Innovation In Insurance

Andreessen Horowitz partner Angela Strange gave a presentation on insurance the other day. I posted the full video above so you could see it. There is no doubt there will be innovation in insurance. We have looked at insurance deals for our fund but haven’t pulled the trigger yet.  We are actively looking for B2B insurance plays.

One of the issues in the insurance business is that there is a maze of regulators and regulation to account for. Health insurance is different than other forms of insurance. The maze of regulation helps big large incumbents and doesn’t lend itself to startups. That’s among one of the reasons that Obamacare totally failed.

Startups are able to innovate on the edges. They can innovate with customer acquisition, or processes. So far, they have been unable to go squarely after the major carriers. We haven’t had a new big carrier start since pre-World War 2. Ironically, that’s when FDR instituted a lot of regulation. FDR regulated large swaths of the economy that are really rubbing us the wrong way today. People forget that the policies he installed were not because of economics, but politics. Read Stanford Professor David Kennedy’s book Freedom From Fear if you’d like to learn more.

Insurance is about hedging and diversifying risk.

Risk is something we understand intimately.  As people from the capital markets, it was a daily part of our lives and we calculated it moment to moment.  At the end of the day, you looked at your position and figured out what the sensitivity was to a large move either direction.  Stress tests before there were stress tests.  The next day, you’d add or subtract risk based on the market and your own personal cash position.

I think that risk and the concept of risk is a big place for innovation in the next wave.  Big data allows us to quantify it better and more completely and artificial intelligence allows us to do it quickly.

The exciting thing in insurance is not necessarily about existing insurance markets.  It’s pretty easy to see that artificial intelligence is going to change the way we underwrite policies.  I think the exciting thing is tapping into new markets that never really had a way to measure and hedge risk.  One example from the presentation is online hacking.  Wouldn’t it be nice to have an insurance product tailored to both consumers and businesses for hacking?

We also blanket calculate risk.  If I fit into some group, I am lumped into whatever the risk factors are for that group.  What if my personal statistics are an outlier for that group and I should get cheaper insurance than normal? The opposite is also true.  Free riders that have higher risks than the group will see their rates rise.

Somewhere, blockchain and crypto might fit into this picture.