Finovation Friday | The tricky thing about InsurTech

Marketplace lending, arguably the most public and profiled sector of fintech, has spent the better part of 2016 sliding down Gartner’s Technology Hype Cycle. However, other sectors are a bit behind in gaining the same initial traction, including Insurance Tech, despite hopeful entrepreneurs and plenty of VC funds exploring the market.

I talked to an investor at a large insurance incumbent’s venture arm, and he attributed the disconnect to the regulations surrounding the industry. While there has been innovation around the edges, no one has “cracked [the regulatory] code to build something truly disruptive.”

This gives large incumbents an advantage in getting involved in the startup ecosystem, which they have done at a rapid pace. The list of large insurance companies NOT investing in startups is getting pretty small. Given the complex regulatory requirements of the core insurance business model, corporate investors may have some extra leverage in competitive funding rounds by explaining the value they add relative to a pure financial investor.

There will plenty of chances to invest – YTD there have been 82 VC deals in insurance tech for roughly $1 billion. Health Insurance has been the biggest sub-sector this year, with Oscar Health taking $400MM of that total, and another $240MM from two other health insurance startups (Clover and Bright Health).

Some interesting startups to keep an eye on:

Blue Owl Technology: CB Insights dug up this InsurTech company currently in stealth mode. According to job postings,they have raised $35MM and are creating “a new insurance company that uses the latest technology and data science methods to save lives by preventing car collisions. For example, [they] identify risky drivers and give them cash rewards to become safer.” To make things more interesting, the business entity’s address is State Farm’s headquarters.

PolicyGenius: AXA, Transamerica, and MassMutual all invested in this digital insurance platform through their venture arms. PolicyGenius raised $15MM in their Series B back in January.

Trov: I mentioned Trov, the on-demand mobile insurance platform, earlier this year when they raised their $25MM Series C round. Trov’s app allows you to turn coverage on and off, and report claims via text. Coverage is provided in partnership with AXA, and they are expanding into the US next year.

If you have some time, check out the 92-page KPMG + CB Insights Pulse of Fintech Report Q2 2016. After 4 quarters of relatively stable participation by corporate venture arms, CVCs participated in almost 33% of all fintech deals in Q2. At the same time, seed-stage deals decreased as a portion of total deals, while Series C rounds were a greater percentage.

Most marketplace lenders saw large origination volume declines in Q2. Prosper had the largest decline of roughly 50% quarter-over-quarter, though LendingClub, Avant, and SoFi were also down double digits. In small business, OnDeck saw a slight increase over the same period. Prosper has been rumored to be in talks with some large investors to purchase up to $5 billion of loans over the next few years, and plans to raise rates to attract more investors.

Jonathan Velline, Wells Fargo’s EVP of ATM Banking and Store Strategy, says they are just “a very large community bank.” For all the talk about disruption of physical branches, Wells’ stats show that consumers still like to use the branch – 75% of deposit customers visited a branch in the last 6 months. Even among the younger set (age 18-34), 63% use the branches, and visit twice a month.

Stash, a mobile investment platform, raised over $9 million recently. Stash charges only $1/month (0.25%/year once you reach $5,000). Rather than acting as a robo-advisor, Stash allows users to pick from 30 ETFs that are offered.