While insuretech has become a major area of interest among VCs, we recognize that few investors in the space have comprehensive knowledge of the industry. To better understand the complexities and opportunities in the space, we have compiled the research report posted below. The report provides an overview of the auto, homeowners, life, and health insurance sectors. We hope you find the presentation insightful and welcome comments and questions.
2. 2
What is Insurance?
Insurance is a mechanism individuals use to limit their exposure to risk. A risk refers to the potential for a loss – meaning it is unclear as to if and how an
individual will be affected by an event. Individuals band together to form groups that pay for losses. By forming groups, the risk is spread and no
individual is fully exposed.
Exposure Loss
Someone or something that can
experience damage, destruction,
disappearance, death, disability or
illness because of the action of
another person or accidental
happening.
The unintentional or unexpected
reduction in value of an object or
potential stream of income due to
the action of another or accidental
happening.
Claim
A demand for another party to
recover the value lost from a suffered
loss.
3. 3
Insurable Risks
Four criteria are typically used to determine whether a risk is insurable: (1) there must be a large homogenous group exposed to the same risk in the
same relative manner, (2) any loss must be quantifiable in dollars, (3) the risks must be independent and not subject to catastrophic losses, and (4) the
loss must be accidental in nature.
Major categories of insurance
Property & Casualty Life Health
Property insurance covers damages
to physical objects that are lost or
damaged, while casualty insurance
covers liabilities that result from
negligent acts.
Life insurance protects against the
financial risks associated with dying,
disablement, illness, and retirement.
Health insurance provides
coverage for health expenses
incurred in the event of illness or
injury.
6. 6
Economics of Insurance
Supply
• The premium for an insurance policy covers two major costs – the
expected loss and loading. The expected loss is the amount of claims an
insurer will incur in a given year. The loading is comprised of selling and
administrative costs, broker and agent compensation, and claim
adjustment expenses
• The lower the premium loading factor, the more efficient the
operations of the insurance carrier. Actuarially fair insurance will have a
load factor of zero
Expected Utility =
Demand
• Most individuals are risk averse and are willing to purchase insurance
even if the expected utility is negative. The willingness to purchase will
depend on an individual’s perception of the likelihood of a loss
• The value of insurance for low probability events is often
underestimated and the value for high probability events is often
overestimated
Expected
Utility
Outcome
Probability of Loss * Claim Reimbursement –
Premium & Deductible
Risk averse
customer
behavior
Premium
Quantity
Supply
Demand
Premium = Expected Loss / (1 – Premium Loading Factor)
7. 7
Insurance Anomalies
1. Inadequate demand at reasonable premiums
2. Large demand at excessive premiums
3. Purchasing the wrong amount of coverage
1. Coverage is not offered when it should be
2. Coverage is priced below break-even premiums
Supply Demand
Terrorism Insurance
Terrorism insurance for buildings has historically been priced
extremely high given an assumed 30-40% premium loading factor.
A sample $9M policy is priced at $900K, implying a 1 in 10 annual
probability of a loss.
HMOs
In the 1990s, HMO health insurance was priced significantly below
the actuarially fair price. HMOs assumed they would be able to
better control costs, and experienced major losses before
adjusting premiums.
Electronics Warranties
Electronics insurance is vastly overpriced and purchased given the
expected cost to repair or replace a device. Around 20-40% of all
customers purchase a warrantee on a new electronic device.
Low Deductible Auto Insurance
Most consumers show a strong preference for high premium low
deductible auto insurance policies, despite the fact that low
premium high deductible policies are more economical for the
average driver.
8. 8
Insurance Models
Private
Stock
• Most insurance companies are stock based. To start the business, individuals purchase shares, and the capital is
used to fund the operations of the company until breakeven
• The board of directors is elected by the stockholders and a portion of earnings may be paid to stockholders as
dividends
Mutual
• Mutual insurance companies are owned by the policyholders. Before a mutual insurance company can operate, the
company must sell a minimum number of policies and amount of premiums to be issued upon authorization
• Mutual insurance companies have no stock outstanding and the board is elected by the policyholders. Surplus
funds are distributed to policyholders as dividends
Reciprocal
• Reciprocal insurance exchanges are owned by their members. The subscribers (policyholders) establish an exchange
to insure one another. An attorney-in-fact is appointed to operate the exchange
• Premiums are paid in deposit and surplus funds are returned in the form of dividends
Public
Voluntary
• Optional insurance programs underwritten by the federal or state government
• Voluntary federal programs include military, crop, security dealer transactions, crime, and mortgage insurance
• State programs include life, title, auto, medical malpractice, and workers compensation insurance
Compulsory
• Required insurance programs provided by the government
• Programs include Social Security plans for retirement, survivors, disability, and health coverage
9. Role of Agents, Brokers, MGAs, and Insurance Carriers
Risk-bearing
individual/business
Insurance Broker
Insurance Agent
Chooses to work with an
agent or broker to obtain
insurance
Represents the insurance company
and collects data used in the
underwriting process. A “captive
agent” only represents one
insurance company
Represents the client seeking
insurance. Brokers generally do not
work for an insurance company, but
instead sell policies from multiple
carriers
Provide data
Provide information on
policies
Provide potential
customers and
data
Provide compensation
Provide
benefits
Managing
General Agent
Insurance Carrier
Pay
premiums
Defines policies, invests
premiums, pays out benefits
and commissions
In certain circumstances, insurance
carriers grant authority to MGAs to
perform a wide array of functions
associated with selling and issuing
policies
9
10. 10
Insurance Premium Allocation
Benefits Surrenders Reserves Transfers Commisions
Administrative
Insurance, Taxes,
Licenses, and Fees
Other
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
U.S Accident and Health Expenses
The bulk of P&C, Life, and Health insurance premiums are allocated to claim payments to compensate policyholders for insured losses.
