Insurtech & Proptech: What to expect in 2021

After a whirlwind of a year, industry observers predict the insurtech and proptech sectors will only see more innovation in 2021

The insurance technology and property technology sectors underwent significant transformations in 2020. The insurtech space saw a number of IPOs and M&As while proptech struggled some with momentum in the face of office closures. So, what can we expect out of the insurtech and proptech industries in 2021? FinLedger talked to a few industry insiders to get their thoughts.

Rick McCathron, president, Hippo Insurance

This year we saw a maturation of the insurtech market, and in 2021 we’ll see an evolution of innovation across the entire insurance industry, including an increase in private equity investment in insurtechs. Those who missed out on the first insurtech wave will be more willing to pay top dollar to get in with the next round of up and comers before valuations skyrocket.

Vertically specialized companies with credible followings will try their hand at insurance. As an industry built on consumer trust, they’ll look to take market share from incumbents, leveraging their brand loyalty and understanding of consumer expectations, something we are seeing Amazon do in India

Bolder bets on innovation will follow the worst year for catastrophes in U.S. history. Drastic climate shifts and a global pandemic had made insurance companies – and their stakeholders – on the offensive to level out their balance sheets and battle uncertain headwinds 

Steve Lekas, co-founder and CEO, Branch Insurance

Insurtech is more obviously an investable asset class and we’ll see higher valuations and more frequent IPOs in 2021 as a result. MGAs (Managing General Agents) can’t win in the primary personal insurance market. Expect to see more startups go full-stack.

There will be a rush toward quality insurtech investments while investors continue to struggle to evaluate quality. Differentiation is key to winning and investment returns. A nice user interface is undifferentiated.

Underwriting sophistication/prowess will become critical.

Most of the insurance market doesn’t shop every year and doesn’t want to start shopping frequently. More startups and investors will realize that to win the game, the retention story must be as or more exciting than the sales story.

Dax Craig, co-founder and president, Pie Insurance

Insurtechs will continue to go public either through IPOs or SPACS. Those with sound business models and sound underwriting results will succeed in the public markets and those without sound business models and sound underwriting results will suffer.

Technology focused-insurtechs (i.e. non insurance carriers and MGA insurtechs) who have not yet demonstrated an ability to scale will likely find it hard to raise series B or series C investments. As a result, I believe we will see a number of M&A events where established players pick up technology insurtechs. These M&A events will be close to or even below their last venture round valuations.

More distribution focused insurtechs will finally realize their unit economics do not work. As a result, they will either be acquired by large traditional distribution players (i.e. Aon’s acquisition of CoverWallet and Brown & Brown’s acquisition of Coverhound) or they will try to maneuver to become MGAs or full-stack carriers.

COVID will finally force large incumbent carriers to make a move to the cloud. As a result, IT departments will be stretched moving to the cloud and other strategic initiatives needed to compete against insurtechs will languish. AI will remain nascent in commercial lines but will gain more traction in personal lines.

We will see a rise in restaurant and hospitality business bankruptcies and insurers focused on these sectors will continue to lose premium and commercial insurance market share.

Malcolm Thorne, managing director, 4490 Ventures

The exploding growth of the gig economy is exposing huge potential liabilities for companies. Significant advances in IoT sensors and AI processing on the edge have the potential to help these companies manage the risk filling a huge potential void in the insurance market today. Many gig economy companies contract with thousands of workers who drive on their behalf whether it be for ridesharing, delivering groceries, food, or other products and services.

Those drivers are supposed to notify their insurance company that they drive for a gig business, although many do not due to the short-term nature of the work. If they notify their insurance company they pay a flat fee because they are employed in the gig economy. This fee is typically the same whether you drive 60 hours a week in Los Angeles or five hours a month in rural Iowa. Gig economy companies either self-insure or hold umbrella policies to cover these workers while they do work for the gig companies. It has become increasingly complex for corporate insurers to understand this risk.

Uber lost its main insurance partner, James River, in 2019, due to its inability to understand or manage the risk. Many insurance companies have exited the business leaving rapidly growing gig businesses with few provider options or the only option being to self-insure. Recent advances in computer vision and scalable AI processing on the edge have now made it feasible and cost-effective for companies to monitor and manage driver behavior in real-time—massively reducing the potential severity and frequency of accidents. Computer vision solutions can notify a driver and the gig company when a driver is distracted. It can also provide recorded footage and analysis of the driver’s behavior during a claim, providing clarity on where the liability lies.

