequoia Capital just over one year ago, there has been a lot of speculation about whether Lemonade will prove this model to be a game-changer or whether the whole thing is a mirage.

Now that Lemonade is releasing some information, we take a look at what we can learn about the whole sector.

P2P insurance 101

P2P insurance, sometimes also called reciprocity insurance, reduces the inherent conflict between insurance carriers and their policyholders. Policy holders are given more control in return for taking reciprocal risk (i.e. paying out to other members). Peers control decisions that are traditionally made by the insurance carrier, such as:

  • forming their own risk pools for deductible coverages
  • making decisions about the proceeds of the pool
  • allowing peers to adjudicate their pool’s claims.

Variants of P2P insurance

  • By country: Both regulations and social networks vary widely by country, so it is natural to see entrants from so many countries.
  • By risk type coverage: some go after automotive, others move into new insurance needs related to the sharing economy. Other examples are liability insurance, household contents insurance, legal expenses insurance and electronics insurance. Which one gets traction first is still unclear.
  • Broker model: a part of the insurance premiums flow into a group fund, the other part goes to a third party insurance company. Claims are firstly paid out of this group fund. Claims above the deductible limit are paid by the insurer. When there is no insurance claim, the policyholder gets his/her share refunded from the group pool or credited towards the next policy year. If the group pool happens to be empty, a special insurance comes into force.
  • Carrier model is similar to the broker model, except that as the peer-to-peer provider is also the carrier. If the pool is insufficient to pay for the claims of its members, the carrier pays the excess from its retained premiums and reinsurance. Conversely, if the pool is “profitable” (i.e. has few claims), the “excess” is given back to the pool or to a cause the pool members care about. Peer-to-Peer insurers take a flat fee for running the operations of the insurance enterprise. The fee is not dependent upon how many (or how few) paid claims there are. The carrier model can be launched by incumbents or full stack, regulated InsurTech startups.

Social and affinity networks

Trusting your peers is critical to the model, so Social and affinity networks will play a key role. The trust is not based on personal relationships, more to do with affinity. To take one example, window cleaners need insurance and if you are a window cleaner you and your peers understand the risks better than any insurance company can as long as you all have access to the same data.

In the broker model, the only requirement is that all group members must have the same type of insurance. In the carrier model, the only requirement is that the group members have something in common, such as being members of the same club or profession or believing in the same charity.

Some P2P Insurance Players

You can see from this list why analysts focus on Lemonade. Most others have not raised much. One that has – Huddle Money from Australia – positions more broadly as a P2P Bank.

Name Country $m Raised
Huddle Money Australia 6
Friendsurance Germany 15.3
Lemonade USA 60
Besure Canada Undisclosed
TongJuBao China Undisclosed
PRVNI Czech Republic Undisclosed
insPeer France Undisclosed
PeerCover New Zealand Undisclosed
Riovic South Africa Undisclosed
Guevara UK Undisclosed

There are many others. This thread on Fintech Genome is where the list is being crowdsourced.

Now for the case for a game changer presented by Tigger and the case for mirage by Eeyore. Note for those who did not grow up with Winnie The Pooh stories, here is the cast of characters:

– Tigger is the excitable cat, full of enthusiasm for every new technology which will surely change the world for the better and do it right now.

– Eyore is the old grey donkey who thinks it is all rubbish, that all this change will only end badly or won’t happen at all.

– Winnie The Pooh is a humble “bear of little brain” who somehow gets to the right answer by asking good questions. We all want to be that insightful bear, but in the tech world the market is the only judge of what works or does not work.

First, lets look at what information Lemonade actually released.

Lemonade’s recent PR 

  • A ‘world record’ for the speed of paying a claim. The company claims that at seven seconds past 5:47pm on December 23, 2016, Brandon Pham, a Lemonade customer, hit ‘Submit’ on a claim for a $979 Canada Goose Langford Parka. By ten seconds past the minute, A.I. Jim, Lemonade’s claims bot, had reviewed the claim, cross referenced it with the policy, ran 18 anti-fraud algorithms on it, approved the claim, sent wiring instructions to the bank, and informed Brandon the claim was closed.