As expected in a commoditized market, profit margins are low and the majority of expenses are tied to policy liabilities.
12. Insurance Regulatory Bodies
In the US, state insurance regulatory systems determine and set most regulations. If an insurance company operates in multiple states, the states must
coordinate to track producers and prevent violations.
State Legislators
• State legislators set the regulatorypolicies for insurance
• The state legislators oversee state insurance departments, review and revise insurance laws, and approve budgets
State Regulators
• Grantedauthority by the states to oversee the insurance industry and implement insurance regulation
• Responsible for ensuring insurers are financially solvent, and that claims are paid out fairly and as outlined in policy contracts
Federal Insurance Office
and the Financial
Stability Oversight
Council (FSOC)
• The FIO serves as an advisory member of the FSOC. The FIO is responsible for monitoring all aspects of the insurance sector and representing the
US on prudent international insurance matters
• The FSOC monitors all aspects of the insurance industry, including:
o Identifying issues or gaps in the regulation of insurers that could lead to a systemic crisis
o Monitoring the extent to which underserved consumers have access to insurance products
o Recommending an insurer be designated as an entity subject to regulation as a nonbank financial company supervised by the Federal
Reserve
o Coordinating federal efforts and developing federal policies on prudential aspects of international insurance matters
o Consulting with states regarding insurance matters of national and international importance
National Association of
Insurance
Commissioners (NAIC)
• US standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states
• The NAIC serves as a vehicle for individual state regulators to coordinate their activities and share resources
• The NAIC functions as an advisory body and service provider for state insurance departments
12
13. Functions of Insurance Regulation
Insurance regulation is structured around several key functions, including: insurer licensing, producer licensing, product regulation, market conduct, financial
regulation, and consumer services.
Licensing
• An insurance company must be licensed before it can do business
• Insurance companies that are licensed and authorized to do business in a particular state are known as “admitted” insurers and are said to be
“domiciled” in the state that issued the primary license
Capital Requirements
• All insurance companies are subject to capital and surplus requirements, which vary widely by state
• The NAIC develops model rules and regulations for the industry, many of which must be approved by state legislatures before theycan be
implemented
Solvency and Guaranty
Funds
• State regulators monitor the financial health of companies through the analysis of financial statements and periodic onsite examinations
• All states have organizations known as guaranty funds through which the property & casualty insurance industry covers claims against insolvent
insurers
Rates
• Three principles guide state rate regulation: rates are adequate to maintain insurance company solvency, rates are not excessive, and rates are
not discriminatory (pricing only reflects expected claim and expense differences)
• States have adopted various methods of regulating insurance rates, which fall into two categories, "prior approval" and "competitive”
13
18. Largest US Insurance Companies
Source: Insurance Information Institute, US Treasury Department, AM Best
Metlife
Prudential Financial
Berkshire Hathaway
AIG
State Farm
0
200
400
600
800
1,000
1,200
0 20 40 60 80 100 120
Assets ($B)
Net Premiums Written ($B)
There were 6,118 insurance companies in the US in 2014, including 2,583 P&C insurers, 895 life insurers, and 857 health insurers.
Top 25 P&C and Life Insurance Companies by Assets and Net Premiums
18
LifeP&C Diversified
19. Key Performance Variables
Appropriate pricing and
diversification of insurance
portfolio risk
• Accurate development of customer risk profiles
• Appropriate diversification of customers
• Disciplined and effective underwriting practices
• Ability to manage risk
Cost effective sales and
distribution
• Abilityto build brand recognition
• Ability to reach and sell to customers in a cost effective manner
• Ability to service claims and policies
Investment in diversified
and well-performing assets
• Development of a strong balance sheet with the appropriate level of
invested capital
• Allocation of assets among asset classes
• Ability to effectively measure and manage risk
Ability to obtainand
analyze accurate data
• Abilityto collect accurate data on customers and events
• Ability to use data to drive decisions and interactions (e.g. product
development, customer engagement, fraud detection)
Awareness
Engagement
Application
& Closing
Servicing
Renewal
Auto
Insurance
Lifecycle
19
20. Major Trends - Consolidation
The need for growth in an environment of excess capital, intense competition, commoditization of insurance products, and shifting consumer buying
preferenceshas lead to a series of mergers and acquisitions in the insurance sector. In addition, growth in government-subsidized programs, such as
Medicaid and Medicare, coupled with a retreat of traditional employer-based plans in favor of high-deductible plans and exchanges, has generated pressure
among carriers to acquire Medicaid and Medicare providers.
