On February 18th, NASA put a 2,000-pound rover on the surface of Mars via something called a “sky crane.” The rover, Perseverance ,is the size of an SUV, carries 19 cameras and a mini-helicopter onboard, and one of its explicit objectives is to prepare the planet for humans. It also cost less than what VCs invested in insurtech in just the last three months of 2020. So where has this venture investment gone? And what does the insurance customer have to show for it?
It was hard to really get my arms around an answer to that first question. There are reports that break out P&C-focused investment vs. Life and Health, or slice the data by stage, or geography. I couldn’t find anything that told me what sort of things were really being built with all that cash, though.
So I ended up doing it myself. Starting with the last three years or so of insurtech investment data from Crunchbase, I spent some time categorizing investment types into six buckets: Claims, Distribution, Engagement, New Paper, Reinsurance, and Risk. My goal with these labels was to organize, and understand, recent investments by “outcome.” In other words, what do the companies being invested in actually do? How do they make money? And what do they do for the consumer?
Here’s what I found: Since 2018, 89% of private investment in insurtech has gone into companies that are primarily focused on the distribution (34.1%) of insurance, e.g., selling more insurance; or the creation of new paper (54.4%), e.g., building new types of insurance to sell.
To be clear, there is nothing wrong at all with these two categories. There are countless benefits to improved protection products and more delightful, convenient digital sales channels. Talented teams are building remarkable things in both of these spaces.
But we’re still left with an unsatisfying answer to the second question: what do we have to show for all this investment? One answer might be “more insurance” and, looking at recent investment and the Organisation for Economic Co-operation and Development’s (OECD) assessment of insurance penetration by country, that answer starts to get more convincing. Defined as “the percentage of insurance premium to GDP,” the U.S. has seen a steady increase in insurance penetration every year since 2013 and is now in the top 4 of all OECD countries.
Are we satisfied then with our Mars-rover sized investment? I’m not sure we should be. More types of insurance and faster sales certainly help some, but they also represent a dramatic increase in the exchange of real financial instruments and obligations. While many consumers might view it as simply an obligation to be fulfilled, insurance is a contract with real life implications for individuals, households, and businesses.
For example, we recently saw, in a major way, the risks that come when you simply supercharge a pipeline of financial instruments without making a corresponding investment in education and administration around those agreements. It ended with thousands losing millions and a new set of political and regulatory questions.
Are we making this corresponding investment then? Not in any meaningful sense. Only 3.8% of recent insurtech investment has been in products or companies categorized as “Engagement,” those with a primary focus on consumer tools and education.
So then, again: what does the insurance customer have to show for all this investment? The most accurate answer is something like: more insurance, many more solicitations to buy it, and hardly any additional support or management tools that match the innovation of the sales tools.
This asymmetry is a problem, and if not addressed, may lead to excess, consumer skepticism, and possibly even accusations of predation, unless we thoughtfully build new tools. Tools that engage and empower customers to truly understand and manage insurance, on their terms.
