Our inaugural InsurTech Summit NYC on June 16 featured leading VCs, emerging companies of all stages, as well as other key stakeholders. Below are key takeaways from the third panel, Embedded Insurance: The $3 Trillion Opportunity.

A panel led by McDermott Partner Michael Byrne covered what embedded insurance is, its evolution and potential forms of execution in the insurance industry across personal and commercial lines of business, the gig economy, software as a service (SaaS), artificial intelligence (AI), the Internet of Things (IoT) and more.

Embedded insurance is all about the customer—not just a cross sell but a relevant and meaningful offer based on what is known about the customer and their needs at the time.

During the Embedded Insurance panel, industry leaders discussed the high growth area of embedded insurance. The panelists covered the meaning of embedded insurance, the various forms of execution in the insurance industry across all different lines of business and the challenges and gray areas of 50-state insurance regulation.

1. The Meaning of Embedded Insurance

The panelists described embedded insurance as selling insurance along with another complementary product or service, creating a more accessible and frictionless experience for the customer. The panelists’ companies work with symbiotic partners to embed their insurance products inside of a platform (where customers already exist). The addition of insurance essentially completes the product/service that the customer was already purchasing during a relevant shopping moment. For example, Melanie Irvin, VP and head of Legal and Government Affairs at Branch, explained that, typically, when someone purchases a home, going through the process of purchasing a homeowner’s insurance policy is often a friction point for the customer. So instead, Branch partners with companies to integrate insurance at the point of sale of a home.

2. Execution

Rilwan Lawal, founder & CEO of GigEasy, discussed embedded insurance in the context of the gig economy. When someone takes a full-time job with an employer, that employee is offered a benefits package consisting of health, life and other insurances. However, benefits have not yet caught up in the gig economy, leaving gig workers in need of coverage. GigEasy is aimed at aggregating data to give potential customers an instant quote and reducing touchpoints from lengthy application forms to match user expectations in 2022. GigEasy offers its partners in the gig economy a higher likelihood of retention of gig workers by offering, for example, RentProtect (a disability and critical illness bundle) so that gig workers can ensure they will be able to continue paying their rent even if they are unable to work for a period of time.

In the smart home context, Vivint has 1.9 million subscribing smart homes with which they have eight interactions per day, on average, on their application. These homeowners have already hired Vivint to protect their homes via Vivint’s smart home security system, so it was a natural progression for the next step to include offering existing customers another form of home protection, in the form of homeowner’s insurance. Since Vivint already has the advantage of access to data from their customers’ devices, which provides insight as to behaviors and events in the home that can be correlated to, and prevent, losses, building out a managing general agent was a logical next phase of the business.

3. Advantages 

The distribution model of embedded insurance means that less money can be spent on acquiring customers, allowing for a cost advantage that results in lower premiums than those charged by non-embedded competitors. There are also more ways to be able to predict losses and guide underwriting decisions with embedded insurance, as more can be known about the customer than in a more standard sale of insurance. Another advantage of embedded insurance is the resulting unified and more efficient customer experience.

4. Challenges

With insurance being regulated by each of the 50 states individually, it can be difficult to navigate the nuances when, for example, sharing revenues with unlicensed partners. or how a link for insurance can be embedded in the website of such a partner. Panelists expressed that it is essential to educate partners without an insurance background on the importance of complying with each state’s regulations, since, with the growing embedded insurance market, a lot of new tech companies are invited into the space. The panelists also explained that staffing the in-house operation with licensed individuals who can solicit the sale of insurance is key. 

Our inaugural InsurTech Summit NYC on June 16 featured leading VCs, emerging companies of all stages, as well as other key stakeholders. Below are key takeaways from the second panel, Crypto, Smart Contracts and Blockchain—Execution and Innovation.

McDermott Partner Alexandra Scheibe led a panel of founders and investors that covered smart contracts and crypto-based insurtech products, making a case for the implementation and leverage of smart contracts, tokenization, cryptocurrency and blockchain in the insurance space. This  insightful discussion addressed the role of smart contracts in the future of insurtech from the perspective of true innovators and market leaders.

DeFi and Smart Contracts have a place in the future of insurance.

During the panel on Crypto, Smart Contracts and Blockchain, panelists discussed a wide range of applications for these burgeoning technologies in the InsurTech industry. The session began with the panelists level-setting with the crowd on the definitions of concepts, such as blockchain, decentralized finance and smart contracts. The panel went on to talk about new product solutions to meet the blossoming consumer demand. Finally, the panel provided valuable insights on what market participants in InsurTech—but not blockchain—should know moving forward.

1. Blockchain Plays Multiple Roles in the Insurance Industry

The panelists explained that there are at least three types of relationships between blockchain and insurance: insurance with blockchain, insurance on blockchain and insurance for blockchain. Insurance with blockchain refers to blockchain’s ability to facilitate existing insurance systems through client and information management. One example of this is the optimization of sharing health records between providers and insurers, leveraging blockchain to do so in a manner that is faster and more secure.

Insurance on blockchain refers to the use of certain blockchain features, such as smart contracts, to replace inefficiencies in the insurance industry. For example, smart contracts can be used to automatically disburse payment to motorists who have been in an accident rather than relying on a claims adjuster to review even the simplest of claims.

Finally, insurance for blockchain refers to risk policies that may be written for investors wishing to hedge against volatility in the cryptocurrency market.

