What happened? - comparing my InsurTech 2020 predictions vs the reality (Part 1)....

Happy New Year!

It’s been a while (July 2020) since I last wrote an article on LinkedIn. I am writing this from my home office where I’ve been since March 10th 2020. Exactly 301 days of working from home since the first lockdown here in the UK.

I was in two minds about writing this article. So much has changed since my original predictions for InsurTech in 2020. But I thought it best to see just how many of them still held true (and how many were so off base I should be embarrassed at my lack of predictive capabilities!).

I am not going ‘caveat’ this due to the pandemic. So here goes….

(P.S. If you want a recap of my InsurTech 2020 predictions I made back in January 2020, you can find the links to each part below)

https://www.dhirubhai.net/pulse/insurtech-my-20-predictions-2020-part-1-premal-gohil

https://www.dhirubhai.net/pulse/insurtech-my-20-predictions-2020-part-2-premal-gohil

Prediction 1 – Venture capital flows into insurtech will increase despite broader private finance challenges

In January 2020, I predicted that VC capital inflows into InsurTech would increase over the course of 2020. By April, that prediction looked increasingly at risk as most of the globe went into lockdown due to COVID-19. Stock markets saw record falls.

Incredibly, by the end of Q2 and into Q3 most stock markets had recovered their losses as governments & central banks around the world delivered post-war record levels of economic stimulus measures to deal with the fallout of the pandemic.

During the course of the year a number of my VC contacts had explained to me that in March & April they were being presented investment deals with valuations between 30-40% lower than in the 3-6 months prior. Those startups looking for investment needed access to cash quickly to ensure they had in place a funding runway of between 18-24 months to see them through the other side of the pandemic. By Q3, those valuations had recovered and similar deals were now being considered ‘expensive’, as venture firms fought over the best opportunities. A quite incredible turnaround in valuations in the space of less than 6 months.

According to Willis InsurTech Quarterly briefing Q3 2020 , InsurTech funding had reached $5bn across the P&C, Life & Health insurance industries demonstrating strong investor appetite to continue to back deals. In early 2021, we’ll find out if 2020 was a record-breaking year for InsurTech VC funding.

PREDICTION: CORRECT

Prediction 2 – There will be an emergence of alternative InsurTech hubs to North America

I predicted that alternative hubs such as Israel, Singapore and China would begin to provide some stiff competition to the traditional home of InsurTech hubs in North America. Whilst some carriers & brokers have setup innovation hubs/labs in Israel and the Far-East, I think it’s fair to say that we are still some way off to North America being properly challenged as an InsurTech Hub. The US insurance market provides a vast pool of capital, talent, resources, distribution and an entrepreneurial spirit that helps it dominate the space.

It is worth mentioning that the Lloyd’s Lab (part of the specialty P&C insurance marketplace Lloyd’s of London) has done an excellent job of over the past few years, of providing an insurance-focused accelerator & hub for exciting new startups and vendors to develop and make further moves into the sector by working with incumbents. However, this is one example of very small number outside of North America. I expect it will take some time post COVID-19 for new hubs to emerge.

PREDICTION: INCORRECT

Prediction 3 – Glare will begin its focus on massive untapped opportunity regarding the Future of Talent in insurance

My 2020 prediction here stated that technology could help advance the industry’s self-induced difficulty, at attracting & retaining a significant inflow of new, diverse & emerging talent into the sector in a wholesale way.

Opportunities in Data Science aside, I’m afraid our industry is still not where it needs to be in attracting external talent. We’ve been horrible as an industry at successfully marketing our industry's value proposition and as an exciting place for new, diverse & emerging talent to select as a career choice. Interestingly, I’d say >95% of people I speak to who already work in the industry absolutely love the stimulation that such a dynamic sector provides. But we still need to do more to move the dial on the Future of Talent in insurance.

PREDICTION: INCORRECT

Prediction 4 – AI finally gains traction

I did caveat my 2020 prediction by saying that AI becoming business as usual in our industry was still about 5 years away.

However, it’s fair to say that pretty much every serious carrier, broker, MGA or other market participant has either invested in or is beginning to invest in artificial intelligence/machine learning capabilities to support superior underwriting, customer experience, broking, claims and operations.

I anticipate it still being a bumpy road as some external vendors/startups fall away, get acquired or merge whilst certain incumbents choose to build significant internal AI capabilities.

