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Reimagining Insurance - Unicorns and sitting ducks

Source: Asia Insurance Review | Feb 2016

Insurance startups are beginning to gain Unicorn status – companies with valuation above US$1 billion – as they seek to disrupt an industry seen as “antiquated” and “ripe for disruption”. Are incumbent insurers the proverbial sitting ducks? 
By Benjamin Ang
Benjamin Ang
When founders of startups looking to disrupt the insurance industry are asked why they are eyeing the industry, inevitably a few key words and phrases emerge: ripe (even begging) for disruption, antiquated, low trust, dinosaur and resistant to change.
   Ms Jennifer Fitzgerald, CEO and Co-Founder of PolicyGenius – a startup which declares “buying insurance stinks” and promises “the easiest way to get insurance” – even described her previous experience as a consultant advising insurance companies as “putting the dinosaur on a diet and prodding it with a stick”. It eventually prompted her to start the digital consumer insurance company to bring “a whole new breed of animal into the insurance 
Here come the unicorns
And it seems that investors agree. From 2010 to May last year, more than US$2.12 billion has poured into companies in the insurance tech sector (or InsurTech in tech speak), according to CB Insights, which tracks the world’s most promising private companies. The first five months of 2015 raised $831.5 million, close to 10 times the $85.7 million raised in the whole of 2010. 
   The capital raised has created InsurTech startups which have attained Unicorn status – companies valued at more than $1 billion. And they are beginning to get the attention and buzz that their more famous FinTech peers garner. 
   In fact, in the FinTech 100 list compiled by KPMG and H2 Ventures, two InsurTech unicorns lead the list: Zhong An, valued at $8 billion, an innovative online property insurer in China founded in 2013; and Oscar, valued at $1.5 billion, a US startup founded in 2013 with the tagline “Smart, simple health insurance”. They were measured according to total capital raised, rate of capital raising, geographic and sector diversity, and consumer and marketplace traction. 
There go the sitting ducks?
With all the money bandied around and InsurTech startups’ descriptions of the industry, it is hard not to imagine incumbent insurers as sitting ducks awaiting their fates. 
   But incumbent insurers are no sitting ducks. Over the past few years, it has been well reported that insurers have launched innovation labs and data centres as they seek to innovate. In Asia, Singapore alone is home to Aon’s Analytics and Innovation Centre, MetLife’s LumenLab, AIA’s EDGE Lab, Aviva’s Digital Garage and AXA’s Data Innovation Lab. (Click to read "Disruption from within".)
   What is lesser-known, however, is that insurers are investing through their venture arms in some of these very startups that are trying to make a dent in the industry. Some of these include California-based CoverHound, the much-lauded online platform that allows people to compare and buy car and property insurance, which counts ACE Group Holdings and American Family Ventures among its investors; PicWell, an early-stage predictive recommendation platform which helps consumers navigate health insurance selection, has MassMutual as one of its backers; and PolicyGenius, the online comparison platform which promises “the easiest way to get insurance”, has AXA Strategic Venture, MassMutual Ventures and Transamerica Ventures among its investors. 
   Zhong An too, has a very strong insurance influence. One of its three co-founders is Mr Ma Mingzhe, Founder, Chairman and CEO of Ping An Insurance (Group). 
It’s a match
Other than viewing each other as competitors, both startups and insurers can mutually benefit by working together. 
   While insurers can learn a lesson or two on the sheer pace and audacity of some of these startups in pushing the envelope, the startups can also benefit from the advice and experience of insurers in avoiding some of the well-known traps in the industry. 
   For instance, even Oscar, despite its valuation and mission to make health insurance in the US smart and simple, is not having the simplest of journeys. It is reportedly losing tens of millions of dollars per year. CEO Mario Schlosser had also admitted in a media interview that Oscar failed to properly communicate how deductibles and healthcare plans work to its members, and that “there are uncontrollable traps in the healthcare system”.
   Zenefits, another unicorn worth $5 billion, which provides an online HR platform including being the middleman for group benefits such as health and business insurance, was also in the news for the wrong reasons. It is being investigated for allegedly allowing its salespeople without the proper licences to act as insurance agents. In Washington, one of at least seven states in which it is being investigated, the violation could be considered a Class B felony of which violators may be subject to a prison sentence of up to 10 years, as well as a $20,000 fine. 
   As what Mr Shaun Crawford, EY Global Insurance Leader, had said to Asia Insurance Review, the work of InsurTech startups and incumbent insurers in looking at digitalisation, innovation and disruption means that it has created plenty of conversations around the topics, which will eventually help drive the industry forward. It is not a zero-sum game and will ultimately benefit the industry. 
“Uberising” the industry?
Whether in competition or collaboration with insurers, the question on many minds is whether a startup that will radically jolt the very existence of incumbents in the insurance industry will emerge in the way Uber has done for the taxi industry.
“Not yet” – for now
In essence, while taxi companies continue to exist, Uber has completely revolutionised the car-for-hire industry to the extent that society can do without taxis. The same can be said for Airbnb and the hotel industry. And such revolutionary disruptions can be observed from investors’ vote of confidence with their dollars. Uber tops Fortune’s Unicorn list with its $51 billion valuation, while Airbnb is third with $25.5 billion. (In second spot is consumer electronics company Xiaomi, valued at $46 billion.)
   The highest ranked InsurTech firm on the list is Zhong An in 16th spot with $8 billion. While it utilises Big Data technology to assist with product design, automatic underwriting, auto claims, precision marketing and risk management, it does not put insurers out of business. 
Enabling the industry
The same can be said of many of the InsurTech startups. Many are using tech to remove consumers’ pain points by creating a better user experience and making the purchase of insurance simpler and more transparent, or data analytics to improve underwriting and even move into predictive underwriting, or modernising the processes and systems in the backend. 
   Even peer-to-peer insurance firms, the likes of Friendsurance which touts itself as the “future of insurance”, fundamentally function as insurance brokers. 
   Hence, as usual, most at risk are the middlemen – brokers, agents, advisers – who will need to evolve with the demands of today’s consumers. But arguably, the “disruptions” of startups to date in the insurance industry are more of “enablers” that help, rather than replace, insurers.
No snoozing
More innovation will be expected in InsurTech, especially around areas such as data analytics, better user experience, and better distribution. The role of insurers appears safe – for now – but do not fall asleep at the wheel.
   Lemonade, which seeks to bring together people in need of insurance and investors with capital to back them, is the latest startup generating buzz that is expected to launch by the first half of this year. It is a peer-to-peer insurance concept with a difference – it aims to be the carrier like a traditional insurer, albeit with a mobile-first experience that combines tech with crowd. And it has got on board seasoned executives from traditional insurers such as AIG and ACE. 
   While the specifics of its model have not been revealed, it has been reported to be similar to how Uber and Airbnb revolutionised their respective industries. And it has already gotten $13 million in seed funding, which is said to be rare. 
   So sit up, put your game face on. There is no ducking the challenge.
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