A few recent developments in health insurance are noteworthy. Two of these were sizeable fund raises, distinctive from general trends. The third saw a large insurer unveil its ecosystem roadmap. The events in discussion are: Oscar Insurance raised $225 million recently, $1.5 billion till date. Waterdrop raised $230 million from Swiss Re and Tencent. It […]
It’s no longer just a water balloon; insurance has become a water balloon morphed with a Rubik’s Cube. Squeeze here, bulges there, twist row here, colors change there. Insurance is not a business for the faint of heart but needs to be an industry WITH heart. Focus has been on COVID-19 issues but all those other perils and occurrences must still be attended and planned for, and the industry’s reputation- always a fragile characteristic- needs consistent effort to prop up.
Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.
Contrarian’s reality of business interruption cover
The insurance world sat on its hands during the early emergence of the coronavirus outbreak, aware that supply chain issues were occurring in China, businesses were being shut down, and economic ripple effects were being felt into western economies, comfortable in the exclusion of cover for systemic risks. However, as the insurance effects of COVID-19 became more acute when business interruption cover was being considered and denied for cover, insureds, legislators and the plaintiffs’ bar held sway over the narrative. Seems the concerns have gone a little underground but that just may be a fools’ game to believe. Insurance companies defend the multi-hundred billion dollar issue on a 9-5 basis; plaintiffs and eager attorney firms team up 24/7. Sure, insurance industry orgs like NAMIC and APCIA have put out position papers describing the many problems ex post facto changes to insurance contracts re: business interruption insurance changes would cause the industry, and of late the US Treasury Department has advised it is in opposition to having insurance companies take undue responsibility for the BI claims, but of course insurance in the U.S. is not regulated by federal law, and zeal within local jurisdictions is swayed by sentiment.
In addition, policies and coverage differ across the spectrum of carriers’ contracts and certainly across what bespoke risk underwriting provides. I wonder if insurance carriers are taking the issue seriously enough to have internal ‘war games’ where policies need to be defended provision by provision? Determining cover with a lean to the customer now is much less costly in terms of direct financial cost and indirect reputational cost litigation would present, even as the issue in the U.S. potentially progresses toward a constitutional battle.
Even with this news today out of the state of Louisiana via Business Insurance, Louisiana-lawmakers-scrap-bill-to-make-interruption-coverage-retroactive, insurers need to find other ways to provide risk management service for their customers. Just because some peril or circumstance isn’t covered- now- doesn’t mean other avenues to assistance can’t be considered.
Insurers in the UK are dealing with a similar issue and business sentiment, just to a lesser economic degree per the Evening Standard. Whether the concern is a “shortcut to insolvency” as the Association of British Insurers stated in response to U.K.-based risk management association Airmic Ltd’s remarks urging carriers to be responsive to insureds’ needs:
With many corporates facing an existential threat from global governments’ lockdown measures and a deep recession likely to follow, we expect brokers and insurers to demonstrate fairness and flexibility with regards to claims and renewals. The harsh market is already straining relations with many corporate clients, and insurers’ rigid interpretation of wording regarding the pandemic could accelerate this deterioration.
Airmic believes insurers have a choice. They can either interpret ambiguous contract wordings with their balance sheet in mind, or they can act as partners to long-standing customers who seek business protection. All parties will benefit from a partnership approach to the current crisis.
24/7 efforts and networking of attorneys, insureds, and plaintiff advocates vs. 9-5 defense. Perhaps still a false security (digital communication works, collaboration is effective, and 33 1/3 % of tens of billions of USD is a lot of motivation.)
Insurance and reinsurance company capital buffers have become smaller as a result of stock markets being down 20% or more- does that matter?
Insurance companies are often considered more holders of float than risk managers; a less than stellar underwriting performance in a given year can be mitigated for effect by effective investment of premium float- use of premium dollars paid in that have yet to be accounted for as earned based on policy duration. Berkshire Hathaway’s founder and CEO, Warren Buffet has been the industry’s float cheerleader for many years, and that attitude has served him and his company well. However, even the estimable Mr. Buffet’s firm has been rocked by the loss of value due to the effects of COVID-19 and volatility within stock exchanges (see below.)
