There are more and more companies focused around technology within the insurance ecosystem that provide fast and innovative solutions to the industry. Although it is a rising sector, growth will be driven by strategic alliances.
The insurance sector is under a lot of pressure. Will a Spotify of insurance appear, delivering an insurance policy that I need at the right time, which I use when I want, depending on where I am and the time of day? In this article, our definition of InsurTechs are start ups, that contribute to a part of the insurance value chain (in internal processes, services or prevention).
Although the InsurTech ecosystem is classified as a vertical of the FinTech ecosystem, there is a fundamental conceptual difference between the two: FinTech’s main purpose is to challenge and compete with banking, while the InsurTech ecosystem is highly collaborative. More than 1,500 InsurTechs were identified in the world, but only 10% compete with the industry, while 90% collaborate with insurers.
The InsurTechs can be classified into three great worlds. Those that challenge business models, that is, that try to change the rules (such as Iúnigo or MeCubro in Argentina, Crabi in Mexico, Youse in Brazil, Wesura in Colombia). Those who dispute the distribution, when serving customers in a more digital way (for example, Comparaonline from Chile, 123Seguro from Argentina, 88Insurtechs in Brazil) or are intermediaries that develop solutions and, finally, those that complement, collaborate or replace value chains, for example, by allowing producers to charge online, through the cell phone (such as Leverbox or Solapa 4 in Argentina, Jooycar in Chile, Location-world in Ecuador, Saive in Mexico).
That InsurTech ecosystem growth will be collaborative. It is very difficult for these technology companies to compete with insurers because they find it very expensive to acquire customers (close to 200 usd in average but depending on coverage), in addition, capital is required and the sector is very regulated (please, read “The Making of Lemonade” by Ty Salgadow to understand). Or they have a lot of money to try to compete with the insurance market (such as Root, Lemonade, Oscar or Zhong An, who have more than 500 million dollars in funding each) or they collaborate. Today, in LatAm, there are few direct competitors with an independent balance like Iunigo in Argentina, Crabi in Mexico or WeSura in Colombia, what is called a full-stack InsurTech or neoinsurer.
The benefit for insurers in collaborating with InsurTechs is to give a better value proposition to the client. In particular, there is a drive to simplify internal processes and save costs. That is, they improve sales or lower their expenses. Above all, working with InsurTechs changes the internal culture of the company, by incorporating more entrepreneurial people. Because attracting and retaining new talent is not a minor issue: it is more attractive for a 25-year-old to work in an InsurTech than in a more traditional company.
Digital Insurance LatAm, the innovation and digital transformation consultancy firm I set up, aims to accompany insurers to digitally transform and innovate, in particular by collaborating with the InsurTech ecosystem.
I strongly believe in the value of fostering the emergence of a collaborative InsurTech ecosystem, as they already exist in all mature markets. For example, with RUS in Argentina and four universities of Entre Ríos (UNER, UADER, UCU, UTN) and the Industrial and Production Commercial Center (CECOM), this year we set up an incubator of technological projects for the insurance market. Today we have four InsurTech projects that are in the process of incubation. When we launched the call in Concepción del Uruguay (300 km far from Buenos Aires) we found it difficult to get more than six or seven projects, but finally we received more than 22 initiatives.
Worldwide, investment in InsurTech reaches about 12,000 million dollars and grows at a rate of 30% to 40% per year. To invest in InsurTech and capture innovation in LatAm insurance, the HCS Capital Partners fund was set up, of which I am an InsurTech advisor. Today it gathers 20 million dollars contributed by a Chilean insurance company and is in the process of adding two or three insurers to reach up to 80 million dollars in a Corporate Venture Capital model. This fund allows insurers to invest in InsurTech in Latin America – with a focus on Mexico, Colombia, Peru and Chile – and, eventually, the rest of LatAm, the United States and Israel.
Focus on Argentina
Compared to other Latin American countries, the InsurTech ecosystem in Argentina is well developed. There are about 30 Argentine companies of this type, with different levels of maturity, a figure consistent with the size of the country. While local economic uncertainty is a problem for entrepreneurs, it is also a great advantage, since it requires them to be creative and have a great capacity to adapt to change and to quickly pivot the business model.
Now there is much more to grow. I would not be surprised if in three years there are more than 100 Argentine InsurTechs. Meanwhile, the Latin American ecosystem is two or three years behind Europe, the United States or China, but the market is seeing trends and learning by observing the successes and failures of more mature countries.
The emergence of this collaborative InsurTech ecosystem also materializes with the launch of the Bureau of Innovation in Insurance and InsurTechs of the National Insurance Superintendence (SSN), a project in which I collaborate. It is a public-private collaboration space – which is internationally known as the “Innovation Hub”. This allows the SSN to talk with the main innovation actors about the use of technologies in the insurance industry to identify the regulatory challenges as they start to explore new business models and technologies.
The Argentine insurtechs have a lot of potential to get funding, but for this it will be important that they escalate to other countries to become multilatinas companies. Argentine insurtechs want to export and also in the near future it is very likely that their colleagues in Europe want to grow in South America.
Please join me and over 350 Insurance executives on March 17th this year, where we will be taking a closer look at the LatAm InsurTech ecosystem and discussing the critical role collaboration will continue to play within the industry.