A collaborative new insurance ecosystem

While the insurtech evolution is still at early stages compared with its big brother fintech, the momentum is certainly underway. In 2016, around US$1.69billion1 was invested in insurtech startups, and new platforms are attracting the attention of investors, incumbent insurers, reinsurers, brokers – and end consumers.

Of that $1.69billion, just 1% made its way to Australia.2 So are we falling behind?

Definitely not, according to Insurtech Australia co-founder Brenton Charnley.

“Australia has already been through ‘innovation 2.0’ – we’ve put all the paper processes online. Consumers now expect to buy it online, and manage claims or information through apps,” he explains. “Now, we can expect to see innovation 3.0 breakthroughs. And those will be harder, because it means changing the model and the market.”

Macquarie Bank’s Eoghan Trehy says globally, the investment flowing into commercial insurance technology is still relatively small.

“As we saw during Insurtech Connect 2017 in Las Vegas last month, and throughout our US study tour, health, life and personal insurance are seeing the most attention. Commercial is more complex – and this validated a lot of what we are already doing in Australia.”

Fourteen leaders from Australia’s insurance broking sector joined Eoghan and the Macquarie team on the tour, including Charnley. “It was great to get a really honest view of the landscape,” he says. “The American Family Ventures presentation proved 2015 was the tipping point: in that year, there were 50 insurtechs in the US. Now there are more than 500.”

A positive ecosystem for change

Insurtech Australia launched in October with a mandate to provide education and support for Australia’s insurtech startups, and connect them with potential partners within its founding member and corporate community.

“Unlike fintech, which has seen disintermediation and disruption for traditional banks, we’re seeing a growth in partnerships between insurtechs and incumbents,” says Charnley. “McKinsey data suggests at least 60-90% of insurtechs are enabling incumbents rather than disrupting them.”3

He gives the example of a bank that has partnered with a startup to provide a rental bond guarantee product based on externally available trust ratings - such as Airbnb and Uber reviews.

Insurtech is not just startups – both incumbents and new entrants are pushing the boundaries.”

“I’d love to see more of these ideas that will completely change the way we work. Innovation is a game of risk, and you can’t be sure what will succeed.”

He’s also seeing many incumbents seed their own insurtech ideas internally – such as within IAG’s innovation lab in Sydney. “Insurtech is not just startups – both incumbents and new entrants are pushing the boundaries.”

Startup mindset, enterprise resources

In addition to dealing with two regulatory authorities, ASIC and APRA, insurance startups face significant barriers to entry, and that’s why these partnerships are essential.

“It’s hard to get an insurtech to market without underwriting, reinsurance or claims management support,” notes Charnley. “The broker community also plays an important role in this ecosystem as a value provider.”

Trehy says the study tour visit to Embroker’s office in San Francisco was enlightening as an insight into the startup culture.

“Matt Miller was able to raise capital on the back of a good idea, a CV and a PowerPoint – and it needed time and money given the complexity of commercial lines.”

As an online broker, Embroker still provides a very human experience.

“Technology just takes out the clunky parts,” says Trehy.

“US insurtechs also face distinct challenges given their state-based regulations and licensing, it’s difficult to do business consistently across the country. But of course the scale is so much bigger: there are 3,000 insurance carriers in the US, compared with around 150 in Australia.”

Challenges or opportunities?

Charnley believes the next step change in insurance will be integration: building it into every acquisition. “We’ll also see more usage based insurance, where you can turn it on and off.”

This requires investment capital, and the ability to pilot, test, iterate and improve programs. Both are things Insurtech Australia hopes to facilitate.

“In an ideal world, insurtechs get their initial revenue from customer trials so they can validate the product. This makes them more attractive for venture capital.”

Now in its second year, Insurtech Connect attracted over 4,000 people. “We are all participating in this change, and that’s exciting to be part of,” says Charnley.

5 Australian insurtech to watch

  • Cover Genius – Smart50 award winning platform that uses machine learning to optimise insurance pricing, and also owns distribution platform BrightWrite and RentalCover.com
  • Flamingo – ‘Rosie’ the AI insurance chatbot could remove friction by guiding consumers through the complexity of their insurance choices
  • Huddle – underwritten by Hollard, Huddle promises straight through claims processing and surplus profits to communities as part of its consumer offer
  • Manner – a ‘matchmaking service’ that connects brokers and underwriters to improve efficiency and open up new opportunities
  • Evari – online business insurance made simple for busy cafes, restaurants and retailers. It’s underwritten by Lloyd’s and draws on data from the purchaser’s cloud-based accounting systems.

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Additional information

Unless stated otherwise, this material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie") for general discussion purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.

1 CB Insights data/ http://www.financialstandard.com.au/news/insurtech-is-coming-and-could-make-insurance-obsolete-pwc-101261019

2 https://www.smartcompany.com.au/startupsmart/news-analysis/industry-association-insurtech-australia-formed-support-local-insurance-innovation/

McKinsey presentation, InsureTech Quebec City 2017 http://www.citopbroker.com/news/majority-insurtechs-not-aimed-at-disrupting-rather-enabling-insurance-industry-insurtechqc-12084