Sample of insurance company performances- US P&C carriers
One quarter does not a trend make, but it’s expected investment results for the second quarter of 2020 will be as volatile, and long-term expectations for P&L performance is uncertain. Underwriting performance for personal lines may reflect better than average based on auto usage and stay at home efforts lessening some homeowners’ policy claim severity. U.S. Fed actions will settle markets some, but carriers have less appetite for higher return but higher risk vehicles for that portion of float that is not bound to Stat accounting requirements. Perhaps carriers need to begin to plan for intangible asset variances from a risk management standpoint, something that seemed a very company-localized concern just a few months ago. Is there now a market for parametric products that deal with trigger events relative to macro consideration of intangible assets? Another look at the work of John Donald and Dr. Marcus Schmalbach (See “Heartbeat in the Fog” ) gives some thought on the subject.
There are aspects of insurance reserves that do not get as much scrutiny, that being reinsurance and insurance linked securities (ILS). Rei authority Artemis noted recently that as global stock markets ran 20% or more lower along with impairment of other assets classes the “capital buffers of reinsurance companies have become smaller as a result.” Lesser values for primary insurers’ securities portfolios, and potentially less capacity in and higher cost for reinsurance- certainly not an ideal short or mid-term prospects. As for ILS- even though that aspect of risk financing is a relatively small part of the whole that sector remains tight from significant events from 2017-18 (thanks for the perspective, Tom Johansmayer of Verisk PCS.)
For now P&C carriers have wiggle room on the claim side, but new territory to navigate in terms of investment. If for some significant reason carriers feel they need to establish large reserves to defend and potentially pay BI claims that will affect loss and expense ratios. Managing core businesses- sales, claims, and service needs to continue with a weather eye on securities’ markets.
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Four years ago, I started preaching about Transparency in wealth management. In the Global Transparency movement in Portfolio Performance from the Daily Fintech archives in October 2015, I asked for `… a world in which Barron’s top advisor annual rankings take into account performance. Believe it or not, right now these rankings don’t include performance […]
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How do you make $10 Billion from $300 Million investment within a year? Walmart did just that with their acquisition of Flipkart in India last year. Flipkart is the ecommerce giant in India, and Walmart acquired a 77% stake in them for $16 Billion in 2018. Flipkart came with its payments app Phonepe (pronounced as […]
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Poor existing banking infrastructure? No major Unicorns from the local ecosystem? – No problem. The rise of Vietnam as an innovation/Fintech hotbed is a fascinating trend. A tech savvy population, supportive government regulations, and high smartphone penetration – a great combo that has done wonders to several countries across the world. Image Source Vietnam ranks […]
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If you joined the Fintech party only this year, and feel you missed on riding the curve – don’t worry. Sub Saharan Africa is where all the Fintech excitement is at the moment. In 2018, Fintech investments in Africa quadrupled to $357 Million. Image Source This is tiny compared to the Billions being invested in […]
The post $144 Billion value to Sub Saharan Africa – Mobiles lead Fintech for Good appeared first on Daily Fintech.
Source All economic theories assume a Homo economicus; which in plain English means a totally rational investor. We forget this basic assumption which makes all models ill-fit to our emotional and unstable behavioral profiles. This point cannot be ignored anymore, as we seek to deploy technology to offer customized financial advice and goal-based services. Deep dive […]
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A week ago, the news of the Long Term Stock Exchange (LTSE) backed by some of the biggest names in Silicon Valley emerged. The Elites in the valley, including
Marc Andreessen, Reid Hoffman and Peter Thiel have joined hands to set up a stock exchange where firms do not have to worry about “Short Termism”. It is seen as the tech world’s open war against Wall Street’s modus operandi.
Some hail the move as a masterstroke. The features of the LTSE make it more attractive for investors who stick around longer with a firm. Voting rights are directly proportional to how long an investor held a firm’s stocks. But this is also a double edged sword as it makes founding teams too powerful. It could make bubbles bigger, and wave riders could get a smoother ride to exit.
