This week in InsurTech shows how fast the market is globalizing

global-insurance

It is hard to sip from a firehose and the InsurTech innovation pipeline in 2017 is a major gusher. As we parse this week’s news stories, one theme jumps out and this theme goes a long way to explain why the InsurTech innovation pipeline is such a gusher.

The theme is globalization.

5 InsurTech stories this week illustrate the globalization theme:  

  • Digital Fine Print goes from Seed to Asia via America and London
  • Australian insurer IAG establishes an Insurtech hub in Singapore
  • Youse is the very first Brazilian InsurTech brand
  • The first InsurTech conference in Quebec City
  • The first InsurTech VC fund in flyover country

Digital Fine Print goes from Seed to Asia via America and London

The news: the story broke on CrowdFund Insider. This one is as global as it gets. An American Insurance Company (MetLife) partners with an early stage London based InsurTech startup (Digital Fine Print) to move into Asia.

This story also shows the capital efficiency value of Incumbent partnerships and social media. Digital Fine Print is going into Asia having raised only $400k. Conventional wisdom was that you should wait until your $400m round before going global. However if you can use the back end platform of an incumbent and use social media at the front end, it is time to challenge that conventional wisdom. (Daily Fintech is totally global, with subscribers in 130 countries and we have not yet raised any outside capital).

Australian insurer IAG establishes an Insurtech incubator in Singapore

The news: It will be called Firemark Labs and was reported in multiple venues, here is one. IAG = Insurance Australia Group. It underwrites over $11.4 billion of premium per annum and is active in many Asian countries. The incubator (do we call them “hubs” or accelerators today?) has the usual job of scouting for innovation.

Score another one for Singapore – see here for our story about CXA. This story also illustrates the value brought by the very proactive Monetary Authority of Singapore (MAS) and its Chief FinTech Officer, Sopnendu Mohanty.

This is an inter Asia story – no American or European ventures. The Australia Singapore nexus makes sense as the Australian economy is tied to Asia.

The Incubator has access to cash through IAG’s $ 75 million venture fund.

The trend looks clear. MetLife already has an active Singapore-based innovation center called LumenLab. One can envisage each global insurance company having an InsurTech incubator in the 20 or more global cities with an active Fintech scene.

Youse is the first Brazilian InsurTech brand

The news: It is really only a “we are here” announcement with a lot of big picture data about how big InsurTech is.

Youse was created by Grupo Caixa Seguradora as a digital venture within a big company. We have seen some of these become successful in banking (see our Pirates With Ties interview series for some good success stories), even though cultural mismatch kills most intrapreneurial ventures.

Nubank in banking is a Brazilian specific example of a digital Neobank (but VC funded unlike Youse).

The first InsurTech conference in Quebec City

The news: InsurtechQC is the first conference dedicated to Insurtech in Quebec City. It takes place on April 3rd and has both local and international speakers.

The first InsurTech VC fund in flyover country

I know, I know, I should not refer to flyover country. It’s an old habit from living in New York and flying a lot to California. It sounds elitist and I apologize for that. The significant trend is that the Silicon Valley model of innovation has gone global and global does not just mean places like London, Zurich and Singapore. It also means places like Des Moines, Iowa.

The news: A Des Moines, Iowa-based VC fund called ManchesterStory Group backed by a consortium of insurance companies is looking for Insurtech deals.

“The new firm said it cannot disclose the insurance carriers behind it until the fund closes.”

They have company in Des Moines.  The Global Insurance Accelerator was launched in 2013 with backing from seven insurance companies and has since added 3 more.

Closer to mainstream customers and lower cost base sound like good ingredients for venture success.

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CXA Group $25 million Series B shows the maturing of InsurTech and future of Innovation Capital

 

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Closing a Series A round is tough (the “Series A Crunch”), but closing a Series B is even tougher. You have to show great metrics at all levels. Series B is the “show me round”.

So when we see a big Series B round in the white hot InsurTech sector we pay attention.

