Hippo receives $350m investment to accelerate transformation
Currently available in 20 US states, the company intends to broaden its reach to 95% of the homeowning population over the next year.
Creating better outcomes
Commenting on the investment, Hippo’s CEO and Co-Founder, Assaf Wand, said, “Mitsui Sumitomo is one of the best when it comes to risk management and shares our desire to leverage data and analytics to create better outcomes for homeowners.
“We’re excited to deepen our partnership and gain additional catastrophe modelling expertise from one of the world’s largest insurers.”
According to Shinichiro Funabiki, Vice President Executive Officer at Mitsui Sumitomo Insurance Company, the investment has come to Hippo through an appreciation of its unique approach and tech-driven ethos, “We value the innovation that Hippo brought to the home insurance space through its advanced classification of risk.
“We look forward to learning from one another through our strategic partnership, providing high value-added products and services to customers of both companies in the US and Japan, and to continue to support Hippo, which quickly became a top insurtech in the US home insurance space and is beloved by its customers.”
Property insurance: under pressure
The US P&C insurance has experienced a perfect storm in 2020: the COVID-19 pandemic, widespread rioting and natural disasters have permeated headlines and hardened the market.
In this climate, it is refreshing that Hippo and Mitsui Sumitomo Insurance Company foresee an apparent recovery on the horizon. This reflects Swiss Re’s that non-life insurance could average a recovery rate of 3.6% between 2021 and 2022.
Image credit: Hippo
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.