Many questions come to mind when I think about where this could take us. Let us explore each one of them.
- Recent disasters of Uber and Lyfts – is Wall street better at identifying good business models?
- How long can patient capital be, errrr, patient?
- Does Wall Street need to be more tolerant of Visionary Founders?
- Growth vs Profitability conundrum – Won’t LTSE make profitability and a good business model rarer?
- Creation of monopoly – Good way to make money for businesses and investors? But what about the consumer?
Uber’s IPO earlier this month is arguably the worst opening ever as investors lost $650 Million on the first day. This also happened with Lyft and the stock hasn’t recovered yet. Analysts claim that the ride hailing business model is broken. Softbank’s stocks has taken a beating since then. Would LTSE have minimised the losses that Softbank made since the Uber IPO?
However, with investments (of ~25 Billion) in Ola in India, and Grab in South East Asia, SoftBank’s fund controls 90% of the ride hailing market in the world. One of them (Wall street or Softbank) is definitely wrong about the market and the business models in this space. Is LTSE needed to bridge this gap in perception of business models?
The question that immediately followed was, how long can Patient capital be patient? Early stage investors go largely with gut instincts, where as later stage and public market investors are generally more data driven. If all data points to continued losses (Uber’s Q4 2018 EBITDA loss was at $842 Million), should analysts still give the firm a thumbs up based on the market potential of the firm?
LTSE in this scenario could make Wall Street look good, if the intention was to stay long despite continued losses.
The other side of the argument is also valid. Markets have misjudged visionary founders. Michael Dell took his firm private at ~$25 Billion in 2013 and led the transformation of his firm. The firm has re-positioned itself, and it’s estimated valuation today is ~$70 Billion. When Tesla had pressure from the markets, Elon Musk, took to twitter and spoke about taking the firm private – and of course got into trouble with the regulators for doing so.
If LTSE went live, founders like Dell and Musk could operate in the public market more comfortably.
If LTSE went live, firms like UBER could keep growing and take more of the market, without having to demonstrate a sound business model underneath.
One of the approaches that private investors like to see is “Going for Growth”
“If your growth plan doesn’t scare me, I do not want to invest in you” – That’s another famous VC one liner.
This approach has given rise to centralised tech monopoly over the years. Google, Facebook, Amazon, Uber are all leaders in their market segment. If LTSE backed them with public money, they have to worry less about profitability, if at all. They can continue with growth and their market conquest.
As an investor who is just looking for an exit, I would love this approach. But as a consumer, who cares about accountability and healthy competition, this is definitely not the way forward. The “Winner takes all” approach has made tech look like the new banking.
LTSE can be a boon to some visionary founders. If it had been announced during times of low liquidity in the market, it would have come across as a genuine attempt by proven Silicon Valley elites. It is coming at a time when market is rich with cash, and it feels like LTSE will make the bubble bigger, and the fall harder.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
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Since the AI boom, there have been several stories about people losing jobs. Repetitive jobs are the ones that are most suited for robots to take over. So would there be a time when we get to tell the Regulators “You are Fired”?
Regtech had a phenomenal year 2017, with global funding reaching $1.1 Billion across 81 deals. And the first half of 2018 alone saw funding go past $1.3 Billion across 36 investment deals (KPMG Research). Thanks to an avalanche of regulations that banks had to comply with from PSD2, GDPR, MiFID2.
Since the 2008 financial crisis, banks have paid $321 BILLION in fines
The SEC allocated $1.78 Billion to employ 4870 who were making sure Banks were compliant. Now, with the rise of AI across the regulatory value chain, the efficiencies to be had are immense with intelligent automation.
With an ocean of regulatory text to go through, and with several regulatory alerts to monitor on a regular basis, AI would be the way forward. I remember my Barclays days when there were several vendors claiming to make regulatory reporting easier through a workflow solution.
When I was at PwC, we started exploring solutions like IBM Watson for regulatory and legal language parsing. Regtechs were getting more and more intelligent, and with the amount of capital that was flowing into this space, they had to. Thanks to those efforts, there are several players to proactively identify and predict risks.
