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Insurtech funding doubles in third quarter

Insurtech investments rose to $1.3 billion in the third quarter, double the amount for the previous quarter, according to a report by Willis Towers Watson.

While individual investment rounds were larger, the number of transactions reported declined 20 per cent to 57, according to the risk adviser's new Quarterly Insurtech Briefing.

The third quarter saw eight transactions over $40 million, up from six, and the continued active participation of re/insurers. The pipeline of insurtech partnerships remains “very strong”, the report stated.

Among Bermudian-based re/insurers mentioned in the report are Hiscox, whose partnerships with Hi Marley and Eigen Technologies are highlighted. Hi Marley is described as an intelligent conversation platform, specifically designed for communication between insurers and their customers. Eigen is a research-led artificial intelligence company that specialises in neuro-linguistic programming

for financial-services firms.

XL Catlin, now Axa XL, also partnered with Slice, a New York-based start-up focused on the on-demand and gig economies, to offer cloud-based, on-demand cyber insurance for US small to medium-sized businesses.

The briefing adds that many insurtech companies are deploying parametric structures, which unlike indemnity-based insurance pay out a predefined sum based on a trigger chosen as a proxy for an actual loss.

Parametric products align the interests of insurers and insureds in a way which traditional indemnity covers do not, by removing the parties' respective incentives to manage down or inflate claims.

Parametric insurance is also substantially simpler than indemnity products, since it does not require costly claims handling. With parametric insurance, frictional costs can be very low.

Some insurtech firms have acknowledged these benefits and combined technology and information within parametric or event-based insurance structures to address existing inefficiencies or coverage gaps.

They use a combination of third-party and proprietary data, advanced sensors, and the capabilities of the internet of Things to develop a new paradigm of insurance offerings for the connected world.

The briefing refers to several examples, including the use of parametric structures earthquake, travel disruption, flash flooding and horticulture risks.

“The impact of parametric insurance can be much more profound than simply lowering frictional costs and mitigating the potential for fraud,” Rafal Walkiewicz, chief executive officer of Willis Towers Watson Securities, said.

“First, the use of parametric insurance encourages conversation around risk mitigation. Second, the simplicity of parametric insurance facilitates a decoupling of the various functions of the industry value chain and it allows for modularisation.”

Magdalena Ramada, Willis Towers Watson senior economist, said: “When automated correctly, besides being increasingly economical to deploy, parametric products are an important tool to access underserved segments and bridge coverage gaps.

“Their underlying policy structure and digital nature fundamentally reduce the complexity and frictional costs of traditional insurance, allowing for the simplicity, scalability and flexibility needed to cater to most of these markets.”

In the report, Dr Ramada adds: “Data from drones, satellites, smart devices and wearables can deliver automation in many parametric insurance products.

“They can further help to improve the efficiency and pricing accuracy of indemnity-based insurance. They can increase the pool of insurable people and enable pricing and products that adapt with people and businesses' needs and behaviour. That is not the future, it is the present.”

Parametric potential: Rafal Walkiewicz, CEO of Willis Towers Watson Securities

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Published December 28, 2018 at 8:00 am (Updated December 27, 2018 at 6:48 pm)

Insurtech funding doubles in third quarter

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