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016
Number of Transactions
US Insurance Mergers and Acquisitions
There were 24 transactions valued at $1 B or
more in 2015, compared to 9 in 2014.
P&C M&A deals increased to $39.6 B in 2015
from $6.7 B in 2014, driven by several large
transactions (such as the Ace/Chubb merger).
The number of health insurance M&A
transactions also increased to 22 in 2015 from
13 in 2014.
Source: Pitchbook 20
21. Major Trends – International Regulation
Prior to the downturn, regulation of US insurance companies was almost entirely through the NAIC system. Regulations used US-centric metrics, with
international organizations such as the International Association of Insurance Supervisors (IAIS) or International Monetary Fund (IMF) having little influence.
Post the downturn, existing entities (such as the IAIS) and new ones (such as the G20) have moved to globalize and centralize insurance regulation, increasing
international influence over US regulation in the process.
Regulatory Structure Prior to the Downturn Regulatory Structure Post the Downturn
International Association of
Insurance Supervisors
International Monetary Fund
National Association of Insurance
Commissioners
International Association of
Insurance Supervisors
International Monetary Fund
National Association of Insurance
Commissioners
The Department of the Treasury
US Federal Reserve System
G20
21
22. Major Trends – Increased Technology Spend
Modernizing core insurance technology is a primary challenge facing insurance companies. From a resource perspective, the highest priority is hiring and
retaining technology staff.
28% 27%
15%
Modernization of core
technology
Innovative new products
and services
Increased competition
Top Challenges Identified by Insurance Executives
68% 31%
Insurance IT Budgets
1%
68% of insurance carriers anticipate IT budgets to increase this
year.
According to IDC, global insurers spent almost $101 B on IT in
2015, a 4.4% year over year increase.
IT Resource Consumption
Front, Middle,
and Back Office
Integration
Data Security
Data Latency
Issues
Scalability
The majority of IT resources within the insurance sector are
dedicated to system integrations and data security.
Source: SS&C Technologies Survey 22
25. Major P&C Insurance Dynamics - Competition & Balance Sheet Strength
Cyclical Pattern of Competition
Insurance carriers must balance growth with profitability – leading to a cyclical pattern between hard and soft markets. The duration of insurance cycles varies,
however historically cycles have lasted 6-10 years.
Hard Market
Premiums and profits rise as insurance companies focus on building
reserves. Insurance carriers are less focused on customer
acquisition and competing on price.
Soft Market
Premiums and profits fall as insurance carriers attempt to gain
market share. Insurance carriers with strong balance sheets focus
on lowering premiums and aggressively pricing risk.
Hard Market
Soft Market
Higher Premium Rates
Increased Profitability
Strict Underwriting
Falling Premium Rates
Decreased Profitability
Higher Competition
25
26. P&C Insurance Industry Profitability Over Time
-5%
0%
5%
10%
15%
20%
25%
ROE
Profitability peaks approximately every 10 years. The next profitability peak is predicted to occur in 2016-2017 – meaning that premiums and the strictness of
underwriting standards have been heightened over the past few years.
Source: MarketRealist 26
27. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Bonds Cash Property Equities
Major P&C Insurance Dynamics – Investment Performance & Profitability
Investment Performance Determines Profitability
In practice, very few firms make a profit off of policies sold to consumers. Instead, P&C insurance companies generate profit off of their investments.
Insurance carriers are therefore highly impacted by the financial health of the economy. Since 2000, companies have “de-risked” – moving away from equities
and towards bonds.
P&C Invested Assets
Debt Securities Equity Cash / Other Real Estate & Loans
P&C Invested Assets Over Time
Source: NAIC, American Insurance Association 27
28. VC P&C Insurance Investing
0
10
20
30
40
50
60
2011 2012 2013 2014 2015 2016
Capital Invested ($M) Deals
Innovation from startups in the P&C sector has primarily occurred in auto insurance. The number of deals in the sector remains low despite growing interest
in the space.
Source: Pitchbook 28
30. Auto Insurance Overview
Revenue $220.4 B
Profit $22.0 B
Annual Growth 1.9%
19% 11% 10% 9% 5% 5% 5% 4% 33%
Market Share by Direct Premiums Underwritten (2014)
State Farm Mutual Automobile Insurance Berkshire Hathaway Inc. Allstate Corp.
Progressive Corp. USAA Insurance Group Farmers Insurance
Liberty Mutual Nationwide Mutual Group Other
Categories of Insurance • Liability insurance
• Comprehensive physical
damage policies
Main Distribution Channels • Brokers & agents
• Online
Auto insurance represents the largest line of business in the property & casualty sector – accounting for approximately 45% of premiums written.