As more innovation happens in this space, ease of use moves on to automation, and automation to intelligent automation. We also have started to see regulation specific solutions. Many of them existed in their simplistic form before, but they now come with better technology. Open banking has had a few focused Regtech solution providers like Railsbank. Droit provides post trade reporting for OTC transactions as per MiFID 2.
The SEC’s proposed 2017 budget is $1.78 BILLION
This trend can further go up the value chain, and apart from serving banks, technology could serve regulators. Regulators have to parse through tonnes of data, use pattern recognition, NLP and predictive analytics to identify breaches proactively. Regulatory sandboxes help, and with more innovative firms looking at automating regulatory activities, Robo-regulators are not far away.
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I’ve always been a Life guy when it comes to Insurance. While there is a lot of interesting stuff on the Property and Casualty space (P&C), there is always interest (and a special place in my heart) for Life. It’s where I started and grew up in this industry and where I plan to focus for years to come.
A few weeks ago, I was speaking with my friend Andrew Johnston, (Global head of InsurTech Research for Willis Re). He informed me that the Q2 2018 Quarterly Briefing (which is put together by Willis Re and Willis Towers Watson Securities, with data and graphs from CB Insights) would be focused on Life and Health. This got me very excited and I asked if I could review the report earlier this week before it was publicly released (under embargo of course), so I could be the first one to write about it.
Of the many research publications on Insurtech (not the daily/weekly ones I previously shared), the Insurtech Quarterly Briefing is one that I look forward to the most.
I look forward to it because it is a great combination of 1) numbers/investments 2) thought leadership, and 3) quality company profiles (aka – if a company is in this report, I know they are a quality company).
This week, I summarize some key findings from the report along the lines of these three areas. I do encourage you to read the full report here. I’ve also included a link to all the previous Quarterly Briefings at the end of this article for reference.
Q2 Investment in Insurtech
The quantitative analysis can be found toward the end of the report. Some highlights from these numbers can be found below (taken from the report):
- There were 71 InsurTech deals with a total value of $579 million
- The deal count was 8% higher than in Q1 2018, with total funding amount down 20%
- While deal volume is up from Q1, total funding is down 20% due to a lack of high-dollar transactions, like the seven $30+ million transactions we saw in Q1 (vs. the two $30+ million transactions in Q2 2018)
- 71 transactions in Q2 2018 represents the highest transaction volume of any quarter to date
- For Life and Health (L&H), the 27 transactions announced in the quarter were the highest amount since Q2 of 2017 and the second highest on record
- 43% percent of P&C and 56% of L&H transactions in Q2 2018 involved B2B companies, compared with 35% and 47%, respectively, of all transactions since 2013
- With a total of 34 investments, Q2 2018 set a new record for the volume of technology investments by (re)insurers and represents an increase of 26% and 6% from Q1 2018 and Q2 2017, respectively
- Investment from international markets remains strong; transactions outside of the U.S. account for 58% of total transactions since 2013 and 62% in the quarter
- There were 22 strategic partnerships between (re) insurers and technology companies in the quarter, which equaled the same amount seen in Q1 2018
Further, as noted in Willis Towers Watson Securities’ CEO, Rafal Walkiewicz’s forward, ‘Life & Health InsurTech has attracted more than $5 billion in funding over the last five years, 20% more than P&C over the same time period’. Further, L&H ‘funding rounds leading to an average funding round size that is 45% larger than the average for P&C.’
What can be derived from these stats?
Firstly, seeing more investment in Insurtech outside of the U.S. should come as no surprise, especially from countries like China, India and the UK. China has actually leapfrogged a few other countries to go second after the US last quarter – perhaps a sign of things to come?
Secondly, a record number of investments from (re)insurers should also come as no surprise. After all, just take a look at the number that have VC arms now.
Lastly, I was pleasantly surprised to see that there has been more investment into L&H vs. P&C since 2013.
At the many conferences and events I have attended, as well as the daily articles I read, there seems to be a slightly higher focus on what’s happening in the P&C space vs. the L&H. I’ve even had some people from the P&C side tell me they think the L&H side is boring as compared to P&C.