The case for game changer by Tigger

  • P2P Insurance fundamentally aligns the interests of the insured and insurer, breaking the win/lose basis of traditional insurance.
  • Affinity networks lead to organic customer acquisition, reducing CAC.
  • Millennials are under-insured and a natural target for renters insurance.
  • Lemonade is a great UX that is personalized & relevant, with a new backend that was built from the ground up (not a new UX on a 30 year old legacy system).

The case for mirage by Eeyore

  • Risk assessment is hard and no UX gloss can change that.
  • There is nothing new about mutual business models.
  • It’s just some social marketing and incumbents can easily copy that.

Our take

I incline to the Tigger game-changer case. Possibly that is me being an entrepreneur and thus having an optimistic mindset, but I also think that the combination of deep-pocketed Reinsurance and full stack new Carriers using a new model and new social techniques and new UX and new anti-fraud technology stands a very good chance. It is still really early in this game, but Lemonade are making all the right moves. A few more thoughts:

  • Quick payout is a big win for consumers. Doing that on big claims may require reducing settlement latency via a blockchain network. So they are smart to focus on really quick payouts on really small claims that do not have that dependency.
  • Loss leaders are a normal way to get early traction for well-funded startups. You cannot glean unit economics from that PR story about one claim to payout thatr was done in seconds.
  • Their PR story does not match the focus on renters insurance. Maybe they had a PR deadline and this was a story that fit, but this seems like a misstep. Or maybe the PR story about instant payout will give their anti fraud tech a real stress test as the bad guys swoop in. Maybe that was the real audience for their PR?

Two horse race at moment

Friendsurance, out of Germany, started earlier, in 2010. Their investors – Horizons Ventures – are not as famous as Sequoia Capital, but a quick glance at their portfolio and the people behind them like Li Ka-shing (the richest person of East Asian descent in the world and the 11th richest person in the world with an estimated wealth of US$26 billion) generates a lot of respect. Expect a move into Asia by Friendsurance given the credentials of the Horizons Ventures team – but not in any hurry as Germany is a very big market on its own and they will be passported into the rest of Europe.

For discussion, please go to this thread on Fintech Genome

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Insurtech Exits enabling Claims Management As A Service

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One of our top 10 Insurtech predictions-for 2017 was: 

“We will start to see exits as Insurance carriers buy startups. These will be either a) reducing operational cost eg in claims processing or risk management b) Robo Agents that enable carriers to sell direct, reducing their CAC and enabling them to compete with startup carriers. These will be small, quick wins for investors and entrepreneurs that will make it harder for the big full stack startups to get traction (as the incumbents will catch up to their innovation).” 

Actually some early deals already happened late last year.

The action so far has been in the claims processing space. This will bring a new layer of efficiency to this critical layer of the insurance stack. In this post we look at two deals:

– WeGoLook acquired by Crawford

– ISCS acquired by Guidewire

 The direction of travel is a Claims Management As A Service layer that will be used by customer-facing ventures. 

Neither deal got much attention in InsurTech media circles because the story lacked any hot VC fund, or mega number or hot space. However, we believe that Claims Management As A Service will be a huge enabler for innovation and in retrospect these will look like very smart deals.

WeGoLook acquired by Crawford

WeGoLook built a network of 30,000+ field agents who perform inspections and custom tasks. The field agents are called “Lookers”. A classic job is to do automotive and property inspections post claim.

While pundits like to talk about drones and AI, we believe that Augmented Intelligence is a more plausible future. A task might be 80-90% automated, but humans are still better at exception handling, particularly when fraudsters have a lot of motivation to cheat the machines is so high. Humans are very good at saying something like “that looks odd and needs a closer look”, but only if the machines are automating the easy stuff. Humans just need the machines to help aka to augment their intelligence.

WeGoLook is small exit at $36m. This makes a lousy story – no hot VCs, no big number in the headline – but it is still life changing for the entrepreneur if they have not raised a lot of money and a quick look at Crunchbase shows that WeGoLook was very capital efficient. It also bodes well for the acquirer. Capital efficiency is a good thing unless you are in the business of deploying other people’s money.

The acquirer, Crawford, is a publicly listed company

The “gig economy” (a much more real term than sharing economy) is the new normal and WeGoLook adds another type of gig to give people additional income.