Source: Insurance Information Institute 30
31. Auto Insurance Coverage Requirements by State
Description Required by most states
Liability
Bodily Injury Coverage
• Pays for injuries suffered by others in an accident you caused, including: medical expenses, funeral costs, long-
term nursing care, lost income, and pain and suffering
Yes
Property Damage
Coverage
• Pays for repair/replacement to another person’s property that resulted from an accident Yes
Umbrella Insurance
• Works in conjunction with a homeowners and/or auto insurance policy; appliedafter liability coverage has been
exhausted to cover injuries and property damage
No
Medical Coverages
Personal Injury Protection
• Covers the costs associated with injuries sustainedduring an accident. PIP can often work in conjunction with
your health insurance. PIP is only available inno-fault states and a select few no-fault optional states
Required in No-Fault States
Medical Payments
Coverage
• Medical payments coverage generally pays for medical costs after an accident, regardless of who is found at
fault for the accident
Optional
Full coverage typically provides state required liability and no-fault insurance coverage, collision coverage, and comprehensive coverage. State insurance
requirements differ widely, with some states requiring no insurance coverage.
31
32. Auto Insurance Coverage Requirements by State
Description Required by Most States
Vehicle Coverage
Comprehensive Insurance
Coverage
• Pays for repairs to your car after it has been damaged by an event other than a traffic accident, such as fire,
theft, vandalism, failing objects, and natural disasters
No
Collision Insurance
Coverage
• Helps pay for repairs to your car after it has been damaged in a traffic accident No
Gap Insurance Coverage • Covers the difference between a vehicles current fair market value and the amount still owed on the vehicle No
Other • Emergency road service coverage, mechanical breakdown insurance, custom parts and equipment coverage No
Other
Uninsured motorist
protection
• Covers costs if you are hit by a driver with no insurance No
Underinsured motorist
protection
• Covers costs if the other driver has insufficient insurance coverage and/or coverage limits No
Rental reimbursement • Covers rental costs while your car is being repaired No
32
33. Factors Affecting Auto Insurance Premiums
Average Annual Auto Insurance Premium by State Factors Impacting Individual Auto Insurance Premiums
• Age
• Gender
• Education and employment
• Make, model, year of the car
• Where the car is typically parked
• Driving record and claims history
• Credit history
• Some states do not allowinsurance companies to factor
credit history into premiums
• The chosen deductible
Factors Impacting State Auto Insurance Premiums
• Regulation (no fault insurance structure)
• Accident severity (fatalities)
• Population density
• Frequency of driver initiated litigation
• Crime
• Weather
Source: Kiplinger 33
34. Key Auto Insurance Dynamics - Sales
Advertising Drives Sales
Auto insurance is for the most part a homogenous product. Carriers invest heavily in advertising to differentiate their products. As a result, auto insurance has
one of the highest advertising/sales ratios among insurance products. Brand recognition is a key success factor in the auto insurance industry.
0 200 400 600 800 1,000 1,200
Geico
State Farm
Allstate
Farmers
Progressive
Liberty Mutual
Nationwide
American Family
Travelers
AIG
USAA
Annual P&C Marketing Spend ($M)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Marketing Spend ($B)
Total P&C Marketing Spend ($B)
Source: Cornell, McKinsey 34
35. Key Auto Insurance Dynamics - Distribution
3.1 million auto insurance policies were sold online in 2012, up about 6% from 2010. 67% of customers report obtaining an online auto insurance quote.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 209 2010 2011 2012
Distribution by Channel based on Direct Premiums Underwritten
Independent Captive Direct Response
Source: Insurance Information Institute 35
36. Auto Insurance Change & Innovation
The auto insurance industry is anticipated to change drastically over the next 10 years. While car ownership is predicted to rise in the coming decade,
technology will enable more efficient risk pricing and management, which will squeeze insurance margins. The sharing economy and autonomous vehicles
will also have a large and unknown impact on the car insurance industry.