I would agree there are more products in P&C to enhance and innovate (travel, home, renters, auto, business, gig economy, etc etc).
However, with L&H, we have the opportunity to help people live longer and healthier lives.
How boring can that be? (italics inserted in place for cynicism I can’t express through just writing…)
Data, Customer Centricity and Advisory Services
Regardless of the line of business of focus for Insurtech initiatives, how to harness new sources of data, build more customer centric products and provide services above and beyond just paying claims are on the agenda of all (re)insurers and entrepreneurs.
For L&H, as Mr. Walkiewicz points out, ‘the complexity of change occurring within the Life & Health insurance value chain is much greater than in other insurance subsectors and the potentially positive impact on the quality of life for the consumer is much more profound.’
All three of these pillars can help to enhance the L&H value chain to help individuals live longer and healthier lives.
Use of Data
As with other lines of business, there is a lot of data already existent within the L&H processes and more and more data becoming available.
The need and amount for medical information in order to provide preventative advice as well as to pay claims is very high and very messy. How can this information be shared between doctors and patients to provide better care? How can this information be shared between hospitals and (re)insurers to pay faster claims?
There are new data sets being brought to the foray from use of wearables and genomic reports. How will this data be used for underwriting (taking into account legal and ethical considerations)? How will this data be used to provide better advice and engagement to customers?
And how will all of this data be incorporated into existing (legacy) systems, processes and analytics that the company undergoes?
dacadoo is one company helping with this, by creating a Health Score, similar to a Financial Credit Score. Their solution helps with engagement of customers by providing personalized feedback on their lifestyle. The Health Score also provides Insurers with a different data set to help them with underwriting and ongoing monitoring of premium rates based on the individual’s health choices.
Atidot is a company helping on the data and predictive analytics side. They are one of the only providers I have seen specifically focused on Life products. Their solution targets three groups of individuals – CFOs and Actuaries, Sales/Distribution teams and Retention/Customer Care teams. They help all of these teams with providing better insights on their in-force book of business as well as information to reach out to their policyholders (in the case of a cross-sell/up-sell or potential lapsation). For full disclosure, Atidot has been a client of mine this year.
Customer Centric Products
For all Insurance products, the way in which consumers determine their needs (especially when purchasing digitally) can definitely be improved. Further, the products that they buy can be more flexible in nature.
In P&C, we have seen UBI products, especially for Auto, which offer policyholders the opportunity to pay for the exact amount of miles that they drive. The use of telematics will also help in providing policyholders discounts for driving better (and potentially premium hikes for driving poorly!).
For L&H, these types of products (UBI based) are a bit more difficult to imagine. However, using the advanced data and analytics as described above can help with providing policyholders and Insurers with more information as individuals progress through their lives.
As such, the process for determining the amount of coverage an individual needs at the purchase of their policy as well as throughout the term of their policy are of utmost importance. Further, products should be built in such a way that are more flexible for policyholders and less onerous if they have a change in needs (i.e. limited additional invasive underwriting).
Anorak is a fully automated, fully digital Life insurance advisory platform looking to tackle the meaningful protection gap of nearly 8.5 million individuals in the UK who are currently uncovered or under-covered by Life insurance. The process starts with a ‘check-up’, which is like a needs analysis for the individual on their current situation. Once this is done, ‘impartial advice’ is provided on what type of cover the individual may need. Then, three policy options are provided to the individual. Their product offers an API which can be integrated into price comparison sites, agencies, online retailers and more.
As a person that likes to focus on the needs of and suitability of products being recommended to an individual, I love what Anorak is offering.
Ladder Life is a digital MGA that offers online Term Life Insurance. Their tagline of ‘Life Insurance Just Got Easier’ can be seen through their quote and application process:
- Consumer answers a brief set of questions (many responses are avoided through supplemental data).
- Consumer receives an instant insurance quote with no obligation to purchase.
- If supplemental information is needed, Ladder sends a medical professional to complete an exam (free of charge to the customer).
In most cases, the need for blood and urine samples for underwriting has been eliminated.