Advances in sensor technology and affordability of processing AI on the edge is fueling changes in how insurance is productized. Insurance is migrating from assessing risk based on a population’s claim history, to realtime behavior assessment and management. Sensors from companies like Understory can measure actual hail severity experienced in real-time on a wine farm or on a valuable physical asset, such as a vehicle—as the hail damage is occurring. Computer vision solutions from companies like Edgetensor or Nauto can detect distracted driving and notify a driver or an employer in real-time. It is now becoming increasingly possible to pair real-time monitoring of consumer behavior and environmental elements with insurance products. The net results should be better visibility and underwriting certainty for insurers and lower premiums for consumers who are willing to use technology to mitigate risk.

Zak Schwarzman, general partner at MetaProp

The COVID crisis has accelerated proptech adoption, with 89% of proptech investors and 84% of proptech CEOs reporting that they believe the pandemic will increase the pace of PropTech adoption in the real estate industry. At MetaProp, we are anticipating this sentiment and growth trajectory will continue in 2021 as the proptech sector continues its rapid maturation. 

In 2021 we continue to watch some notable PropTech categories, including all manner of single-family home-related technologies, which have benefited from the flurry of home buying and renovation activity that has accompanied the COVID-crisis. These include tech-enabled brokerage, mortgage, closing and other transaction-focused solutions as well as digital solutions focused on home improvement and home services, the discovery and management of which continue to move online. 

Vertical SaaS solutions for real estate professionals is another category to continue to watch. The real estate industry is rife with workflows that remain defined by the holy trinity of paper, Excel and email. Thousands of companies have brought new solutions to market in recent years that aim to smooth and enhance the workflows associated with specialized real estate tasks like site surveying, property valuation, construction insurance inspection, property accounting, turn management, etc. These solutions generally aim to help real estate professionals do their jobs better, faster and at lower cost. Many of these solutions have an added benefit of helping real estate professionals perform these tasks remotely, which has helped fuel a sharp jump in adoption during the current period of disruption. 

As technology continues to permeate the real estate industry—the largest sector in the global economy—many of the solutions being adopted are of the “genie out of the bottle” variety. Like it has in many other industry categories, the COVID crisis has been a unique catalyst for consumers and professionals alike to adopt technology tools at a record pace. Once adopted, these tools and their associated benefits quickly become part of the new normal and we believe their adoption and utilization will only continue to grow in 2021. 

Alex Pelin, co-founder, Xspaced

The year 2020 exposed the inefficiencies in the rental market that we always knew were there, in particular the dated approach of collecting the security deposit upfront from the tenant and the rigid system of making monthly rent payments. 

I expect to see more fintech adoption in the rental market next year including products that remove the financial barriers and make housing more accessible for American renters; products that make monthly rent payments possible based on a renter’s personal income schedule and make it easier for renters to keep their homes and alternative renter screening tools.

You will hear more about verticalized BAAS for rentals.     

As a result, the financial side of rentals will become much simpler for landlords, property managers and tenants.

Char Hu, CEO, The Helper Bees

The accelerated adoption of new technologies was a massive boon for insurtech companies in 2020. Insurance carriers across all product types defied their historically slow pace of innovation, resulting in an accelerated rate of adoption of transformative technology products. The result was an eye-opening realization of how digital technologies and technology-enabled services can transform the underwriting and claims experience, and likely has whetted the appetite for more innovation.

In 2021, these same carriers will emerge from the mad dash of implementation and begin thinking about how to integrate their historical, current, and future innovation initiatives. This will create more emphasis on the need for platforms that allow all of their digital initiatives to speak the same language. This is a natural evolution of the innovation process, as dealing with the maintenance of multiple initiatives can negatively impact outcomes. Having the foresight to architect the infrastructure for future innovation will enable large carriers to continue to forward momentum, thereby maximizing the potential that insurtech companies have promised.

Christopher Yip, partner at RET Ventures

Technologies that facilitate online leasing and self-guided touring, which saw heightened demand amid the pandemic, will continue to gain rapid and broader adoption in 2021. We expect this trend to continue as residents and property managers alike are finding that these technologies make for a better experience.

With many people home 24/7, buildings are being taxed physically more than ever before (e.g. more water flow, more electricity usage, etc.). Facility maintenance teams have also had to adapt to reduced staffing and socially distanced operations. With these driving forces, technology that supports building operations/communications for maintenance staff at multifamily properties will see increased demand.

There’s been a well-reported increase in demand for single-family homes, and signs point toward the growth of the single-family rental (SFR) sector. Because each home tends to be unique and SFR portfolios are spread out geographically, these portfolios are relatively challenging to operate. In light of this, we expect a strong year for technologies designed to streamline the operation of these portfolios.

We also see increased focus on technology adoption in residential real estate construction and development to drive increased flexibility, efficiency and speed in new and existing developments. This is particularly important in the current climate when certain markets are seeing increased net migration and other markets are seeing overcapacity and need to explore alternative uses such as short term rentals to address longer lease-up periods.

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