Perspective on InsurtechSeptember 2016

VC insurance investments are on the rise

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

20

40

60

80

0.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

VC Insurance Investment as of August 2016

Deal Count Capital Invested Sum

Insurance has become the new hot topic in venture capital. Online lending set the stage for insurtech – increasing investor confidence in verticals with heavy regulation and high capital requirements.

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Health In

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1.5

2

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VC Funding ($B)

The majority of VC money has gone towards health and autoHealth and auto insurance account for the majority of early insurance investments. Health and auto are two of the largest segments within insurance, which explains the interest from Silicon Valley.

Most startups are not attempting to displace incumbents

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Insurance Deals 1/1/2015 - 9/1/2016

Most startups are developing products which complement current insurance offerings. These startups will likely be dependent on partnerships to reach scale.

Pain points in insurance

Insurance Innovation

ZebraAuto Comparison

Engine

PolicyGeniusInsurance

Comparison and Education

ZendriveMobile Telematics

KnipDigital Insurance

Manager

InforcePROPolicyholder Data

Mining

TrovOn-Demand P&C

Insurance

MetromilePay-Per-Mile Car

Insurance

ZipariReal-Time

Analytics for CRM

BIMAMobile Micro

Health Insurance

RoostSmart home technology

PraedicatRisk Analytics to

Improve Underwriting

AvesthagenPredictive Preventive Healthcare

The poses an opportunity for insurance companiesAXA Strategic Ventures Aviva Ventures USAA

Allianz Digital Corporate Ventures

Intact Financial MassMutual Ventures

AIG Sun Life Financial New York Life

American Family Ventures White Mountains GIS Strategic Ventures

Startups don’t necessarily have the upperhand

• Brand awareness and marketing spend• Capital requirements• State licensing and regulation

• More agile internal processes• Lack of legacy systems and products• Talent recruitment• Lack of stringent regulatory scrutiny

(SIFI)

You are building two identical houses; would you rather remodel an existing house or start from scratch?

Challenges for Startups Startup Advantages

It depends. Certain aspects are easier to build from scratch, and certain aspects are not. The target market and product of the insurance startup matters.

VC considerations

Product offeringDoes the startup have a compelling value proposition? Is the product advantage evident to customers?Is the improvement a nice to have or a need to have?

Investment CriteriaHow much capital will need to be invested to reach break even? What is the time horizon for an exit?

Industry ExperienceDoes the management team understand the dynamics of the insurance business?Does the company understand the regulatory environment?

Business ProcessesHow quickly can the company train their underwriting models?Can the company identify and attract low risk customers?How well diversified is the company’s portfolio?

Marketing ExpendituresCan the company market and sell to customers at a reasonable cost?

Where is this all going?

We believe insurtech will play out in a very similar manner to how fintech – specifically lending - has played out.

Namely:

Partnerships will be vital for startups to reach scale. Startups will struggle to work around insurance company timelines, as partnerships are more urgent for the startupsInsurance companies will feel pressure to innovate as new products enter the market. Executives and management will need to adopt and promote a culture of changeOnce startups reach scale, regulators will pay closer attention to the operations of insurtech startups – potentially fining companies for actions taken years priorAs winners are determined, consolidation among startups will occur. Insurance companies will need to be mindful of the shifting startup ecosystem

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