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Barbarians at The Gate: The InsurTech PhenomenonValen Analytics Summit – March 9, 2017Martha Notaras, Partner

“Silicon Valley is coming. There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.”

Jamie Dimon, CEO

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“If the Insurance Industry does not innovate and become more relevant, we are in danger of being left behind. Soon.”

Michael McGavick, CEO

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Convergence of insurance and technology driven by entrepreneurs, investors, demographics and computational advances.

InsurTech:

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Explosion of Activity in Insurance InnovationFour of the Top Ten Global Insurers Have Innovation Centers*

Insurance Innovation

Growth of MGAs ILS (New Ocean, etc.)

Hedge Fund Re’s

Internal InsurTech Innovation

AIAAllianzAllstateAvivaAXA

Liberty Mutual

Innovation LabsGlobal Insurance Accelerator

InsurTech Innovation LabPlug and Play**

Startup Bootcamp NYCStartup Bootcamp London

Insurance Accelerators

Andreessen HorowitzAleph

CanaanDFJIVP

SequoiaNEARibbitRRE

Union Square

Traditional VCs

American Family

AIGAXA

AllianzChubb

Liberty MutualMarkelMarsh

MassMutual

Corporate VCs

*Ranked by Non-Banking Assets**28 Insurance Members

Manulife MetLife

MunichReSwiss Re

State Farm

MunichRe/HSBNorthwestern

MutualSwissRe

TransAmericaXL Innovate

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InsurTech Funding Hit $1.69B in 2016207 deals; 57% increase in number of deals from 2015

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Less than 25% of Dollars Invested is for P&CPlenty of Opportunity for Innovation

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0%

5%

10%

15%

20%

25%

30%

Market Opportunity Set is SubstantialInvestments are Diverse and Expanding

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“Tech startup dealmaking by insurance firms including AXA, XL Catlin, Mass Mutual, and others is on pace for a record high in 2016. Carriers no longer shying away from insurance tech.” -CB Insights

Increase in Carrier-Backed Insurance StartupsBroad Range of Carriers Investing

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Hedge Funds Insurance Veterans Entrepreneurs Venture Capitalists Technologists

The Barbarians are at the GateAnd their Numbers are Growing

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Entrepreneurs and Investors

Learning about Insurance

Early Focus on Obvious

Sectors (i.e., Personal

Lines & Distribution)

Incumbents Embracing

Startups

Regulatory Creep

Complex Insurance & Reinsurance

Require Incumbent

Support

Innovation and Digital Transformation StatusWe’re Early in the Process (“InsurTech 1.5”)

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Selection

Customer Satisfaction

Cost

Automation

Simplicity

Efficiency

AI / ML

Automation

Data

Analytics

Over Capitalization Efficiency

Velocity

Investment

Taxation

Sourcing

Acquisition & Distribution

Operational Costs

Business Intelligence Cost of Capital

Innovation & Digital Transformation OpportunitiesXL Innovate Focuses on These Four Pillars

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Greatest Opportunity for InsuranceEngage Customers Beyond Purchase, Claims and Renewal

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Source: Satisfaction Survey — BCG / Morgan Stanley“Insurance Technology Evolution and Revolution

Customer Service Rivals TelcosKey Vulnerability and Opportunity

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Startups are Already Raising the BarWorld Record Timing for Claims in Three Seconds Flat

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Digitally Transform Operations with Mobile Faster, Simpler and Transparent

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Text a photo of license plate for a quote

Get bid from local autobody shops

Uber-inspired app re towing, accident,

and insurance

Automotive Insurance DigitizedInnovative Startups and an Industry Stalwart “Uber-izes”

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SMB Distribution Reinvigorated Customer Focused with Greater Data and Risk Accuracy

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Value Add Broker Online Insurance Data Scoring

SMB Experience Reinvented and AcceleratedLeveraging Tech to Improve SMB Coverage

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New Products for Sharing & Connected EconomyReady to Ingest 26 Billion Devices?

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Insurance Partnering with IoT CompaniesPersonal Lines….Commercial and Industrial Bigger Markets

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Telematics for Usage-Based Insurance (UBI)Transparency for Value

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35% of Consumers Willing to Share Digital DataThe Trend is Well Underway

Percent of Customers Already Sharing Data

Source: Celent

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32%

35%

38%

41%

Social Location

Connected Home

Exercise

Telematics

IoT Reshaping the Insurance IndustryPotential Impact is Non-Trivial

Reduce risk, claim numbers

and volume

Decrease loss rates dramatically

Monetize risk and partner with OEMs

to reduce risk

Develop and price real-time micro

insurance

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Partnerships are Incredible CatalystsInsurers, Marketplace Platforms, Mobile Network Operators

On Demand Microinsurance Smart Home

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Water Leak is the 2nd Largest Cause of Claims$8 Billion in Losses Annually

Source: ISO®, a Verisk Analytics® business

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58%Kitchen

72%Storage

53%Basement

21%Bedroom

80%Laundry

Home Awareness Beyond ThermostatsSensing Water Presence Throughout the House

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Insurance + IoT Influences Customer BehaviorCustomers are Active Partners in Prevention

Burst Water Pipe Average Damages: $15,0005% of Sensors Detected a Leak

50% of these leaks were tests50% of these leaks were confirmed leaks

100% of Customers Took Action to Avoid Damage

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Massive Amounts of Data Captured EverywhereData Deluge Requiring Key Business Intelligence to Process

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Blockchain, Cyber and Fraud Detection“Fingerprinting” Diamonds, Buyers and Data Itself

Blockchain Fraud Detection Cyber Security

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Underwriting

Specialized Data Analytics for InsuranceComputer Vision, Machine Learning and AI

Claims Transportation

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Relationships & Distribution

Knowledge & Resources

Regulatory Interface

First Customer

Capital & Investment

Incumbents are Critical PartnersStartups Recognizing the Strategic Advantages

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Incumbents difficult to displace

Incumbents may absorb

startups

Regulatory barriers are

high

Incumbents can

innovate, too

Ultimately startups become

insurance companies

The Barbarians Don’t Have to WinParallel Strategies & Collaboration vs. Outright Disruption?

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Start Swimming with the Big GuysLots of Opportunity - InsurTech Hasn’t Hit Commercial Yet

Develop/offer new products leveraging data and analytics Identify risks from new tech (drone, autonomous vehicles, etc.) Drive IoT strategies for personalized pricing & risk management

incentives Pursue digital distribution to cut costs Deepen client engagement beyond renewals and claims Launch pilot projects with startups

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Questions?@MarthaNotaras

Hiked the 67 Mile Backbone Trail in the Santa Monica Mountains