Further, they offer a solution to allow policyholders to adjust their coverage as needs change (called ‘laddering’), without paperwork, meetings, phone calls, cancellation or penalty fees.
For those of you who have ever sold or bought Life Insurance, I hope you would agree that the process and flexibility outlined above are better than some of the ‘traditional’ methods.
Lastly, they have just launched the Ladder API and a partnership with Sofi, helping to provide a more extensive offering to the individuals in Sofi’s ecosystem.
Regard has designed products to address coverage gaps and rising out-of-pocket expenses that many customers in the U.S. face as more employers shift to high deductible Health plans.
This is a huge and increasingly larger problem for the U.S. health market.
According to the report, Regard differs from many other InsurTech agencies in three important ways: (1) emphasis on institutional distribution needs as the starting point for product and technology vs. a direct to consumer strategy; (2) its position at the nexus of new specialty insurance products and proprietary technology vs. traditional products with off the shelf IT; (3) its ability to participate in premium income through risk retention in addition to MGA commissions compared to a commission-only revenue model.
Digital Advisory Services
Insurance is in an age where we are transforming from a collector of premiums and payor of claims, to a service provider that helps individuals manage and prevent risk in their day-to-day lives.
The solutions that are becoming available in the L&H space are helping with this to enable policyholders to connect with their doctors and hospitals as well as have 24/7 services through the use of AI and machine learning. This will help to make L&H products more interactive for their policyholders with an ultimate aim of living longer and healthier lives.
Boundlss provides a AI-powered health assistant for L&H insurers. Their platform helps to support individuals with their wellness goals and acts as a ‘personal trainer/health coach’ for users.
The Boundlss platform collects, analyzes and aggregates data from over 400 wearables and mobile apps, allowing insurers to gain new insights into their member populations and their behaviors.
Further, if the AI engine does not provide a response that is sufficient for the individual, a human coach can be brought seamlessly into the conversation.
Oscar is a fully licensed Health Insurer operating in New York, New Jersey, California, Texas, Ohio and Tennessee. I’ve covered Oscar before when writing about my own Health Insurance purchase and I believe they are a company to watch for the years to come. With their recent rise from Alphabet, you can ensure that building a digital ecosystem will continue to be at the forefront for this company. I liken the ecosystem they are building to that of Ping An and believe they have begun to build a company that is focused equally on advisory services as it is on delivering a quality product.
‘The Insurtech Grand Prix’
It would be remiss of me if I did not mention the thought leadership piece in the Briefing by Greg Solomon, Head of Life & Health Reinsurance at Willis Re International. Greg is based in Hong Kong.
In this, he uses the analogy of the Grand Prix to identify initiatives that are:
- ‘In the Driver’s Seat’ – Insurers taking a lead in initiatives to better distribute and interact with their policyholders with examples coming out of South Africa and Asia.
- ‘Rear-wheel drive’ – developments outside of the L&H sector that are changing the dynamic of how products are distributed and built for customers. Examples here include the joint healthcare venture with JPMorgan & Chase, Berkshire and Amazon, online search and aggregator sites
- ‘Emerging Tech: Towing Them Along’ – different technologies such as Machine Learning, AI, Blockchain, cryptocurrency and genetic testing, that could change/enhance many elements of the L&H value chain.
- ‘Along for the ride’ – tools like wellness platforms that help Insurers be alongside of their policyholders throughout the life of their policy.
From this summary, I hope for two things:
- That you are inclined to read the whole report! You can find the link here. There is a lot more information in there, especially deep-dives on the companies mentioned including interviews from their management team.
- That I was able to change some of the P&C folks’ opinions of L&H from boring to at least interesting!
I am pleased to see the amount of investment and transformation in the L&H space. As with all other lines, it is long overdue.
The opportunity for our industry to be part of helping individuals live longer and healthier lives is extremely exciting for me (and should be for you, too).
Previous Quarterly Briefings
Stephen Goldstein is an experienced Insurance executive and Insurtech dealmaker with a core focus on growing revenue, launching go to market initiatives and advising industry leaders.
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