ISCS acquired by Guidewire Software

This is a bigger deal at $160m. Again the acquirer, Guidewire, is publicly listed. At a revenue multiple just shy of 4 on 2016 ISCS revenues of $41m, the multiple looks about right for a niche cloud based SAAS business.

The big theme here is that what Salesforce started is now going mainstream. Cloud will be the norm for all business apps. Guidewire currently targets large Property & Casualty insurers. Acquiring ISCS gives Guidewire entry into the small carrier market.  ISCS targets smaller Property & Casualty insurers, two-thirds of which have less than $100 million in revenues.

Business As A Service

ISCS is traditional Software As A Service. It is a great business – strong growth margins and good revenue visibility. There are lots of niches such as small P&C carriers. But this opportunity has been visible for a while so each niche has multiple players. WeGoLook could be described as Humans As A Service. Where we see the puck headed is something that combines elements of both services into one higher level. Generically we can call this Business As A Service, but within a niche we are more likely to see names such as Claims Management As A Service.  This is a natural evolution of the software business through Past and Present to the Future:

  • Past = Perpetual Licensing. Close a sale and send a disk with the software. All the hard work (and all the reward) of delivering the business result now passes to the customer. The software was the secret sauce by itself. This is like selling yeast to people who want bread; yeast is the active ingredient, but it is useless on its own.
  • Present = Software As A Service. You add hardware to deliver the software over the Internet. In cooking terms, you add water, salt, flour (commodity ingredients) to offer a loaf of bread.
  • Future = software enabled Business As A Service. This includes hardware – that is now the baseline. Software Enabled Business Services also include 24/7 guidance by human experts and business process innovation and digital media that attracts customers to your customers and co-branding partnerships and proprietary data. To stretch the analogy, this is now a restaurant where bread is one item (given free while waiting for your appetizers).

As an example, think of a payment network such as Visa, Mastercard and Amex. These are Software Enabled Business Services. Yes, these payment networks have software at the core. Yes, they own the hardware servers that the software runs on. Yet they don’t license that as a SAAS product to banks. They wrap it into other services to deliver transactions to consumers via Banks. That is how Visa, Mastercard and Amex turn their secret sauce into Unfair Advantage.

Claims Management As A Service will be a great platform business and will enable lots of innovation by customer-facing ventures (which could be full stack Insurtech or traditional Insurance after a digital transformation). The WeGoLook and ISCS acquisitions point us towards this future.

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Mobile Microinsurance in India

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Consider these numbers to see the scale of the opportunity for mobile Microinsurance. In a developed market like the UK, 80% have some kind of Insurance. That goes down to 10% in India and 2.5% in Africa. It is pretty clear where the blue ocean market is.

These millions of new insurance customers won’t buy the legacy insurance products. The new products will need to be a) mobile end to end (i.e. not a mobile front end that requires you to use a laptop/desktop to complete a process) and b) available in very small amounts for very low cost (“microinsurance”). Whether these new mobile Microinsurance products are delivered by Insurtech entrepreneurs or agile established carriers remains to be seen.

Like Microfinance, Microinsurance is key to the transition from subsistence farming to a middle class life. One uninsured disaster and families face financial ruin. An insured borrower is also a better credit risk, so the two markets are connected.

Insurance Comparison Sites 

Sometimes, the simplest innovation wins. In India we see a lot of comparison sites. This makes sense in market such as India, where lots of consumers are buying insurance for the first time. Compison sites also have a proven revenue model.

Examples include:

Policy Bazaar

My Insurance Club

Compare Policy

Policy Bachat

However, these comparison sites assume that the insurance product fits market needs and just need to be marketed, discovered & compared. The existing Insurance products meet the needs of those who are already in the urban middle class. This is a big growth market, but still small compared to the millions emerging from subsistence farming into the lower rungs of a middle class life (what we will call the “aspirant middle”). That market needs some innovation at the product level, not just at the marketing level. For that we need to look at Mobile Microinsurance. But first, the one product they need most – crop insurance.

Crop Insurance – the government approach

Crop insurance is what the aspirant middle needs most. One bad harvest leads to ruin. So, it is no surprise that the Indian Government is proactive on this front. In February 2016, they launched the Pradhan Mantri Fasal Bima Yojana (Prime Minister’s Crop Insurance Scheme). The premiums will be fixed, depending on the type of crop. The Indian Government clearly don’t want a repeat of rapacious loan terms from some of the Microfinance players.

