NYDIG to launch new Bitcoin-powered insurance solution
New York Digital Investment Group (NYDIG) has announced the launch of a new business insurance initiative following the completion of a growth capital funding round.
The company secured $100m in funding and will be launching the “Bitcoin-powered solutions for US-based life insurance and annuity providers.”
Currently, NYDIG provides Bitcoin investment and technology solutions to insurers, banks, corporations, institutions, and HNW individuals.
The news follows on from the announcement that former TransRe CEO, Mike Sapner, will be spearheading the effort as NYDIG’s new Global head of insurance solutions. TransRe is one of the world’s largest reinsurers.
Investors backing the new Bitcoin-based insurance solution include Starr Insurance, Liberty Mutual Insurance, and others in addition to its existing strategic partners, New York Life and MassMutual.
Bitcoin insurance solutions
Speaking about the new insurance solution launch, Robert Gutman, NYDIG's co-founder and CEO, said the new capital funding would accelerate the “expansion of Bitcoin into new areas of insurance.”
Over the past six months, NYDIG has generated $450m for Bitcoin-related business initiatives on clean energy, insurance and banking.
Ross Stevens, NYDIG’s ex ecutive chair, explained, "Fiat depreciation causes inflation in fiat premiums, while collapsing the purchasing power of claims. We see a brighter Bitcoin-powered future for the billions who depend on the insurance industry every year.”
He continued, “The global property & casualty (P&C) industry is huge, paying out over $1 trillion in claims annually. I am excited to welcome Starr and Liberty Mutual to NYDIG, as part of our expansion of bitcoin into new areas of insurance."
“The team and I are also thrilled to welcome Mike and Matt to NYDIG. Mike has been a close collaborator with Stone Ridge since 2014, primarily with our catastrophe reinsurance asset management franchise and our non-catastrophe reinsurer, Longtail Re. Mike's more than 30 years of experience will help NYDIG lead the way in bringing bitcoin to the insurance industry."
According to reports, NYDIG has over $3bn in digital assets under custody. Earlier this year the company also filed a registration statement with the US Securities and Exchange Commission to create a Bitcoin exchange-traded fund.
Hank Greenberg, Chairman and CEO of Starr said, "We've been broadly and successfully investing with Ross and the Stone Ridge team across their various initiatives for years, including as a founding NYDIG investor in 2017. We are excited to continue our tradition of co-investment with them.”
He added, “We've also worked closely with Mike Sapnar for more than 25 years and congratulate Mike and NYDIG on his joining, and further propelling, the Stone Ridge ecosystem."
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.