Insurtech investment doubles in Q3: Willis

More than $1.3 billion of insurtech funding was completed during the third quarter of 2018, double the figure from the previous quarter, according to Willis Towers Watson research.

While individual investment rounds were larger, the number of transactions reported declined 20 percent to 57, according to the new Quarterly InsurTech Briefing.

The third quarter saw eight transactions over $40 million, up from six, and the continued active participation of re/insurers. The pipeline of insurtech partnerships remains very strong.

Insurtech companies are increasingly deploying parametric structures, which unlike indemnity-based insurance pay out a predefined sum based on a trigger chosen as a proxy for an actual loss, Willis explained. Parametric products align the interests of insurers and insureds by removing the parties’ respective incentives to manage down or inflate claims. Parametric insurance is also substantially simpler than indemnity products, since it does not require costly claims handling, Willis noted. With parametric insurance, frictional costs can be very low, it added.

Insurtech firms are using a combination of third-party and proprietary data, advanced sensors, and the capabilities of the Internet of Things to develop a new paradigm of insurance offerings for the connected world.

“The impact of parametric insurance can be much more profound than simply lowering frictional costs and mitigating the potential for fraud,” said Rafal Walkiewicz, CEO of Willis Towers Watson Securities. “First, the use of parametric insurance encourages conversation around risk mitigation. Second, the simplicity of parametric insurance facilitates a decoupling of the various functions of the industry value chain and it allows for modularization.”

Magdalena Ramada, Willis Towers Watson Senior Economist, added: “When automated correctly, besides being increasingly economical to deploy, parametric products are an important tool to access underserved segments and bridge coverage gaps. Their underlying policy structure and digital nature fundamentally reduce the complexity and frictional costs of traditional insurance, allowing for the simplicity, scalability and flexibility needed to cater to most of these markets.”

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