Telematics
• The use of GPS technology to track location,
mileage, speed, acceleration, and time of use
to better evaluate a driver’s vehicle utilization
and risk profile
• Telematics has penetrated personal insurance
to a greater extent than commercial, with most
national carriers offering a usage-based
insurance product
• Telematics enables carriers to offer products
that are closely priced to actuarially fair
premiums, potentially increasing competition
as carriers reduce the cushion on policies, and
eventually leading to consolidation
Sharing Economy
• The sharing economy poses new risks to the
insurance business. The divide between
personal and commercial auto has been
obscured, and new products are needed to fill
legal gaps
• The sharing economy will increasingly impact
car purchases. In major urban cities, vehicle
ownership has dropped as services like Uber
and Lyft have become more popular. In the
long run, if less policies are purchased, the risk
and cost to service an area will increase and
premiums will rise
Autonomous Vehicles
• Autonomous vehicles will reduce accident
frequency and severity. The legal
responsibilities of insurance carriers however,
have not been determined. State by state
regulation will likely differ, leading to varying
product offerings by region. Carriers with a
strong regional focus may be better positioned
to adopt changes relative to national carriers
with a broad customer base
• Autonomous vehicles will drastically alter
pricing models. With lower overall risk,
premiums will drop. With less capital to invest,
carriers will likely be less profitable in the long
term
36
37. Auto Insurance Startups
Logo Company Stage Total Funding Location Description
Goji Series C $70M Boston Auto insurance quote-comparison portal
CoverHound Series C $57M San Francisco Auto insurance quote-comparison and buying portal
Zendrive Series A $15M San Francisco Mobile telematics software for commercial fleets and individuals
Metromile Series B $14M San Francisco Pay-per-mile insurance provider and smart driving app and hardware
Driveway
Software
Series A $12M San Mateo App giving drivers and auto-insurance providers data about driving habits
Snapsheet Series B $11M Chicago Virtual insurance claims operations
Estify Series A $2M Los Angeles Digitizing paper insurance claims for auto repair
Accuscore Series A $1M San Diego Data analytics on driver behavior for insurance underwriters
37
39. Home Insurance Overview
Revenue $80.8 B
Profit $4.8 B
Annual Growth 4.7%
21% 9% 6% 6% 5% 5% 4% 2% 42%
Market Share by Direct Premiums Underwritten (2014)
State Farm Group Allstate Corp. Farmers Insurance Liberty Mutual USAA Insurance Group Travelers Group Nationwide Mutual Group Chubb Other
Categories of Insurance • Property coverage
• Liability coverage
Main Distribution Channels • Exclusive agents
• Independent agents
The second largest line of personal P&C insurance is homeowners, which represents approximately 15% of net insurance premiums in the US.
Source: Insurance Information Institute 39
40. Home Insurance Policies
Homeowners 1 – Limited coverage
policy
• This “bare bones” policy covers against fire or lightning, smoke, windstorm or hail, explosion, riot or civil commotion, aircraft,
vehicles, glass breakage, vandalism & malicious mischief, theft, and volcanic eruption. Due to demand for higher coverage, HO-1 is
no longer available in most states
Homeowners 2 – Basic policy
• Broad policy covering against 16 disasters, including those covered by HO-1, loss by falling objects, weight of ice, snow or sleet,
accidental flooding from plumbing, sudden rupture of heating or cooling systems, freezing of plumbing or related systems, and
sudden and accidental damage from artificially generated electrical currents
Homeowners 3 – Special policy • Offers the same protection as the HO-2; however also covers all perils except those explicitly excluded
Homeowners 4 - Renter
• Covers personal property against the same perils as HO-2. HO-4 also provides coverage for additional living expenses in the event
of a loss
Homeowners 6 – Condo/Co-op
• Policy created to cover the special needs of condominium owners. It covers loss of personal property and building additions and
alterations inside the owner’s individual unit
Homeowners 1 – Limited coverage
policy
• Policy designed for older homes in which replacement costs exceed the property’s market value. This form allows the policyholder
to carry lower limits of insurance rather than try to maintain coverage for 80% of replacement cost
40
41. Factors Affecting Home Insurance Premiums
Average Annual Home Insurance Premium by State Micro Factors Impacting Home Insurance Premiums
• Amount of coverage
• Neighborhood crime
• Fire safeguards and home security
• Condition, materials, and age of the home
• Certain breeds of dogs
• Swimming pools, trampolines, etc.
• Homeowner’s credit score
$980
$691
$674
$567
$648
$538
$580
$871
$821
$1038
$844
$1661
$1501
$1213
$1038
$789
$1038
$1140
$779
$631
$802
$804
$1158
$721
$840$881
$1091
$2084
$975
$1134
$1248$1314
$1742
$1096
$771
$961
$1008
$927
$843
$837
$678
$981
$1160
$1233
$1150
$741$792
$848
$957
$942
• Population density
• Real estate prices and construction costs
• Exposure to catastrophes
• Building regulation codes
• Inflationary impact on insured contents
Macro Factors Impacting Home Insurance Premiums
According to a recent survey, 95% of homeowners have insurance but only
40% of renters have renter’s insurance.
Source: NAIC 41
44. Key Home Insurance Dynamics – Construction Costs
0
20
40
60
80
100
120
1980 1985 1990 1995 2000 2005 2010 2015
Price Index
Price Index of US Single Family Homes
Construction costs have a large impact on home insurance premiums. The cost of building a home rose 45% from the start of 2001 to the end of 2011 – far
outpacing the rate of inflation.
Source: US Census 44
45. Home Insurance Change & Innovation
Innovation in the home insurance sector lags the auto insurance sector. While connected devices are available, few companies have designed new insurance
products which integrate these technologies.
Connected Devices Drones
• According to Accenture, 45% of all home insurers believe connected
devices drive revenue growth over the next three years. By
partnering with connected device manufacturers, insurers can
enable homeowners to prevent losses and limit the severity of
events
• Through providing preventative services, insurers will increase their
touch points and have a more positive presence with customers
• Despite various connected devices entering the market,
implementation has been limited by a lack in mass market interest.
