Artificial intelligence (AI) and the Internet of Things (IoT) now account for almost half of total investment in insurance technology (insurtech) startups globally, according to new research from global professional services company Accenture.
The research, which includes new analysis of CB Insights data on 150 insurtech deals over the last three years, was released on Thursday. The report, titled The Rise of InsurTech, was released in conjunction with Accenture’s Fintech Innovation Lab in London, “which for the first time includes a dedicated insurtech stream comprising leading industry startups,” Accenture said in a press release.
The report noted that the combined number of deals across AI (including automation) and IoT (including connected insurance) increased 79% in 2016. Even though the two technologies represented only one-quarter (24%) of the 216 insurtech deals globally last year, they accounted for 44% or US$711 million of total insurtech investment – compared with just 10% of global insurtech investment in 2015.
“We’ve seen a rapid acceleration of investment into and deal activity around intelligent automation and IoT start-ups over the last 12 months,” said Roy Jubraj, a co-author of the report and Accenture’s digital & innovation lead in the company’s financial services practice in the United Kingdom and Ireland. “These technologies are primed to disrupt the industry in the years to come, so it’s fitting that we’ve established a dedicated insurtech stream as a key part of Accenture’s FinTech Innovation Lab in London.”
According to the report, the insurance industry views AI and IoT as critical to delivering increased levels of personalization and better real-world outcomes for customers. AI has the potential to transform the insurance industry from simply assessing risk based on past experience to monitoring risks in real-time and mitigating, or even preventing, losses for customers. IoT will enable insurers to offer more-personalized, real-time service, boost operational efficiency and price their products with greater precision, the release said.
Accenture also found that insurtechs are primarily targeting the personal non-life insurance space, whereas “life insurance and commercial insurance could be riper for technological disruption.” (Accenture’s analysis of more than 450 insurtech deals between 2014 and 2016 found that 63% of deals in 2016 focused on the non-life sector, compared to 68% in 2015 and 69% in 2014).
Accenture’s Technology Vision for Insurance 2016 showed that 44% of insurers across the world intend to pursue digital initiatives with startups from the insurance industry over the next two years. “And, perhaps more interestingly, 31% plan to work with startups from outside that industry.”
By location, the U.K. continued to attract strong insurtech investment last year, despite the political and economic uncertainty around its vote to leave the European Union. Even though the number of insurtech deals in the U.K. remained flat, the value of the investments there more than doubled last year, to almost US$19 million. Investment in AI and IoT also increased significantly, to almost US$1.7 million in total, Accenture reported.
Germany and France also saw strong growth in investment in 2016 to round out the top three insurtech markets in Europe. With insurtech’s investment expanding globally, the United States’ share of deal volume in 2016 dropped slightly, from 63% to 56% of total deals. The percentage of insurtech investment for the rest of the world (deals outside the traditional hubs) more than doubled, from 11% in 2015 to 23% in 2016.
Insurtech’s shifting geographic focus maps closely to similar global trends across fintech, Accenture said. Its recent fintech analysis showed that China, and more broadly, Asia Pacific, are playing a more prominent role as investment destinations for fintech capital. While global investment into fintech ventures grew 10% in 2016, to US$23.2 billion, Asia Pacific as a region for the first time eclipsed North America, with fintech investments there more than doubling in 2016, to US$11.2 billion.
Julian Skan, a senior managing director in Accenture’s financial services practice who oversees the FinTech Innovation Lab in London, concluded that “the rise in insurtech is further evidence of the growing role that new technologies are playing in shaping innovation across financial services. The next challenge for insurtech startups is the same as what the more mature fintechs are now facing – being able to translate that investment into growth and customer acquisition.”