PREDICTION: CORRECT

Prediction 5 – (Re)insurtech gains momentum

I explained this time last year, that much of the insurtech movement had focused on primary insurance carriers and brokers. Reinsurers had benefited less, but there were players such as Tremor, Extraordinary Re, B3i and Akinova which were growing in prominence and influence.

Fast forward 12 months and it’s encouraging to see that (re)insurtech has definitely progressed. Take Tremor Technologies, the electronic reinsurance marketplace. The (re)insurtech platform has now placed in excess of $1bn of limit and in 2020 raised additional VC capital from well-known insurtech investors Anthemis plus existing investors.

PREDICTION: CORRECT

Prediction 6 – Parametric solutions expand meaningfully beyond weather

The pandemic has not been kind to most. Perhaps except parametric insurance solutions. The concept of an automatic payment of a financial settlement using a pre-defined trigger has been enormously valuable for the customer/client experience and carriers. In times of economic crisis, it’s been vital.

Floodflash, a UK-based parametric MGA which utilizes IoT sensors for offering flood-based insurance cover highlighted how their product had been able to pay out small-medium enterprise customers within 48 hours of their sensor being triggered. The customer citations are impressive and showcase just how critical a cash-flow solution like parametric cover is for clients. Blink Parametric has also been capturing headlines for offering travel-related parametric risk products and have recently made the move into hurricane non-damage business interruption cover.

On the investment side, Descartes Underwriting, a Paris-based parametric insurance provider, raised $18.5m of Series A venture capital funding in September 2020. Meteo Protect, a parametric-based MGA was acquired by BGC Partners back in April 2020. I am expecting additional dollars to flow into the space as the pandemic accelerates the need for more customer-centric risk solutions.

PREDICTION: CORRECT

Prediction 7 – Control of the client heats up between carriers and brokers

This fascinating dynamic will continue to play out. Carriers are benefiting from a broad-based market re-pricing after years of falling rates. Brokers are having to explain to their clients that they now need to pay more for their risk insurance needs than in prior years and often for less cover.

How can brokers continue to add value to their clients as the current environment is expected to last another 18-24 months?

Data is the gold that everyone wants. I’ve seen examples in my line of work (corporate innovation) where carriers and brokers have worked together to act as more joined-up partners to their clients. Will that paradigm shift? I think the tension is still there and will continue.

PREDICTION: CORRECT

Prediction 8 – Climate Change will present huge opportunities for the industry to close the protection gap

Arguably the greatest existential threat to humanity. There is no doubt in my mind that climate change is here and will continue unless the world makes material moves to combat it.

One such move is the shift to electrification of the auto industry and the move away from combustion engines. My car lease renews in Q4 2021 and I'm almost certain to 'go electric'. In a similar vein, the shift to renewable energy is promising as governments & companies around the world commit to a zero-carbon future. However, natural catastrophe perils are raging unabated – wildfires, floods, hurricanes and windstorms that are more frequent and more intense.

Despite the current focus on the pandemic, I am continuing to hear a louder and more deliberate dialogue from the industry to continue to innovate and provide risk solutions to protect against climate risk and support ESG efforts. It’s promising and moving in the right direction.

PREDICTION: CORRECT

Prediction 9 – Internet of Things finally gets serious

A connected future is on the way. Sensor technology in our cars, homes, workplaces, gadgets are going to providing an ever-increasing stream of data to analyse, learn & adjust from.

5G technology roll-outs have not been as smooth or deliberate as stakeholders may have liked. IoT sensors are not mainstream (yet) but it will continue to grow in prevalence. So I can’t say that IoT is 'serious' quite yet but it’s on its way. Timing was wrong on this one.

PREDICTION: INCORRECT

Prediction 10 – Insurance P&C will see a surprise large acquisition focused on data

I predicted 12 months ago that with the level of broker and carrier M&A over the past few years, we’d possibly see one of the larger InsurTechs acquired by an incumbent or technology giant.

Not quite. Although, I did name drop Lemonade in my article last year as a M&A target. They instead went public (alongside Root) given the favourable public IPO market environment in 2020 and chose to remain independent. If the equity markets continue to be favourable in 2021, then I’d expect more public listings, perhaps via the SPAC (special purpose acquisition company) route.

PREDICTION: INCORRECT

So there you have it. 6 out of 10 correct predictions for Part 1. Part 2 out later this week where I look at my final 10 predictions from 2020. From next week I’ll be providing my predictions for 2021 in InsurTech. Watch this space….

Disclaimer: The views and comments in this article form my own and do not reflect the views of my employer or associates.