Crop Insurance – the private sector approach

Crop Insurance could use some of that Blockchain & big data magic that we see brewing in startups. Something as simple as flood insurance is no longer simple, now that climate change forces a rethink on existing models. We have looked at big data ventures going after this market such as Meteo and Praedicat and then we looked at how blockchain is being used for catastrophe swaps.

So, there is plenty of innovation help for any insurance companies that want to offer crop insurance at those Government-fixed rates. It is likely that meeting those Government-fixed rates and turning a profit will need an entirely new generation of insurance, with innovation front to back. For that we turn to mobile microinsurance

An idea whose time has finally come

Mobile insurance is nothing new. It emerged in India way back in 1997, when telecom operators launched mobile based insurance (dubbed “mInsurance”). This has not been a great success story. Often an idea is simply ahead of the market reality. In this case, the market needed mass penetration of mobile – tick in the box for that today. It also needs new entrants, not just Telecom operators which have to date not been as successful as they could have been at leveraging their network and customer base and billing relationship into a big position at the application layer.

BIMA – Mobile Microinsurance but not in India

India has the ingredients to be a leader in Mobile Microinsurance, yet so far the action seems to be elsewhere. BIMA Mobile comes from Sweden, has an office in London and operates in many markets including nearby ones such as Pakistan, Sri Lanka and Bangladesh – but not yet India.

BIMA bridges the gap between Telecom operators and Insurance companies.

Given the scale of the market and the digital infrastructure being laid down by the Modi Government, one can expect to see BIMA come to India soon. Whether it will be new Carriers or old Carriers who the partner with remains to be seen.

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The Daily Fintech Top 10 Insurtech Predictions for 2017

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This is what we said a year ago. I think we got the overall trends right and there were many great ventures launched that illustrated these themes. 2016 was a year when Insurtech was hot for early stage investors. 2017 is the year when Insurtech has to deliver on at least some of the promises.

 #1 Small M&A Exits.

We will start to see exits as Insurance carriers buy startups. These will be either a) reducing operational cost eg in claims processing or risk management b) Robo Agents that enable carriers to sell direct, reducing their CAC and enabling them to compete with startup carriers. These will be small, quick wins for investors and entrepreneurs that will make it harder for the big full stack startups to get traction (as the incumbents will catch up to their innovation).

#2 P2P Insurance does not (yet) live up to its promise.

We will see many drop out, leaving one or two well positioned to win big in 2018 and beyond. The term P2P Insurance will fall into the slough of despond.

#3 Blockchain POC for Claim to Cash in a few days emerges

This will come from the B3i consortium and so may be launched by multiple carriers at the same time. This will a) justify the blockchain hype and b) slow VC funding into Insurtech as it becomes obvious that the incumbents are agile and aggressive.

#4 Open Insurance Platforms emerge

At least one Insurance or Reinsurance carrier launches as an Open Insurance Platform (using Open API) for Insurtech startups to innovate on top of. This enables lots of smaller startups to thrive but makes it harder for a real breakthrough Challenger Carrier to emerge.

#5 GAFA and BAT move in aggressively

GAFA (Google Amazon Facebook Apple) and BAT (Baidu Alibaba TenCent) change the game in the comparison and discovery layer, commoditizing the Robo Agent space.

#6 Breakthrough Challenger Insurance in the Rest

In China, India, Africa and Latin America (the Rest), the market is wide open as so many consumers will be getting their first insurance and they have no legacy to overcome. This will enable a Breakthrough Challenger Insurance venture to scale.

#7 Augmented Intelligence rejuvenates old agents

There will be lots of talk of Robo Agents and AI machines replacing humans but the practical success, probably from a startup using an AI platform from a Big Tech vendor, will enable older human agents to win by empowering them with vastly improved data, models and personalization. This could be a highly profitable B2B2C play.

#8 New markets open doors to Challenger Carriers

This will be in areas such as Sharing Economy and e-commerce and cyber security. As the customer needs are so new, Challenger Carriers armed with better data and models will be able to break into the market.

#9 Auto Insurance will see fierce competition

This will benefit consumers as direct to consumer carriers (such as Geico and Progressive) battle for share with Challenger Carriers.

