Insurtech North America Weekend read

InsurTech in the United States of America: A Blossoming Relationship Fuelled by COVID

After a year of economic turmoil, the US emerged from 2020 with its insurtech crown intact. American companies accounted for 39 places in FinTech Global’s InsurTech 100 (2020) – almost double that of its closest competitor. Of the insurtech megarounds completed by the third quarter, 75% took place in the US, with insurtechs flourishing in startup strongholds like Silicon Valley and New York, and across the Midwest and South.

If anything, the Covid-19 crisis has entrenched American dominance. 2020 has seen three or four years’ worth of progress compressed into just one, in the eyes of an industry expert. Even though no one’s quite sure where the term “insurtech” originated, few would deny that it’s now synonymous with the US.

Why do startups gain a foothold in some insurance sectors but not others? A lot is down to industry incumbents, who can lose market share if they have “pain points” for insurtechs to target. Not many industries fit this bill better than US health insurance. “The general population of the United States is not that happy with their current healthcare solutions,” notes David Gritz of the InsurTech NY accelerator, with a slight laugh in his voice. In the Satmetrix Net Promoter Scores (NPS), which ranks 23 sectors based on customer satisfaction, health insurance is consistently graded above TV Service and Internet Service, and below pretty much everything else.

The gap between public expectation and insurer performance has provided a vacuum worth billions to insurtechs. Oscar Health, Clover Health, Bright Health and Devoted Health all claimed unicorn status during the 2010s. But the scramble for telemedicine during Covid – like a check-up over a video chat – has shaken up an already volatile industry. In 2020, Series E funding rounds brought in $225 million for Oscar Health, and a seismic $500 million for Bright Health. Private equity firm Newlight Partners invested “up to” $150 million into Chicago-based Zing Health – an insurtech founded just one year earlier.

Health insurance had an NPS of 19 in 2020, whilst auto (car) insurance reached 41 – the lowest and highest of any insurance sector. Although they’re taking on an industry with greater customer approval, auto insurtechs have managed to carve out a chunk of the $280 billion market. Between 2010 and 2020, more auto insurtech deals took place in the US than the rest of the world combined.

“Most Americans overpay for auto insurance, and the Covid-19 crisis has only exacerbated the problem,” explains Rick Chen, a spokesperson for pay-per-mile startup Metromile. On average, he claims, insurance costs halve when drivers switch to the insurtech, because most Americans are low-mileage drivers whose fees are kept artificially high by blanket coverage. Mileages spiralled even further downward during the pandemic: data provided to The Fintech Times by Metromile indicates that Americans drove 58% fewer miles in the first month of lockdown. As driving has dropped, Metromile’s appeal has grown – searches for the insurtech spiked in April and again in the summer. Chen predicts that interest will only increase as cultural shifts (like remote working) take hold, and eventually “usher in a future where flat rate auto insurance rates come to an end.” With usage-based insurance forecast to grow by a factor of six by 2027, the San Francisco-based startup is riding high on a wave of change.

Not all success stories are to be found in car or health insurance, however. One of the newest entrants to the unicorn club is Unqork, which hit a valuation of $2 billion in October 2020, and provides insurance companies a platform to build custom software. In a city packed with Fortune 500 insurance companies, it’s common for New York insurtechs to build links with industry experts – and Unqork’s run deeper than most. It was founded by Gary Hoberman, a former Chief Information Officer with insurance giant MetLife. “I know exactly what our customers are going through, because I used to sit at their desk,” he says.

Hoberman’s old desk might only be three miles away from his new one, at Unqork’s offices on 5th Avenue, but he’s come a long way in his time at the startup. The CIO-turned-CEO estimates that companies spend around half a trillion dollars every year writing archaic code for slow-moving tech projects. By contrast, Unqork’s no-code platform is said to allow customers to “build better software, faster and at a lower cost.” As Hoberman notes, it’s all about being more efficient. He even opted for the company’s current name over “Uncork”, because the domain cost about “50 times” less.

Insurtechs like these are known as “enablers”, which partner with insurance carriers to provide digital services. Pre-Covid, they were seen as a way of unlocking efficiencies in the value chain, but since early 2020, they’ve proven crucial in helping incumbents function remotely. Unqork, for instance, can digitise applications processes by moving forms online (several of its employees have worked at companies still reliant on paper documentation). Another big enabler is Duck Creek Technologies, which provides “Software as a Service” to Property & Casualty insurers, and partnered with Munich Re Specialty Insurance in May 2020. “Digital is no longer a “nice to have”, but a critical business practice in order to survive,” believes Hoberman.

During Covid, many insurtechs have not just survived – they have thrived. Lemonade became the first US insurtech to go public last July, and was followed by a wave of insurtechs. At least 15% of tech IPOs in 2020 belonged to insurtechs, in the opinion of JP Morgan’s Tushar Virmani. Duck Creek raised $405 million when it went public in August, and Ohio’s Root gained nearly three-quarters of a billion when it debuted on Nasdaq. Clover Health announced a forthcoming IPO the same month (it took place two weeks ago) as did Metromile in November, and Oscar Health in December.

Gritz thinks this concentration of public insurtechs in the US is down to two things: the availability of pre-public funding, and ambition. “Going public is not right for all companies,” he explains. “It’s right for companies that have extreme ambitions, for companies that need a substantial amount of capital to get to their goals.” In a December blog post justifying the decision to go public, Lemonade CEO Daniel Schrieber made his ambitions clear when he invoked the paths travelled by the iconic tech companies like Apple and Microsoft. And when asked about Metromile’s forthcoming IPO, Chen said that it will enable the startup to expand its coverage from eight states to the rest of the US by 2022.

All of this means 2021 should be a big year as major insurtechs start their march towards long-term profitability. But Gritz argues that their attempts to expand will be piecemeal given the variation in state regulations, which he says is the biggest threat to US insurtech dominance. It’s the reason why Root, which had aimed to reach all 50 states by the end of 2019, only got to 30 by the end of 2020. Michigan, which borders the insurtech’s home state, is a market still untapped by the $7 billion startup.

With insurtech deals completed in a record high of 26 countries in the third quarter, there are also signs that the market is beginning to splinter. And the threat of China, whose insurance market is expected to overtake America’s as part of “the great pivot East”, is never far from the horizon. 2030 could well be the year when the US loses its title as global insurtech leader. But 2020 was not. For now, at least, America’s crown is secure.

Author

  • Benedict Smith studied English at Oxford University, followed by Journalism at City, University of London. Alongside the The Fintech Times, he has written for ABC News and Good Morning America.

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