Technology & Innovation in the Insurance Ecosystem
Joanna Arras, Vice President, Baird Capital
At Baird Capital, we focus on partnering with visionary entrepreneurs and companies that enable the digital transformation of business services. We most commonly see disruption in large, established markets that are driven by dominant incumbents and antiquated technology and workflows. The global insurance market fits that mold. Today’s insurance market is massive, with nearly $5 trillion of direct premiums written annually, accounting for more than 6% of global GDP.1 While some easily recognizable brand name insurance carriers have been around for nearly one hundred years, the market remains fragmented and open to new entrants. Customer value within insurance remains high, which drives large acquisition budgets (billions of dollars per company, in some cases) and a keen focus on customer engagement and retention. However, inefficiencies in existing insurance workflows are being exposed as customer purchasing, and engagement habits continue to evolve.
Understanding the market opportunity
Similar to other areas within business and consumer services, the insurance sector is subject to the undeniable influences of rapid technology innovation and a generational shift of purchasers:
- Omni-channel interactions – Customers want to be met where they already are, which is increasingly in the digital world. They expect to be able to access and interact with service providers online, on a mobile device and through social media, while still having access to agents and other customer service representatives for significant events such as purchasing a policy or making a claim.
- Information availability – According to Accenture, more than 75% of insurance customers are willing to provide usage and behavior data in exchange for lower premiums, quicker claims settlement or insurance coverage recommendations.2 The proliferation of consumer-level data, combined with innovations in analytics and machine learning is quickly yielding higher quality outcomes and, subsequently, higher customer expectations.
- Personalization and automation – Allowing for more curated recommendations and functionality leads to higher customer engagement and satisfaction. There is a 20% increase in policyholder conversion when the customer experience is personalized2 and a 30% reduction in the cost of processing claims when automation is used.3
- Next generation technology – Emerging technologies and processes such as artificial intelligence, robotic process automation, decision analytics, and straight through processing have historically been underutilized in the insurance ecosystem relative to other tech-enabled industries.
- Alternative pricing models – Alternative models including usage-based and Peer-to-Peer insurance are emerging to meet the needs of a consumer set increasingly expecting on-demand or alternative experiences.
Innovation and increased efficiency across the insurance process - from customer acquisition to underwriting to claims processing and beyond – should create a more cost-effective ecosystem for consumers and carriers alike, while still maintaining the high levels of customer care we expect from insurance partners.
Investment perspective & Baird Capital’s differentiated approach
We’ve seen an increase in innovation efforts at insurance carriers as they launch investment and corporate venture arms, as well as an increase in venture capital dollars flowing into InsureTech startups, most notably at the seed stage. In the first three quarters of 2018, over $2.2 billion was invested in the InsureTech industry, pacing ahead of investment activity in prior years.4 Investment in the industry has been widespread across different insurance products (home, life, property & casualty, etc.) and buyer verticals (automotive, agriculture, health, etc.).
When Baird Capital invests in a company, we create a partnership that goes well beyond the simple infusion of capital. Through our deep understanding of broker/dealer models and our historical investment experience in broader financial services & technology, we can bring to bear all of the relationships and knowledge we’ve developed across our global platform to complement the operational know-how of visionary InsureTech entrepreneurs.
About the author
Joanna Arras joined Baird Capital's Venture Capital team in 2014 and concentrates on technology and services investments. Prior to joining Baird Capital, Joanna worked as an Equity Research Analyst at Baird, specializing in semiconductor companies. Additionally, Joanna served as an Associate in Baird's Investment Banking and Business Development departments, focusing on strategic investments and initiatives. She earned a BS in management and international business from Indiana University and holds an MBA from The University of Pennsylvania's Wharton School with majors in finance and entrepreneurship.
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1 Swiss Re: sigma database, “Before Reinsurance, Includes Accident and Health Insurance” (2018)
2 Accenture, “Satisfying the Craving for Insurance Personalization” (2015)
3 McKinsey & Company, “Digital Disruption in Insurance: Cutting Through the Noise” (2017)