#10  Life Insurance will morph fully into Wealth Management

Already Life Insurance is used as a Wealth Management tool. As new agile capital pools move into Reinsurance, we will see a lot of innovation in this area.

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Strong user authentication could enable big companies to get insurance from cyber crime

 cyber-crime

This is day 4 of Digital Identity Week.

This post is about the theory of the “insured Internet”.

Most people who track cybersecurity agree on: 

  1. Anything that is digital can be hacked. Nothing is secure. It does not matter whether you are a Fortune 500 company, Government, US Presidential candidate, mega Bank or payment network. You will get hacked. It is an arms race that the good guys are losing because every solution, no matter how clever and expensive,  has a shelf life until the bad guys find a way around it (and the payoff for the bad guys is big enough and the Crime As A Service networks use the full power of digitization). Your identity can be stolen with ease and with a valid but stolen identity all the KYC & AML processes are useless.
  1. This is a Board level issue in big companies. They are willing to spend whatever is needed because the cost of a breach is so high. This is an existential threat for the biggest companies on the planet.
  1. User authentication is the key. Eliminating static passwords is essential. That is why the biggest tech companies in the world came together to create the FIDO Alliance. This is too big for one company and is critical to all.

The idea of the “insured Internet” is that the security of a customer’s data is protected to a level that it can be insured at a reasonable price.

Trusona

The company who can deliver this fully secure authentication with one time passwords today is Trusona (one of the members of FIDO Alliance).

You can see their demo on their home page, which only takes a few seconds. They unveiled this at Finovate Fall 2016 (where they won Best of Show). The founder was able to give the demo 4 times during the 7 minutes allocated by Finovate, while still leaving room for a relaxed, jokey talk to make the point about how easy this will be for every mainstream user. This is grand-parent friendly.

For the story behind the dongle based technology, which is free to users, read this post on NetworkWorld.

“The TruToken dongle is the miniaturization of anti-ATM-card cloning technology made by MagTek that reads not the digital data recorded on cards’ magnetic strips but rather the arrangement of the pattern of the barium ferrite particles that make the strips magnetic. The particles are so numerous and so randomly placed that no two strips have identical patterns, says Ori Eisen, Trusona’s CEO. That also makes the strips unclonable, he says.

In order to use the authentication system, the Trusona app on the user’s device connects to Trusona’s cloud. The user plugs in the dongle, and if the dongle ID and device ID have been paired, the user is prompted to swipe a card with a magnetic stripe that has also been paired with the user. That can be a credit card, driver’s license, library card, etc. The barium ferrite particles must match.”

Before starting Trusona, Ori Eisen was worldwide fraud director at American Express. So he knows why credit card companies have to charge so much – combatting fraud is expensive.

This is particularly important in America as it makes the transition from mag stripe cards to EMV (we covered the implications in our August 2015 post).

I imagine the Trusona sales pitch to SWIFT will be well received after the hacks they recently suffered (which we covered here).

Over a year ago we wrote that the only way out of the cyber security nightmare is to move off centralized data centers to a fully decentralized Blockchain based network.

“For Banks to seize this opportunity, they have to discard the notion that centralization = secure. Putting it all in one place with a great big lock has been the accepted way since banks started. Decentralization sounds wild, almost hippy, with echoes of anarchic P2P services such as Napster.”

There are many reasons why the Internet will return to its decentralized roots, but telling a Fortune 500 board that their only hope is to move off centralized data centers to a fully decentralized Blockchain based network would get you some odd looks. A Trusona pitch would be much easier.

Swiss Grand Parents may be first

If you live in Switzerland, you may already use a dongle with one time passwords. Many Banks insist upon it. But each dongle is bank specific and can be rather unfriendly to use, making onboarding harder. So the mass market rollout could happen first in Switzerland.

Not only is it easier for onboarding, but as the Network World article explains, the Trusona dongle adds an additional layer of security.

“The way the card is pulled through the card reader on the TruToken is also a unique identifier, Eisen says. People pull them through at different speeds, at different angles and from different directions in a manner that is readable and unique, he says.”

John Le Carre can explain

In October 2015, we wrote about how tokenization could be the trojan horse that will break the credit card rails.