2. Crypto-Native Underwriting Emerges

Certain investors in the crypto industry have demonstrated a preference for their insurance policies to be “crypto-native,” which may refer to insurance that is written and reviewable on the blockchain and/or insurance that pays premiums in cryptocurrency. Crypto investors may prefer for their insurance policies to reside on the blockchain because of its immutability and transparency. Investors may also prefer to match exposure in crypto to insurance in crypto, minimizing risks posed by fluctuating exchange rates.

3. Tokenization Facilitates Secondary Market Activity

Tokenization is the process of transforming ownerships and rights of particular assets into a digital form. By tokenizing, one can transform indivisible assets into token forms. In the lens of insurance products, tokenization will facilitate secondary market trading. Tokens are secure because they reside on the immutable blockchain, which sets a solid baseline infrastructure for dynamic insurance markets.

4. Decentralized Insurance is a Future Driver in the Industry

Decentralized insurance protocol is a way in which independent service providers can assess the risks of transactions without having to rely on centralized parties. Decentralized insurance protocols are permissionless mechanisms that can be used to price and service risk for insurance products.

5. Entrance of Large, Traditional Insurers Are Soon to Come

The panelists unanimously predict more offerings by traditional insurers in this space over the next two to three years. Traditional insurers may have been hesitant to enter in the past because of regulatory uncertainty. However, as the industry matures and regulatory agencies such as the US Securities and Exchange Commission continue to provide guidelines, traditional insurers are preparing to meet the demand for blockchain insurance solutions from their younger clientele.

Our inaugural InsurTech Summit NYC on June 16 featured leading VCs, emerging companies of all stages, as well as other key stakeholders. Below are key takeaways from the first panel, Top InsurTech Investment Trends: Valuation, Volatility, Convergence and Divergence.

Investments in the insurtech sector are a mosaic of evolving risk and opportunity. Where are the truly revolutionary ideas and execution? How, where and when does venture capital best navigate this ecosystem? And what must insurtech startups pull off to gain the attention of an ever-discerning investor base? McDermott Partner Michael Halsband led an investors’ perspective panel that addressed insurtech investment trends.

InsurTech is shifting from “T” to “I” with a renewed focus on fundamental issues and risks that require solutions.

During the InsurTech Investment Trends panel, leading InsurTech investors shared how they identify opportunities for success in investing in insurtech startups and offered their insights on missteps and failures experienced in the sector. The panel also explored the state of mergers and acquisitions (M&A) trends in the ecosystem. Lastly, the panel addressed the changes in funding streams for InsurTech in 2022.

1. Focusing on the “I” in InsurTech

While the industry has seen a tech-based, “growth at all costs” approach to generating interest in new insurance products, a return to an emphasis on a deep bench of insurance experience is key for new ventures. Investors look to underwrite an excellent book with influence from deeply experienced management teams who fundamentally understand how to optimize a concrete issue in the insurance ecosystem with an efficient and profitable strategy. Jonathan Crystal, managing partner at Crystal Ventures, noted a focus on business-to-business (B2B) and transformational technology that is deployed in a novel way. David Wechsler, principal at OMERS Ventures, noted a focus on early stage through growth stage companies and long-term investments with a five- to 10-year lifespan, with multiple rounds of capital to work with. Katelyn Johnson, managing director at AmFam, noted growing interests in incubation and series B/C funding, models with applicable modes and companies managed by leaders that have developed theses other than a pure growth model. Mike Millette, managing partner at Hudson Structured Capital Management, noted a focus on early stage seed a to b companies and a look to viable companies that understood the fundamentals of insurance – the “I” in insurtech – that would be best positioned to meaningfully disrupt core sectors in the industry.

2. Lessons Learned

Given the buzz surrounding new and disruptive InsurTech products, the panel suggested that new ventures might best be served to focus on thoughtful distribution innovation in addition to product innovation in order to build a great product and identify a long-term strategy. Focusing on value-add for customers and thoughtful, fiscally responsible growth can help ventures avoid pitfalls. Each panelist noted that new competitors in the market that have management teams with fundamental knowledge of the insurance space have a higher likelihood of long-term success. Again, concentrating on the “I” in insurtech, was part of Mike Millette’s principal focus. Andy Tam, managing director at Perella Weinberg Partners, noted that to increase the likelihood of a successful fundraise or M&A transaction, management teams should build in financial cushions throughout the timeline of a transaction.

3. Deliberate Funding

InsurTech funding fell 58% in Q1 of 2022, representing a 15% year-over-year decline from Q1 2021 [Source: CB Insights]. While 2022 experienced the lowest funding streams in the past few years, the market is providing opportunities for durable partnerships with more hands-on investors. Consensus from the panelists was that funding streams may continue to slow down for the foreseeable future. This trend is likely to limit unrestrained buzz surrounding less viable ventures and provide the space for discerning capital to invest fully and build relationships with thoughtful ventures. Panelists pointed out that the market always corrects the valuation.

4. M&A Trends

InsurTech has seen an uptick in M&A interest—and continues to accelerate. This trend has permitted incumbents to acquire top talent and broaden access to new customers. Additionally, InsurTech investors have been optimizing and engaging in their own M&A to gain new capabilities or consolidate within their own spheres. Disruptive partnerships will be a differentiator in the M&A space.

5. Incumbent Involvement 

Corporate VC (CVC) is important in InsurTech because ventures need both structure and innovation. CVC can be quite successful when there is distance from the corporate parent, however, it requires honing judgement (which in turn requires time and energy). This could create catch-up work for incumbents, who either have to hire people with VC experience or by trial and error. Successful VC investment should push for big exits and big returns.