Consumers view connected devices as “in development” and are
holding off for more refined products
• Drones have the potential to greatly reduce overhead costs of
insurers. Physical inspections can be replaced through imaging
performed by drones – revolutionizing the underwriting and claims
process of home insurance
• A major reduction in the effort to assess damages to a property will
result from the pairing on drones with analytics, to completely
automate the insurance analysis
• Currently drones are restricted in use due to regulation. Drones are
regulated by the FAA and states, and require pilot licenses to
operate. Pending refined regulation to account for specific drone
uses, insurance companies are expected integrate drones into their
operations to a greater degree
45
46. Home Insurance Startups
Logo Company Stage Total Funding Location Description
Augury Series A $9 M New York, NY Sensors for heating, ventilation and air conditioning systems
Wallflower Seed 500 K Cambridge, MA
Connects mobile devices to gas or electric cooktops and monitors
whether its on or off
Roost Pre-Seed N/A Sunnyvale, CA A smart battery for smoke detectors
Bungalow Pre-Seed N/A Philadelphia, PA A platform targetedat millennials for purchasing renters insurance
ZeneHome Pre-Seed N/A Santa Monica, CA
Digitizes homeowner paperwork and inspects the homeowner's
mortgage, insurance policies, property taxes, bills, and services for
inefficiencies, cost-savings, or better alternatives
46
48. Life Insurance Overview
Revenue $533 B
Profit $31 B*
Annual Growth 6.2%
16% 8% 5% 5% 4% 4% 4% 3% 52%
Market Share by Direct Premiums Underwritten (2014)
MetLife Prudential Financial New York Life Insurance Jackson National Life Group AEGON Lincoln National American International Manulife Financial Other
Categories of Insurance • Permanent Life
• Term Life
Main Distribution Channels • Independent agents
• Affiliated agents
* Thomvest EstimateSource: Insurance Information Institute
Relative to other forms of insurance in the US, life insurance has a relatively low penetration rate. Traditional life insurance is no longer the primary business
for many companies in the life/health insurance industry, as they have shifted focus to underwriting annuity products.
48
49. Life Insurance Products
Permanent Life
Provides death benefits and cash value in return for periodic payments. Permanent life products include whole life, universal life, and
variable universal life.
• Whole Life: Pays a death benefit and also accumulates a cash value. These policies have a high expense strain due to first-year
commissions to agents. Over time, whole life provides an income stream to the company and the agent
• Universal Life: Flexible premium policies that incorporate a savings component. The cash values that are accumulated are put into
investments to earn interest. The accumulations are used to reduce future premiums or build the benefit amount. Tight pricing and
high reserve requirements limit the profitability of these products
• Variable Universal Life: Flexible premium policies allow investments in mutual-fund-like accounts. The variable performance of the
investments is a risk held by the policyholder. Insurers are susceptible to profit fluctuations as mutual fund fees adjust to changing
environments in the equity market
Term Life
• Provides protection for a specified period of time. It pays a benefit only if the insured person dies within the covered period. Term
periods typically range from 1-30 years. Term life insurance is a highly competitive market with many financial institutions marketing
and offering products
Group Life
• Group life insurance is marketed to employers or association groups. Typically in the form of term life insurance, costs may be shared
between the participant (employee) and the master policyholder (employer). Participants can typically elect to pay for additional
coverage not purchased by the master policyholder
49
50. 0%
10%
20%
30%
40%
50%
60%
70%
Reasons for Not Purchasing Life Insurance
Life Insurance Penetration
62%
38%
US Households with Life Insurance Coverage
0.3
3.6
2.2
0.7
7.1
7
Gen Y Gen X Baby Boomers
Life Insurance Sales Potential ($T)
Covered Untapped Market
Source: Deloitte
The value of life insurance relative to its price and
other financial priorities is the main reason for
remaining uncovered.
Relative to other types of insurance, life insurance has relatively low penetration. Without a government mandate, many consumers choose to forgo life
insurance due to its price and other financial priorities.
50
51. Factors Impacting Life Insurance Premiums
Monthly Premiums for a 20-Year Term $500,000 Policy
$33 $36
$111
$611
$107
$217
$490
$2,016
$26 $36 $87
$419
$73
$144
$334
$1,495
20 35 50 65
Male Non-Smoker Male Smoker Female Non-Smoker Female Smoker
Source: TrustedChoice.com
Life insurance premiums increase exponentially with age. Tobacco use, medical history, and other health-related factors have thepotential to raise premiums
by 3-4x.
51
Factors Impacting Life Insurance Premiums
• Tobacco use
• Age
• Gender
• Medical history
• Alcohol use
• Current health
• Weight
• Family history
• Occupation
• Lifestyle and hobbies
• Driving record
• Credit history
52. Key Life Insurance Dynamics – Life Insurance Sales
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
<25 25-44 45-64 65+ Total
How Consumers Would Like to Purchase Life Insurance by Age
Would not use the internet Research online, purchase directly from company (phone/mail)
Research online, complete purchase online Research online, buy from advisor or agent
While the majority of consumers still prefer to purchase life insurance through agents, the age-old saying that life insurance is “sold not bought” may be
changing. Younger populations are performing significant research online, and are comfortable executing financial transactions without interacting with an
advisor/agent. With 80% of first year premiums going towards agent commissions, a reduction in the cost of sales by switching to digital channels has the
ability to drastically change the cost structure of life insurance.
