Insurtech: the Milken Institute Publishes Report on Innovations in Insurance, Questions Disruption

While insurance may not be considered a ‘sexy’  industry it is incredibly important (most people consume it) and absolutely enormous at an estimated $4.1 trillion of annual gross premiums paid. Innovations in the insurance sector may transform the industry to a degree far beyond what we can fathom today.

The Milken Institute, Center for Financial Markets, has recently completed an in-depth study of a selection of Insurtech firms. While Milken highlights the transformation of the insurance industry, the report posits an interesting statement that questions the degree of disruption taking place in insurance today thus challenging a global perception of rapid change.

Milken notes that between 2015 and 2017, more than $6.5 billion was invested into Insurtech ventures. In the first quarter of 2018, nearly $725 million was invested in Insurtech a solid 155% increase versus the same period year prior.

Milken’s Fintech lead Jackson Mueller has profiled over 100 Insurtech firms from around the world to help industry participants and policymakers better understand the nascent market.

Of the 104 platforms profiled in the report, 64 are headquartered in the US.

Admitting this is just a small portion of an estimated 1500 Insurtech firms around the world, the report adds the caveat that it may not be representative of the broader sector innovations in insurance.

The report states:

“We note that we relied heavily on articles, press releases, Google Alerts, blogs, etc. that are in the English language. We are aware that there are a number of Insurtechs that may not get mentioned or picked up by domestic and international English-language publications. This is why we felt the need to caution readers that this is a non-random, non-representative sample of InsurTech firms.”

The Milken report segments the industry by the following categories:

  • Full-stack Insurers
  • Agents
  • Brokers

While the report says the majority of the companies profiled fit nicely into the above categories a good number of them are better described as technology providers and thus outside the traditional verticals.

The Milken report does not offer policy recommendations (yet) but it does provide some interesting conclusions.

Milken questions the efficacy of existing Insurtech businesses.

Do cost savings created by a more efficient insurance process lower premiums?  Or perhaps these savings just end up driving profits higher?

Do comparison sites drive competition? Or do they simply drive higher sales of more services?

And what about financial inclusion?

Good questions to ask.

Milken honestly believes more research is necessary and the industry remains in the very early stages of development.

“While further analysis on the sector is certainly needed, we are hopeful that the information provided in this white paper and accompanying landscape will help to generate more informative discussions and debates among policymakers and regulators about who some of the actors are in the Insurtech space, what they do, and the overall value of (and need for) innovation in the insurance sector.”

So is Insurtech disruptive?

“… it remains to be seen whether Insurtech truly is disruptive and capable of addressing issues related to inclusion and access.”

Mueller believes that the jury is “still undecided on whether we are likely to see the purported benefits from Insurtech reach end users in the form of more responsible, cost-effective products and services.”

Like much of the Fintech industry, early entrants can easily drive sector hype but the real traction and disruption may be further on down the line.

As VCs and corporates fund Insurtech startups, and mobile internet connectivity is now ubiquitous, it is hard to imagine an insurance industry that is not changed by digitization. It may just happen further on down the line.

The report, Insurtech Rising report may be downloaded here.

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