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Why life could become uncomfortable for insurers and brokers who have under-invested in digital

Strategy

This article is an extract from the Oxbow Partners InsurTech Impact 25.

InsurTech investment was buoyant in 2018 according to data from Willis Towers Watson. In total, $2.6bn was raised in the first 3 quarters of 2018 compared to $1.6bn in the equivalent period in 2017. The data also shows that later-stage investment volumes are growing as a proportion of overall volumes.

Until now, European and US InsurTechs have been at a broadly similar level of maturity. Indeed, Europe was seen as being slightly ahead until a few years ago. This could now change and the impact could be dramatic for European insurers.

Our hypothesis goes like this: As InsurTechs mature, they will require ever larger funding rounds. US investors have deeper pockets, so it is likely that US InsurTechs will find it easier to raise more money. This means that some US InsurTechs will develop fast and accelerate away from their local and European counterparts.

These US InsurTechs will initially use their funding rounds to grow in the US, growing from single-state propositions to national companies. However, at some point they will put European expansion on their investor presentation.

When they arrive in Europe, these InsurTechs are not small companies asking for pilots, but relatively mature technology companies looking to roll out in a new market. Lemonade is a good example. The company announced in November 2018 that it is coming to Europe. This ‘full stack’ InsurTech will arrive with proven technology and operating capabilities, combined with a well-funded marketing budget.

These companies will hit European insurers hard, especially those who have enjoyed comfortable oligopolies in their markets for decades. Whilst nobody can prevent an InsurTech from coming to their market, insurers would do well to ensure that their market does not look like the ripest for disruption.

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Chris Sandilands

Partner at Oxbow Partners
Chris Sandilands, ACII is a Partner at Oxbow Partners. Chris advises (re)insurers and brokers on a range of strategy topics and M&A. Chris started his career as a D&O underwriter at Munich Re, before joining Oliver Wyman, the consulting firm. You can reach him at csandilands@oxbowpartners.com.

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