InsurTech continues to gain influence in Germany

German InsurTech start-ups continue to grow and attract more funding. A newly released study from EY shows InsurTech as a new rising star in the FinTech community. InsurTechs are financial technology start-ups that attempt to change the insurance industry and how customers access insurance products through digitalization. While other segments of the FinTech scene have been growing for several years now, InsurTech is still in its infancy.

According to the study, only four unicorns focus on the insurance industry and InsurTech only attracted $4.63 billion in funding globally between 2008 and 2015. In Germany, InsurTechs raised €53.52 million between 2012 and Q1 2016, most of this occurring in 2015. EY cites the surge in funding in 2015 as an indicator that the InsurTech segment will become more impactful in the coming years. Noteworthy representatives of German InsurTech are Friendsurance, Finanzchef24, Clark, Knip and Schutzklick who have all achieved series B funding as early as 2015. In addition, their funding accounts for €47.45 million or 88% of all disclosed funding to German InsurTechs. Drivers accelerating the expansion of InsurTech are connectivity and data, the consequences of the financial crisis with the resulting pressures on interest rates, and customer dissatisfaction with interest rates.

Commenting on the study, Dr. Lutz Raettig, President of Frankfurt Main Finance e.V., stated, “The growth in FinTech and InsurTech investment in Germany is a reassuring development. These entrepreneurs reimagine the financial industry and create technologies that will add value and efficiency not only for end consumers but also for established actors. Financial institutions are smart to recognize the importance of these start-ups. Frankfurt Main Finance is heavily invested in the development of Frankfurt’s FinTech ecosystem and has promoted the creation of FinTech hubs in the region. Sponsoring competitions like the FinTechGermany Awards should help to draw attention to these young and successful companies.”

The study further explains that InsurTechs in Germany and abroad have not been able to develop stand-alone business models, partially due to regulatory factors. However, the InsurTech market is still in its relative infancy leaving any ceiling still undefined. Many business models existing abroad have yet to be replicated in Germany. EY identified three areas they expect new business to grow from: Big Data and analytics, data driven products, and back office-supporting functionalities.

To this end, Christoph Schmitz, Partner at EY and one of the study’s authors, explained, “The insurance industry will be permanently transformed by digitalization and the changes for these companies will only accelerate in the future. Therefore, it is critical that they concentrate on digital business models and further develop their own in-house capacities. In-house Innovation Labs and Accelerator Programs will provide a platform for innovative and flexible testing of new business models.”

Concrete challenges for incumbents are already present and are expected to grow in the future. The study outlines the need of insurers to intensify their digitalization efforts and develop corresponding capabilities in-house. Most of all, the study urges insurers to make sure they do not lose their customer relationships. The study concludes, “Although the ‘monopoly’ of underwriting and risk ownership will stay with insurers for the time being, an ongoing inability to develop customer-centric products and services will sooner or later deprive insurers of their most value-adding services.”

The study is available for download on the EY Website.