Source: LIMRA 52
53. Key Life Insurance Dynamics – Capital Market Conditions
Compared to P&C insurance, life insurance is more asset-intensive and policies typically have longer durations. Interest rates and capital market returns
therefore have a more significant impact on the profitability of life insurance carriers.
Source: EY & US Treasury Department
(60)
(40)
(20)
-
20
40
60
-20%
-15%
-10%
-5%
0%
5%
10%
15%
2008 2009 2010 2011 2012
Net Income ($B)
Return
US Life Insurance Profitability & Invested Asset Returns
Net Income Return on Statutory Surplus
53
54. Key Life Insurance Dynamics – Aging Populations
70
71
74
75
77
79
9%
10%
11%
13% 12%
13%
0%
2%
4%
6%
8%
10%
12%
14%
64
66
68
70
72
74
76
78
80
1960 1970 1980 1990 2000 2010
Percent of Population Over 65
Life Expectancy (Years)
Life Expectancy % Population over 65
In 1900, 75% of the US population died before the age of 65. Today, 70% of the population lives past 65. With longevity increasing, individuals must better
prepare and save for retirement, and insurance carriers must appropriately adjust mortality assumptions to remain profitable.
Source: Center for Disease Control 54
55. Life Insurance Startups
Logo Company Stage Total Funding Location Description
Lion Street Seed $3.1 M Austin, TX
Resources for independent life insurers to meet the financial planning
needs of high-net-worth and corporate clients
Ladder Pre-Seed N/A Menlo Park, CA Technology-enabledfull stack insurance company
Sureify Pre-Seed N/A San Jose, CA
Third party source for life insurance education, comparison, and carrier
data targetedat millennials
55
57. Health Insurance Overview
Revenue $783 B
Profit $33 B
Annual Growth 6.5%
14% 8% 8% 5% 4% 3% 2% 2% 54%
Market Share by Direct Premiums Underwritten (2014)
UnitedHealth Group WellPoint Kaiser Foundation Group Humana Group Aetna Group Health Care Service Corporation Highmark Group CIGNA Other
Types of Insurance Structures • HMO
• PPO
• EPO
Main Distribution Channels • Employer plans
• Direct
• Government
Source: Insurance Information Institute
Health is the largest sector within insurance. The sector includes private health insurance companies as well as government programs. Select P&C and life
insurance companies provide health insurance products.
57
58. Health Insurance Overview
Health insurance costs are closely tied to health care expenditures – which have skyrocketed over the past few decades as life expectancy has increased and
new health care technologies have been developed.
The health insurance market has grown significantly since the implementation of the Affordable Care Act, with revenues increasing from $641 B in 2013 to
$743 B in 2014. Much of this growth however, has been unprofitable. Health insurers lost a total of $2.5 B, or on average $163 per consumer enrolled, in the
individual market in 2014.
Compared to P&C and life insurance, health insurance has a shorter investment time horizon and higher loading factor. The average medical loss ratio
(medical costs/premium revenues) has increased slightly to in recent years to 83.2%, due to requirements set by the Patient Protection and Affordable Care
Act.
Health Insurance Coverage in the US
Employer Non-Group Medicaid
Medicare Other Uninsured
Private Health Insurance Spend
Inpatient Outpatient
Professional services Pharmacy
Other
0%
5%
10%
15%
20%
25%
30%
Percent of Insurers
Operating Margin of Private Health Insurers
Source: Wall Street Journal, McKinsey, Deloitte 58
59. Flow of Health Insurance Funds
Purchasers Health Plans Providers
$2.7 T in
Expenditures
Individuals
Employers
$305 B
$305 B
$580 B
Government
Private Plans
$952 B
$286 B
Health plans consume a 15.2% of the $1172 B insurance companies receive. Health plans represent a significant cost to the US healthcare system and are
therefore under intense scrutiny.
• Hospitals
• Physician Groups
• Integrated Delivery Systems
• Accountable Care Organizations
• Coordinated Care Organizations
Source: Deloitte
$1172 B
59
60. Health Insurance Plans
Plan Description Market Share of Policies
Health Maintenance Organization (HMO)
• HMOs use primary care physicians (PCPs) as gatekeepers to prevent the overuse of
healthcare. Customers who enroll in HMOs are required to choose health care providers
within the network of contracted physicians and hospitals
16%
Preferred Provider Organization (PPO)
• PPO plans aim to restrain the overuse of medical services while allowing patients more
flexibility in their choice of physicians and specialists. There is no PCP gatekeeper for these
plans, but customers are encouraged to choose providers within the network
56%
Point of Service (POS)
• A point-of-service plan(POS) is a type of managed care plan that is a hybrid of a HMO and
PPO plan. Like an HMO, participants designate an in-network physician to be their primary
care provider. But like a PPO, patients may go outside of the provider network for health care
services
9%
High-Deductible Health Plan (HDHP)
• Health insurance plan with lower premiums and higher deductibles than traditional health
plans.