In this post we look at the trends and insights behind the news that a Singapore-based health InsurTech venture called CXA Group has closed a $25 million Series B round from Facebook’s co-founder Eduardo Saverin’s B Capital Group and Singapore’s EDBI.

This news illustrates 6 major themes:

– Innovation Capital goes where it feels welcome

– Innovation capital goes where there is opportunity and that is shifting to Asia

– Singapore just scored a goal in the Fintech Hubs Global Tournament.

– The UHNWI Super Angels will shake up the “permanent aristocracy” of top tier VC Funds.

– The role of Government in building Fintech hubs

– This could be Zenefits done right

Note on terminology: we refer to Innovation Capital as the combination of cash + connections + know how that has historically been called Venture Capital. For reasons explained later, the historical term – Venture Capital – has outlived its Sell By Date.

Innovation capital goes where it feels welcome

This is not complex. Countries with zero capital gains tax on long term investments will attract a lot of Ultra High Net Worth Individuals (UHNWI aka Family Offices). Eduardo Saverin is an example – a Brazilian who famously renounced his US Citizenship in 2011 to take up residence in Singapore.

What is new is the blurring of lines between these UHNWI Super Angels and traditional Institutional Venture Capital. More on that later.

Innovation capital goes where there is opportunity and that is shifting to Asia

Asia is the 21st century growth story.

This statement wins the “Captain Obvious Award”. What is interesting is the time lag between when the growth shifts and when the innovation capital shifts. For a while, Innovation Capital in the middle aged world (America) and the old world (Europe) knew how to invest and saw the growth shifting to Asia. It was American VC money flowing into Asia. The next iteration, happening now, is when Asian VC money flows into Asia. This deal illustrates that shift.

Singapore just scored a goal in the Fintech Hubs Tournament.

This deal demonstrates that Singapore is becoming a major Fintech Hub, leveraging smart regulation and its position at the heart of the Asia growth story.

The UHNWI Super Angels will shake up the permanent aristocracy of top tier VC Funds.

The lead investor is credited as “Eduardo Saverin’s B Capital Group”. If the PR said “Eduardo Saverin” then this would be classed as an Angel round. Whether B Capital Group has other investors is not that important because a single UHNWI individual or family has plenty of capital to deploy.

For a long time, we had Angels who led the way by investing early and then politely inviting the big funds to invest. This led to what the Ivey Business Journal describes as a permanent aristocracy of top tier funds.  The Super Angels with an institutional fund, such as Eduardo Saverin’s B Capital Group can give that permanent aristocracy a run for their money. Some of the partners of those top tier funds are now also setting up as Super Angels and just investing their own money. Like Hedge Funds that become Family Offices, they no longer manage other people’s money, they just invest their own money. This is partly driven by tax, as people see the political writing on the wall that signals the end of carried interest fees being taxed as capital gains.

This is why we see the term Venture Capital as past its sell by date and prefer the term Innovation Capital. What we normally think of us VC – funding early stage innovation – is being done by Angels and too many VC Funds have become part of the asset management industry  focussed on AUM fees and short term exits.

The role of Government in building Fintech hubs

Co-Lead on the deal was the corporate investment arm of the Singapore Economic Development Board call EDBI. This post looks at the increased role of governments in Fintech regulatory competition as governments calculate the economic return on innovation. Whether direct investment (“picking winners”) is the right way is debatable, but expect to see more government activity in Fintech.

This could be Zenefits done right

CXA is going after the employee benefits industry (pegged at $100 billion in Asia) with a free SaaS platform monetized via lead generation. If that sounds familiar, think Zenefits, the hyper-growth success that hit the speed buffer (for reasons described here).

CXA goes to the next level by helping employers unlock wellness through prevention and disease management.

The health InsurTech opportunity is no longer only about America.

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Reinsurance As A Service

insurance-stack

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:

  • Capital.
  • Regulated status.
  • Global footprint.
  • Domain experience.
  • Data and models used to price premiums. 

