# The Future of Insurance

Carriers are looking for cheaper, more accurate, and more relevant data

While InsurTech venture funding has reached record highs, the start-up ecosystem’s impact on the industry as a whole still feels relatively limited. One exception we have noticed over the past year has been in the underwriting & pricing space, as incumbents are showing an early willingness to work with next-generation data-driven applications to enhance growth and improve profitability. Some examples of these data players and their corporate partnerships include:

- **Enigma** (next-gen data for SMB commercial and life), $95M Series C that included MetLife and BB&T
- **Cape Analytics** (next-gen data for homeowners’ insurance), $17M Series B that included State Auto, CSAA, AXA / XL
- **Cytora** (next-gen data for commercial insurance), $7M Series A that included QBE
- **Insurdata** (next-gen data for commercial property and flood insurance) raised equity from Munich RE and established a commercial partnership with SCOR RE
- **Arturo.ai** (next-gen data for residential property insurance) was spun out of American Family Insurance after three years of incubation

**Why are Incumbents moving now?**

This increased activity is noteworthy since innovation in data-driven underwriting & pricing has historically been hampered by (1) limited access to data, (2) limited capabilities to process large quantities of data, and (3) limited appetite of carriers to outsource a core capability. However, several recent trends have made carriers far more amenable to partnering with new entrants in this space:

- _Focus on Loss Ratios_

As a result, 2018 Carrier claims payouts were 3.9x the 30-year annual average in 2018 due to historically high catastrophe losses. This, paired with ongoing commoditization in core lines (e.g. Auto), has incentivized carriers to be cost & efficiency conscious.

- _Shifting Demographics_

Gen Z and Millennials make up ~48% of the U.S population, and Millennials represent 56% of the U.S workforce. Legacy data attributes (e.g. driving records, credit profiles) are far less representative of risk for this demographic than for previous generations.

- _Democratization of Data_

Historically cost prohibitive data and “hard to gather” data have become cheaper / easier to access. This has resulted in an explosion of next-gen insurance data applications that have fast and affordable access to such data sources. Often, partnering with these start-ups is the least expensive (and painful) way for incumbents to take advantage of new data attributes.

- _Rise of AI / ML_

Venture capital funding of artificial intelligence companies grew by over 75% YoY in 2018. This influx of capital has helped foster a robust AI / ML ecosystem, which new InsurTechs can leverage to process, analyze, and uncover correlations / insights at enterprise scale.

Taken together, these four factors have prompted carriers to look outside their own organizations and partner with best-in-class start-ups to optimize their underwriting and pricing processes. We believe there is an opportunity to invest in a category-defining business in this space. Our focus areas include:

- Continuous & automated underwriting across Property, Life, and Commercial insurance lines
- Data extraction and structuring tools paired with analytics
- APIs connecting Life / Health carriers to patient data
- Applications of non-traditional data sources to automate onboarding and underwriting
- Machine learning applications for compliant pricing optimization

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