The Bowery Capital team had a conversation with Brendan Berry, a Director of Product Management at Ripple, centered around the current state of cross-border payments and what the blockchain-powered future means for international payments.
We at Bowery Capital released the 2016 edition of Opportunities In Vertical Software two weeks ago which laid out our point of view on ten specific verticals and the potential for various software solutions to dominate each of these ten verticals in the coming years. For ten weeks, we are releasing content focused around the impact of software on these ten industries. We covered the Construction vertical last week. For our second week, we feature the Insurance vertical. In our third post for the Insurance Software Deep Dive we follow up with an analysis of Insurance market themes, players, & investors.
Insurance Market Themes:
(1) Insurers To Spend A Lot More On New Tech Through 2020 – Insurer spending on software and IT services is expected to accelerate over the next 2-3 years as insurers change systems to react to new data/analytics capabilities and other new technologies. For instance, the adoption of IoT, connected devices and telematics will help insurers mitigate the cost of claims through early detection and tracking. Artificial intelligence will also enable insurers to reduce cost through insurance-specific BI, data warehousing and fraud detection. Important to note though that unlike other industries where the shift to the cloud has been rapid, the insurance industry remains slower to move off of the on-premise delivery model. A December 2014 study from industry analyst Ovum found that approximately a third of all insurers are testing cloud-based systems for critical business functions but many fewer have deployed. We still have a long way to go.
(2) Sub-Markets & New Verticals Provide Big Opportunities For Software- Insurance is a giant industry with numerous huge sub-markets, including P&C, auto insurance, health insurance and so on. This offers opportunities for software companies to build solutions targeted at the insurers in a specific sector and dominate in that specific sub-market. Additionally, we will also see (if not already) new verticals within the insurance industry emerge, such as cyber insurance, insurance for smart phones, driverless cars and even drones. Imagine this: What if my driverless car is stolen by someone who has hacked into the control unit of the car and commanded it to drive away from my garage? Who will be responsible for this? Questions like this will provide new areas for innovation for software startups offering solutions to insurers.
(3) Insurance Is Becoming More Customer-Centric – Another of the interesting insurance market themes is that Insurance companies will focus more on building stronger customer relations. This can be achieved by smarter insurance-specific CRM’s that provides single view of the costumers across channels/interactions. For instance, Zipari is such a solution that helps insurers maximize their customer acquisition, retention and satisfaction. Moreover, on-demand insurance, built specifically to cater to the needs of every individual customer, will be on the rise. Enabled by smartphones, on-demand insurance will meet the growing demand for diversified and customized insurance products. Its unique feature, allowing customers to insure a specific product for a specific amount of time, will attract millennials, and software startups will have the opportunities to drive profits from this new type of insurance.
(4) Insurance Industry Expertise Is The Recipe For Success – The industry continues to be highly insular with relationships and IT spend largely being won by folks that understand the space and have operated in it for some time. Of all the players we analyze, only one company (Guidewire) had a core founding team that came from outside the industry. While this is likely to change into the future, we note that it remains a very difficult industry to penetrate. For any founder that wants to get involved in the space it remains important to really focus on building the relationships and advisory network that knows the space and is an insider.
Insurance Industry Major Players:
CSC continues to be the largest player in the space that sells into the insurance industry. While primarily IT services based, the company has started to move more into software in recent years. Oracle and SAP also have a presence in the space and remain relevant to a large portion of the ecosystem. In addition, there have been three companies that have gone public throughout the years: Sapiens, Majesco, and Guidewire. Private companies such as Vertafore, Insurity and eBaoTech are also active large players in the space. Guidewire is the largest software player and the most recent major success story in the industry. The business is dedicated to developing software for P&C carriers with over 200 P&C carrier clients and a $4.5B market cap.
Insurance Industry Emerging Players:
We’ve seen emerging software players in the health insurance space gain the most momentum. To highlight a few, there are Zipari, a company focused on building technology products designed to simplify and improve health insurance carrier’s interactions with their customers, and Aptible, which automates HIPAA compliance for web/mobile technology companies in the healthcare/insurance space. We have also seen startups leveraging the power of data and artificial intelligence to better serve insurers. While Shift Technology, a Paris-based startup is focused on using big data and machine learning to detect patterns of fraudulent insurance claims, London-based startup QuanTemplate provides an insurance analytics platform that offers a broader range of solutions, including bordereaux management, underwriting performance monitoring and regulatory reporting assistance.
Most Active Investors Focused On Insurance Technology:
The insurance technology space has historically been dominated by PE firms but VC financing has started to see an uptick through 2016, with FirstMark Capital (Dovetail, EagleEye Analytics, Duck Creek Software) the most active firm historically at the venture stage. There is a significant drop off from there and most firms only have one investment in insurance technology. We highlight Accel Partners (Shift Technology), Andreessen Horowitz (Zenefits), and Lightbank (Snapsheet) as a few that have been active in recent years. In addition, many of the carriers have built out their own investing arms which should benefit many emerging software companies looking to get into the space. Allianz Ventures and Transamerica Ventures are two players that have historically invested in the space and continue to be a source of capital for the industry.
Insurance Market Themes Link Roundup For Emerging Software Founders:
CB Insights: https://www.cbinsights.com/blog/category/insurance-tech/
Venture Scanner: http://insights.venturescanner.com/category/insurance-technology/
Denim Rivet Podcast: http://denimrivet.com/
Thank you for reading our analysis on Insurance Market Themes, Players, & Investors. Make sure to check out the 2016 edition of Opportunities In Vertical Software for the full report and we will be back next week with our next series of industry deep dives.
Bowery Capital and Balance explain how B2B marketplaces can think about payments.