MunichRe Partnerships 

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.

Conclusion

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.

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The Zhong An IPO in China could be the Netscape moment for InsurTech

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InsurTech sprang from obscurity. We first started covering InsurTech in March 2015. Here, for the record, is our first post (basically saying that not much was visible yet, but “watch this space”).

Since then we have covered InsurTech every Thursday for what will soon be two years and witnessed a Cambrian explosion of innovation and funding. Just click on the InsurTech Category to see them all or subscribe to get our posts every day by email. 

By contrast, the disruptive Fintech ventures that challenge the incumbent banks originated in the wake of the Global Financial Crisis around 2008. So by December 2014, around 6 years later, we had our first major Fintech IPO for Lending Club which we called the Netscape moment for Fintech. Yes, Lending Club stumbled badly in 2016 and gave the whole Fintech sector a black eye, but it seems to be in recovery now.

The question is, what will be the Netscape moment for InsurTech?

This post argues that it will be the Zhong An IPO in China. We don’t have a date for this yet, only teasing PR, but read this to get a briefing before the circus starts.

Zhong An 101

Zhong An is a pure play full stack regulated InsurTech venture. Think of it like a challenger Insurance – digital first.

Zhong An was created by three established Chinese companies:

  • Alibaba (the A in BAT)
  • TenCent (the T in BAT)
  • Ping An (Insurance company)

They raised over $900m in a single round, so won’t lack for cash to execute their plans.

Zhong An first got traction from return-delivery insurance for buyers on Taobao.com (Alibaba online marketplace) but has now moved into most Insurance categories such as Auto and Health.

Zhong An sells direct, not via traditional insurance agents.

Flirting with IPO locations

A year ago, Zhong An was doing PR about a US IPO.

Then we read reports about an IPO in Hong Kong.

Now the PR indicates a listing in mainland China. This makes sense for three reasons:

  • IPO is a branding event and Zhong An wants to reach mainland Chinese consumers.
  • Smart money in US can invest in China and does not need a US listing.
  • They won’t want to compete with a US IPO for Ant Financial (owned by Alibaba, which is Zhong An’s largest shareholder with a 16% stake.)

There is no date set and the revenue numbers being shown are as follows (using 6.88 as the exchange rate of USD/CNY):

2015: $331m

2016: $596m to $827m

Some commentators see the move to a mainland China listing as backing away from selling to US consumers. I doubt that was a big factor in their plans as the market opportunity in China is so massive – with few legacy incumbents and big growth in middle class needing insurance. One assumes that the war of words with the new Trump administration and how that would affect US consumers and investors was a consideration, but focus on a huge home market was probably a bigger consideration. A move into Africa is probably next on their rollout as it has similar characteristics to China – few legacy incumbents, big growth in middle class – and Chinese firms are very active in Africa.

Return Shipping Insurance

Return shipping insurance for e-commerce is the top product for Zhong An – not surprising given their Alibaba and Tencent backers. Amazon covers shipping insurance directly in USA, but this is unbundled in China, leaving room for Zhong An to enter as an independent insurer. That is a big deal because clothing (which has a lot of returns) is the largest part of the $900 billion Chinese e-commerce market. Given the low product cost, the cost of shipping in China is about 20% of average transaction value.

Zhong An is now expanding into more highly regulated markets for higher priced items such as auto insurance.

Blockchain incubator & consortium

Zhong An is moving forward with both Blockchain and AI via an incubator and a Technology subsidiary as per this report.

Zhong An is also a member of the The Lujiazui Blockchain Finance Development Alliance that was founded in Lujiazui, Shanghai’s financial hub, in October 2016. It sounds like a mix between R3CEV and B3i. Reports indicate that they are using Ethereum. Without legacy processes, Zhong An may leapfrog the West in Blockchain adoption to reduce Settlement Latency.

Western Insurance going digital in Hong Kong

We have seen companies like Yahoo and Uber leave China and keep a minority position. That was a very profitable deal for Yahoo.

