Insurtech Is NOT Dead

The insurtech movement is not dead. In fact, it is finally showing concrete impacts.

However, what has worked aren't the shiny toys loved by futurologists and black swan hunters. Instead, what has worked are awesome innovations done in the kitchen of the large carriers (borrowing the metaphor used by my friend Robert Pick at the WISA event last April). These usages of technologies and new data stay obscure and are even misunderstood by those who observe the sector without walking daily in these kitchens and understanding the language of their cuisine brigades.

Is there anyone significantly outperforming the competition due to their use of insurtech? Yes! 

My favorite example is Progressive's journey with pricing sophistication and telematics. Auto insurance is an extremely competitive and regulated market, making it a cost-plus business. However, Progressive has consistently achieved a significantly better loss ratio than the rest of the market for the past 10 years. The higher the weight of telematics in their business (and the surcharge level for the risky profiles), the higher their overperformance.

Why did I choose to dedicate the headline to death?

Because, over the past quarter, we saw mounting storytelling about the death of the insurtech movement:

• “Global insurtech funding falls to its lowest quarterly level since 2018” in Q1 2024.
• Carpe Data's message at their event: "InsurTech Is Dead." They argue that "the Golden Age of InsurTech is now a long way off, and it's not going to return."
• Swiss Re withdrew from their embedded insurance arm, IPTQ.
• The European insurtech poster child Wefox's fall. (I expressed doubts a year ago.)

But these stories are only Darwinian selection. It is natural, and it is good!

Choose your idols carefully to avoid being disappointed. As I ranted last year, among the newcomers, you could pick Kinsale instead of Lemonade. (It is hilarious how Lemonade is deflecting from all the elements -- one after the other -- of its original and fascinating storytelling. Now, far from the old claim of their bot substituting for brokers, they are paying fat commissions to brokers to sell their policies.)

Let me go back to the Progressive overperformance.

Last year, Progressive dedicated an entire earnings call to its telematics journey, talking about the increased relevance of usage-based insurance (UBI) in its personal auto portfolio and the sophistication of its pricing. Progressive has improved the sophistication of its UBI tariff and increased the maximum surcharge for riskier drivers step by step over the past years. It is impressive to look at Progressive's technical results over the same period, as reflected in the chart below.

Progressive private passenger liability portfolio has consistently achieved a significantly better loss ratio (including loss adjustment expenses and IBNR) than the rest of the market:

• At the beginning of this series -- in 2014, when they had just started surcharging risky drivers -- their loss ratio was four percentage points better than the competitors (about a 7% difference);
• Between 2015 and 2021, their loss ratio was about 10 percentage points better (about a 16% difference);
• Finally, in the past two years -- characterized by, on one side, the increased level of relevance of telematics on the portfolio and a boost in the risky driver surcharge up to 60%, and, on the other side, a complex context due to inflation and many unfriendly state regulations about rate change -- their loss ratio was about 15 percentage points better (above a 20% difference).

Do you remember what Berkshire Hathaway's head of insurance operations said at the annual meeting in 2021? "Geico clearly missed the bus and were late in terms of appreciating the value of telematics. They have woken up to the fact that telematics plays a big role in matching rate to risk."

He was clearly talking about the evidence from Progressive.

See also: Where Insurtech Went Wrong

Telematics is an extraordinary insurtech lever that has demonstrated a concrete impact in creating a sustainable competitive advantage.

• Have you ignored it in the past? You should start your telematics journey!
• Have you tried it and failed? Instead of denying the value of telematics, you should start again, studying the journey of the best practices and doing a critical review of the lessons learned in your past.

Even a recent AM Best study on the U.S. auto insurance market showed how "Highly Innovative Personal Auto Carriers Have a Significant Competitive Edge." The cluster of insurers rated by AM Best as more innovative has grown more since 2018 and has achieved better combined ratios.

You know I love insurance incumbents, having advised a few hundred of them -- including 14 of the top 25 P&C international carriers and seven of the top 25 life international insurers -- over the past two decades. I've seen so many other terrific, successful insurtech stories in their kitchens!

Let's start with risk prevention. Here is the old, gold study I did with the Geneva Association on this great opportunity in 2021. Nothing happens overnight in the insurance industry, but it is awesome to see the concrete impacts some of the pioneers in risk prevention are currently achieving:

1. Hanover's 2024 earning calls and investor presentations are constantly offering testimonials of the effectiveness of their risk prevention program for commercial properties

2. Many other U.S. P&C carriers have obtained similar results (more than three dollars saved on the expected losses for each dollar invested) with IoT-based risk prevention in commercial property portfolios, as shared last year: Insurance IoT is a social good!

3. Hosting a C-suite roundtable at the last North American IoT Insurance Observatory was a breakthrough. Top executives from Great American, HSB, The Hartford, Tokio Marine and Travelers discussed a common vision about the P&C insurer of the future and what is currently happening in their kitchens:

• They talked about a vision where the P&C carriers not only assume risks and pay claims, but their portfolios will also be connected and protected through a layer of IoT-based prevention services.
• They shared double-digit penetrations already achieved on some niches of their portfolios where they decided to scale a specific IoT approach based on the evidence of a robust ROI.
• They highlighted how these IoT programs are becoming an integral part of the way a business line deals with a class of business.

I discussed these U.S. market trends at Underwriting Network London, and surprisingly none of the many European carriers was aware of these success stories.

Let's focus on a third concrete insurance success story using data and digital technologies: a beyond-insurance journey.

Unipol Gruppo has been one of the first movers and bolder actors in this trend around the globe. They have even created a dedicated division. Their chief beyond insurance officer is Giacomo Lovati, an insurance executive I have had the privilege to advise multiple times -- with different hats -- over my career. Unipol's beyond insurance journey has already reached the milestone of €1.6B in additional annual revenues, making a significant contribution to the group bottom line, as Giacomo shared in his speech at ITC Europe last year.

I love these kinds of initiatives, where insurers take the front seat, with the ambitious vision of orchestrating an ecosystem of services and the customer experience of their policyholders. I love to see insurers succeeding in doing it, demonstrating that staying relevant in the life of the policyholders is an achievable (and profitable) target. Some say all insurance will eventually be embedded, so insurers should hide themselves behind cooler brands. But I disagree. I love insurers and the smell in their kitchens and think they need to stay relevant. (Here is one of my old articles about staying relevant.) 

See also: Why Insurtech Funding Dried Up

The last insurtech success close to my heart that I want to describe is Vitality.

I have always learned a lot in my exchanges with discovery teams around the world over the past 11 years. My first viral insurance innovation article was about them, and I'm honored to have them among the members of the IoT Insurance Observatory since 2018. Vitality's behavioral change approach has:

• demonstrated a robust return on investment: “Over the five-year period, Vitality saved an average of $462 in annual medical claims costs per engaged member. […] This represents 4% reduction in claims costs over the analysis period due to Vitality engagement. This results in a ROI for Vitality clients of 180%, taking into consideration all program and incentive costs.” 
• shown consistent results in life and health insurance portfolios in different geographies around the world 

I hope these facts and figures about concrete impacts generated by incumbents' insurtech initiatives will further support your appetite to innovate using new data and technologies. 

Repeating my recommendation from last year: Don't let the Darwinian selection stop your commitment to the innovation journey. Please, my fellow insurers, don't stop investing in innovation!

Even Chubb’s CEO said "insurers are data companies” at the recent S&P Global Ratings Annual Insurance Conference in New York. 

Or, as I have ranted for the past decade, all the players in the insurance arena will be insurtech, meaning players using technology and data to achieve their strategic goals!