More than $1.3bn (£1bn) was invested in insurance technology firms in the third quarter of this year, double the amount recorded in the previous three months.
That is according to a new briefing from Willis Towers Watson (WLTW), which shows that, while individual investment rounds were larger, the number of deals fell 20% to 57.
The third quarter saw eight transactions worth over $40m, up from six, with continued active participation from reinsurers.
It was also found that InsurTechs are deploying parametric structures, which unlike indemnity-based insurance, pay out a predefined sum based on a trigger chosen as a proxy for a loss.
WLTW said parametric products align the interests of insurers and insureds in a way that traditional indemnity covers do not by removing incentives to manage down or inflate claims.
“The impact of parametric insurance can be much more profound than simply lowering frictional costs and mitigating the potential for fraud,” WLTW Securities CEO, Rafal Walkiewicz, said.
“The use of parametric insurance encourages conversation around risk mitigation. The simplicity facilitates a decoupling of functions of the value chain and allows for modularisation.”
WLTW found that some InsurTechs have acknowledged these benefits and combined technology and information within parametric or event-based structures to address existing inefficiencies.
They use a combination of third party and proprietary data, advanced sensors, and the capabilities of the Internet of Things to develop a new paradigm of insurance offerings for the connected world.
The briefing looks in detail at several examples, including companies using parametric structures to cover the risks of earthquakes, travel disruption, flash flooding, and horticulture.
WLTW senior economist, Dr Magdalena Ramada, said: “When automated correctly, besides being increasingly economical to deploy, parametric products are an important tool to access underserved segments and bridge coverage gaps.
“Their underlying policy structure and digital nature fundamentally reduce the complexity and frictional costs of traditional insurance, allowing for the simplicity, scalability and flexibility needed to cater to most of these markets.”
The value of global blockchain transactions is set to reach an unprecedented $3.4trn by 2023 as financial institutions increasingly look to the technology to improve their bottom lines.
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