Western Insurance maybe doing the same deal. Reports are that UK based insurance group Aviva has signed a deal to sell stakes in its 160-year-old Hong Kong operation to Tencent, the Chinese internet company, and Hillhouse, a private equity firm.

The Hong Kong market is mature in comparison to mainland China, with big incumbents such as Prudential and AIA and an established network of agents. The idea is to attack this mature market as a digital disrupter, bypassing the agent network.

This indicates a market share war that is hotting up and an InsurTech space that is growing up fast.

No doubt Aviva will translate lessons learned in Hong Kongto  its core UK market.

The Zhong An progress to IPO will be worth watching for anybody in the InsurTech business.

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What happened in InsurTech this week

cowboy_roundup

We have rounded up the news and analysis that we think is important this week in InsurTech. Consider it your weekly briefing.

We are trying a new format this week. Please tell us if it is useful and how we can improve it. We aim to give you a weekly roundup of the InsurTech news and analysis that matters this week – Thursday is always InsurTech day on Daily Fintech. We have a self-imposed limit of 10. So if there are more than 10, we select what matters. We do not aim to be comprehensive, our aim is signal to noise ratio; we want to give you just enough to do your job. We will link to our trends & analysis posts for background as well as to the news source, so we can be brief on the individual news item.

Ladder, Life Insurance and the Reinsurance layer of the stack

The news event was that Ladder launched in California. Ladder did a big Series A with top tier firms in October 2016. We included them when we did our roundup of Life Insurance startups in July. For background on issues and opportunities in Life Insurance, read this post.

Ladder is an example of a venture benefitting from the 3 layer Insurance stack that we have referenced here. Their innovation is enabled by the Managing General Agent (MGA) structure offered by Reinsurers. The MGA structure enables the Reinsurer to maintain the balance sheet while the startup focuses on customer acquisition and user experience. This is a business structure that combined with tech innovation such as Open API is very powerful.

Reinsurers are in effect offering Capital As A Service. That is a game-changer.

JVP and AXA partner for InsurTech innovation scouting

Both incumbents and VCs need to scout for innovation. This news shows an incumbent Insurer – Axa – partnering with a VC firm – Jerusalem Venture Partners (JVP) to scout for innovation by the well-proven method of offering prizes in a competition. Often the incumbent Corporate Venture Capital (CVC) unit is seen as competition by traditional financial VC. This shows a trend to partnering where the incumbent has deep domain expertise and the VC has deep expertise in spotting, valuing and nurturing early stage ventures.

Forward – a new Healthcare Provider to challenge the Payers

Forward is offering a subscription medical service at $149 per month  that aims to be the Apple Store of doctor’s offices. Techcrunch has the details.

What Forward is doing is a bit like what we spotted in Dental, except this is not a cooperative. It is a for profit venture that uses a mix of new medical technology, a new real world customer experience and business model innovation to deliver subscription pricing. This hits a major theme that we have uncovered as we dig into the hairball mess of Healthcare in the US, which is that innovation by Insurance Providers is useless without innovation by the Providers.

To a consumer, what is the difference between a $149 per month subscription service and $149 per month insurance plan? Theoretically the latter gives you choice; in reality it tends to give you high deductibles and claim hassles.

This is the sort of innovation in the real world that we all want Silicon Valley to focus on. It is not just another digital front end. What they are doing is much harder than that – like building a Tesla car vs building a ridesharing app.

MunichRe appoints Robert Mozeika to head InsurTech

14 InsurTech Conferences in 2017

We are deep in snow season, but some are looking at when the flowers return with the conference season. Business Insider uncovered 14 InsurTech Conferences in 2017 around the world. I suspect there are a lot more, even if you leave out all the free but high quality MeetUp events. We really need a community generated calendar of InsurTech events by date, location and cost. I created a thread on Fintech Genome to initiate this.

Please tell us in comments about any major InsurTech news  this week that I missed.

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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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