19%
Source: Kaiser Foundation 60
61. Major Government Programs and Regulation
Children's Health Insurance
Program (CHIP)
• A program which was established by the Balanced Budget Act designed to provide health assistance to uninsured low-income children
Consolidated Omnibus Budget
Reconciliation Act (COBRA)
• A federal act which requires each group health plan to allow employees and certain dependents to continue their group coverage for a stated
period of time following a qualifying event that causes the loss of group health coverage
• Qualifying events include reduced work hours, death or divorce of a covered employee, and termination of employment
Health Insurance Portability and
Accountability Act (HIPAA)
• A federal act that protects people who change jobs, are self-employed, or who have pre-existing medical conditions. HIPAA standardizes the
approach to the continuation of healthcare benefits for individuals and members of small group health plans and establishes similarities
between the benefits extended to these individuals and those benefits offered to employees in large group plans
• The act also contains provisions designed to ensure that prospective or current enrollees in a group health plan are not discriminated against
based on health status
Medicaid
• Government funded health care typically provided to low-income individuals and families
• Medicaid is jointly funded by the federal and state governments
• Although the federal government establishes national guidelines, each state has the authority to establish its own eligibility standards,
determine the type, duration, and scope of services, set payment rates, and administer the program
Medicare
• In 1965, the Social Security Act established both Medicare and Medicaid. Medicare is a federal health insurance program designedto provide
coverage for individuals 65+ and individuals with applicable disabilities
Source: UNT Health 61
62. $429
$476
2013 2014
Medicare Spending ($B)
$586
$619
2013 2014
Medicare Spending ($B)
Healthcare Spending Breakdown – Medicare & Medicaid
5.5% growth
The increase in Medicare spending was primarily attributable to
faster growth in spending for prescription drugs, physician and
clinical services, and government administration.
Medicare accounts for approximately 20% of total health care
spending.
The increased spending in Medicaid was largely driven by the
newly eligible enrollees under the ACA, which were fully financed
by the federal government.
Medicaid accounts for approximately 16% of total health care
spending.
State and local Medicaid
expenditures only grew
0.9 percent, while federal
Medicaid expenditures
increased 18.4 percent in
2014.
11% growth
Source: Center for Medicare and Medicaid Services 62
63. $326
$330
2013 2014
Out-of-Pocket Expenditures ($B)
Healthcare Spending Breakdown – Private & Out-of-Pocket
Source: Center for Medicare and Medicaid Services
$949
$991
2013 2014
Private Health Insurance ($B)
Private health insurance accounts for 33% of total health care
spending.
Private health insurance spending has increased due to the
Affordable Care Act, which has implemented marketplace plans,
health insurance premium tax credits, health insurance industry
fees, and benefit design changes.
Out-of-pocket expenditures grew slower than the overall annual
growth in healthcare spending. The slowdown is primarily due to a
reduction in the number of individuals without health insurance.
Out-of-pocket expenditures account for around 10% of total health
care spending.
63
4.4% growth 1.3% growth
64. Innovation in Health Insurance
Medical Grade Wearables Telemedicine
• Soreon Research estimates that the smart wearable healthcare
market will grow from $2 B in 2014 to more than $41 B in 2020, with
diabetes, sleep disorders, obesity and cardiovascular disease
representing the largest growth segments
• Insurance carriers have recently invested and partnered with a variety
of wearable device companies. Insurance companies are currently
using wearable devices as a preventative measure, offering discounts
to customers who meet certain fitness and wellness goals
• As wearable data becomes more available, reliable, and detailed
health insurance companies are expected to increase customer
outreach through apps, wearables, and other mobile devices
• Although telemedicine has been around for decades, its prevalence
and popularity has suddenly exploded, fueled by a powerful
combination of market forces and technological advances
• More than half of US hospitals now use some form of telemedicine.
Telemedicine allows doctors to provide care at lower costs and
reduces hospital contaminations. In addition, patients have
experienced a 75% reduction in travel and a corresponding 75%
increase in certain types of care, such as psychological evaluations
• While the promises of telemedicine are prevalent, doctor are
prevented from touching a patient and observing certain cues –
making it an inappropriate response to certain medical conditions
Source: Reuters, Insurance Net News 64
65. Health Insurance Startups
Logo Company Stage Total Funding Location Description
Oscar Private Equity $738 M New York, NY
Provides and sells health insurance, utilizing technology, design and data
to optimize the healthcare experience
Bright Health
Series A $80 M Minnesota City, MN
An insurance service platform that partners with health systems and care
partners to provide health plans
Maestro
Healthcare
Technology
Venture $53 M Chicago, IL
An online service platform that offers private exchange marketplace,
healthcare enrollment, health insurance, healthcare savings accounts,
care management and billing services
Clover Health Series B $135 M San Francisco, CA
Clinical data platform that designs various medical insurance plans and
models for senior citizens and other middle-income group patients
Stride Health Series A $15 M San Francisco, CA
Health insurance recommendation engine for finding health insurance
plans
65