In Search Of A Unicorn: Tech Investors Turn To Life Insurance

By Nelson Lee

Every few years, tech investors and startups will label a new industry “hot,” and insurtech is steaming. The insurtech industry is continuing to deliver record-setting funding rounds, as well as historic highs in overall venture investments into the sector. This is a big contrast from as recent as five years ago, when boring old insurance was still a market relatively untouched by tech disruptions. Insurtech wasn’t even really a phrase yet, other than being defined as a tiny niche within the larger fintech space.

In the past, insurtech very much relied on the rising tides of fintech to garner attention. Unicorns such as Robinhood, Venmo, Coinbase and Stripe have been routinely dominating headlines for groundbreaking innovations and valuations. However, the hype is nudging investors to begin seeking relatively less disrupted spaces within fintech for returns in less-crowded markets.

Initially, startup founders and investors turned mostly toward the health and property/casualty insurance spaces, as the more transactional nature of these sectors provide for a relatively natural path to market adoption. Numerous startups achieved outstanding valuations and market share within these sectors, such as Oscar in health insurance, and others such as Hippo and Lemonade in home insurance.

Life insurance is different. On one hand, it is an extremely large market with $615 billion written in premiums annually, making it naturally lucrative for many investors. On the other hand, it is a more complex and less transactional sector compared to its P/C insurance counterparts. The vast majority of life insurance premiums are placed in a relational context, with both consumers and carriers relying much on human agents to explain the complex and sensitive nature of the products in question. This has translated into less initial traction and investments into the life insurance space, until recently when interest in life insurance seemed to have surged and reached historical heights.

There are many factors that play into the sudden surge of interest in life insurance. One factor is that the overall increase in customer experiences of other insurance fields have changed the expectations that customers have for insurance in general, which places more incentive and pressure for carriers to adopt innovations.

Second, carriers are beginning to realize that various technologies can vastly reduce their operating expenses while improving customer experience, without necessarily coming in conflict with their values and risk appetites as many had feared. In addition, many carriers have vastly expanded the footprint of their venture arms, investing in disruptive insurtech startups instead of resisting them.

All of these are important signals to the general investment community that carriers are now more ready than ever to embrace the tech revolution. This is especially true for startups whose value propositions are to partner and improve the industry with existing carriers, instead of trying to compete and eliminate them.

Carriers’ increasing acceptance to partner with startups has removed one of the biggest traditional barriers to entry: the capacity for startups to not only take on all kinds of risk with extremely large payouts, but also convince consumers that they will be able to fulfill their obligations at the time of claims. Startups can now take advantage of the risk-taking capacity and existing trust built by legacy carriers, while using their own technologies to optimize the process and experience.

Investors are eager to pour capital into the sector while it’s still relatively early, all in hopes of finding the next unicorn in a vastly underserved niche. More insurtech startups are being funded than ever, and they are using the funding to find new ways to improve the life insurance industry. The industry is staring at a major tech overhaul. This overhaul includes the back-end processes such as underwriting automation and claims management, as well as front-end experiences such as more online interfaces for support and analysis tools for data-driven decisions. There’s no denying that the current life insurance industry is a dream scenario for venture capitalists and their disruptive startups.

Nelson Lee is founder and CEO of iLife. Nelson may be contacted at [email protected].

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