Author: Freddie Scarratt
Much has been written and said about the slowdown in venture capital (VC) funding in 2023, both in our Gallagher Re Global InsurTech reports and in the InsurTech ecosystem more broadly. This slowdown poses a challenge to both new and incumbent InsurTechs as they strive to demonstrate that they have a path to profitability. But where are the growth and success stories outside of this trend?
The most recent selection of startups for a London-based InsurTech accelerator program showcased a dominant theme: Climate change. The majority of the selected participants in this cohort is focused on addressing the pressing issue of climate risk within the insurance industry, recognizing it as one of the largest and most complex issues we face today.
As climate change continues to cause unforeseen and increasingly frequent natural catastrophes, the insurance industry seeks innovative approaches to managing these risks and streamlining the claims processing system. Recognizing the urgency and gravity of the situation, the InsurTech sector has begun responding to this need by developing specific approaches to modeling, surveillance and claims management.
InsurTech companies are actively working on advanced modeling techniques that can accurately assess and predict climate-related risks. Deploying cutting-edge technology and data analytics, these companies aim to provide insurers with more accurate risk assessments and enable them to make informed decisions and develop appropriate coverage solutions. Mitigrate is one such InsurTech firm. It's focused on climate adaptation and loss prevention in property insurance, recommending preventive and protective measures against flood damages to minimise future claims and maximise customer loyalty.
Surveillance technologies are being developed to monitor and track climate-related events in real-time. This tracking allows insurers to proactively respond to potential risks and provide timely assistance to policyholders in affected areas. By using satellite imagery, weather data and other sources of information, insurers can enhance their ability to assess and respond to climate-related incidents promptly. RedZone is a perfect example of a wildfire intelligence and services company turning its attention to insurance. It's making use of its technology to help underwriters make informed decisions in covering the growing wildfire threat, which was so public in the mainstream press this year (the wildfires in Greece being one example).
The collective efforts of the insurance industry — including both traditional insurers and InsurTech companies — demonstrate a commitment to addressing the challenges climate risk poses. By embracing innovation and leveraging technology, the industry aims to enhance its ability to manage risks, protect policyholders and contribute to the global effort of building resilience in the face of climate change.
It's not only InsurTechs helping address this challenge through new technology and products, of course. Established insurers are actively participating as well. Two prominent UK insurers, Aviva and Vitality, have taken notable steps to develop products that align with this growing focus on specific climate issues.
Aviva has introduced Aviva Zero, which incorporates carbon offsetting for motor vehicles. Under this policy, Aviva calculates the carbon emissions the insured vehicle produces and counterbalances these emissions with the required carbon offset and includes it as part of the policy. This innovative approach not only provides coverage for the insured vehicle but also contributes to reducing the overall carbon footprint.
Similarly, Vitality has introduced a unique motor policy that incentivises environmentally friendly behaviour by encouraging policyholders to opt for car-free days. By voluntarily choosing to not use their vehicles on certain days, policyholders become eligible for discounts on their premiums.
These initiatives by Aviva and Vitality exemplify the commitment to climate and environmental action that's in place from the mainstream insurance industry too. Their innovations, just as much as those of green-focused InsurTechs, are essential to the success of this effort.
By integrating innovative InsurTech solutions into carriers’ products, insurers are not only adapting to the changing landscape, but also actively contributing to the growth in InsurTech. Our industry spends about 0.07% of total global premiums on R&D, including the development of new technology. If a growing portion of development funding is going towards tackling the climate challenge, it's a meaningful commitment.
InsurTechs recognize that specializing in underserved — or, in the case of climate, increasingly complex markets — presents a unique opportunity to build a profitable and sizable business. By focusing on these specific segments, InsurTechs can carve out a niche for themselves in the insurance industry while contributing to our collective global effort on climate change.
Gallagher Re’s Q3 Global InsurTech report will be published in early November.