“tokenization enables the one time password that a student of cold war espionage stories would recognize. If you steal the token/one time password, you can steal the contents of that message/payment and only that message. That is fundamentally different from stealing the Primary Account Number (PAN). If you steal the PAN (by physically stealing a card or reading the mag stripe encoded data from a merchant) you can steal a lot of money.”

Implications for InsurTech

This affects everything that happens online. If customer data is insecure, all the business models based on social, media, analytics, cloud and ecommerce are threatened. Securing data through strong user authentication makes the Internet viable. It is as dramatic as that.

Trusona happens to be first to market with some clever technology, but secure user authentication is much bigger than one company. That is why FIDO Alliance is backed by the biggest global Fin companies and the biggest global Tech companies.

One of the Board Members of FIDO Alliance is Abbie Barbir, who is a Senior Security Adviser at Aetna.

As this article in CIO points out:

“Cybersecurity insurance transfers some of the financial risk of a security breach to the insurer. But it doesn’t do a good job of covering the reputation damage and business downturn that can be triggered by a security breach. “

Also the cost of Insurance is totally dependent on your level of security. Imagine your car insurance premiums if you had to tell the Insurance company that you always left the doors open with the key in the ignition (and the title deeds in the glove box).

As CIO puts it:

“Cyberthreats are so broad that the cost of protecting against them all would be prohibitive.”

This will be a big market for insurance and, being new and tech enabled may leave room for an InsurTech innovator.

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Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

 

Insurance helps Bitcoin become safer for mainstream consumers

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Bank depositors get tax-payer funded insurance in many jurisdictions (such as FDIC in America) in case a bank goes bankrupt. Your Bitcoin in Mt.Gox or BitFinex….buyer beware.
People paying by Credit Card can fight back against a fraudulent charge. Once you send those Bitcoin it is like handing over cash…buyer beware.
Bitcoin early adopters and true believers are technically savvy enough to protect themselves in these kind of situations. For 99.99% of the world, a bit more reassurance is needed.
That sounds like a job for Insurance – pay some money for peace of mind. This post looks at how Insurance companies are stepping up to the plate.
Japan 
The most high profile Bitcoin exchange failure was Mt.Gox, based in Japan. So it is no surprise that the first major rollout of Insurance for Bitcoin exchanges comes from Japan
Mitsui Sumitomo Insurance offers insurance to bitcoin exchanges globally. This is not exactly new, but in the past each deal was very custom negotiated. Mitsui Sumitomo Insurance seems to want to make this a more routine line of business.
Brave New Coin has the details, which is useful as the Mitsui Sumitomo Insurance offering to bitcoin exchanges is still only in Japanese.
The plan’s total theft cover ranges from ten million yen (US$88,500) up to one billion yen (US$8.85 million). It also covers loss from internal and external threats, including employee theft, mistakes, cyberattacks, and other unauthorized access.
The first customer is Japan’s largest exchange, Bitflyer. By working with a highly professional exchange, Mitsui Sumitomo Insurance can offer best practice advice. After a number of bitcoin exchange blow ups, the best practices are now well established. If a bitcoin exchange follows these, the risk of loss goes down (which is good for the Insurer) and being insured will help bitcoin exchanges to gain consumer confidence.
This is a critical plank in Bitcoin growing up and becoming mainstream.
The Bank like Bitcoin platforms
For a while we had very distinct companies in each Bitcoin segment – wallet, exchange, payment processing. However, as Bitcoin grows up we are seeing more Bank like Bitcoin platforms in the sense that they offer a full suite of services. These full service Bitcoin platforms such as Coinbase, Xapo and Circle already have insurance. Mainstream insurance offerings will let new players get consumer confidence – just like a small bank being able to offer deposit insurance.
Xapo pioneered the use of insurance because secure storage is their core proposition, using A.M. Best rated insurance providers.

Taxpayers and regulators  should breathe a sigh of relief

There is no possibility of bailout in Bitcoin-land. Private sector Insurance becomes the alternative. This will raise the professional bar for all Bitcoin players. To get Insurance they will have to meet basic standards and without Insurance they won’t get consumer confidence. Regulators and their political masters may then relax a bit more because the risk is left to the private sector to manage. Taxpayers will never be on the hook again in a bailout.

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Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.