Barbarians at The Gate: The InsurTech PhenomenonValen Analytics Summit – March 9, 2017Martha Notaras, Partner

“Silicon Valley is coming. There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.”

Jamie Dimon, CEO

3

“If the Insurance Industry does not innovate and become more relevant, we are in danger of being left behind. Soon.”

Michael McGavick, CEO

4

Convergence of insurance and technology driven by entrepreneurs, investors, demographics and computational advances.

InsurTech:

5

Explosion of Activity in Insurance InnovationFour of the Top Ten Global Insurers Have Innovation Centers*

Insurance Innovation

Growth of MGAs ILS (New Ocean, etc.)

Hedge Fund Re’s

Internal InsurTech Innovation

AIAAllianzAllstateAvivaAXA

Liberty Mutual

Innovation LabsGlobal Insurance Accelerator

InsurTech Innovation LabPlug and Play**

Startup Bootcamp NYCStartup Bootcamp London

Insurance Accelerators

Andreessen HorowitzAleph

CanaanDFJIVP

SequoiaNEARibbitRRE

Union Square

Traditional VCs

American Family

AIGAXA

AllianzChubb

Liberty MutualMarkelMarsh

MassMutual

Corporate VCs

*Ranked by Non-Banking Assets**28 Insurance Members

Manulife MetLife

MunichReSwiss Re

State Farm

MunichRe/HSBNorthwestern

MutualSwissRe

TransAmericaXL Innovate

6

InsurTech Funding Hit $1.69B in 2016207 deals; 57% increase in number of deals from 2015

7

Less than 25% of Dollars Invested is for P&CPlenty of Opportunity for Innovation

8

0%

5%

10%

15%

20%

25%

30%

Market Opportunity Set is SubstantialInvestments are Diverse and Expanding

9

“Tech startup dealmaking by insurance firms including AXA, XL Catlin, Mass Mutual, and others is on pace for a record high in 2016. Carriers no longer shying away from insurance tech.” -CB Insights

Increase in Carrier-Backed Insurance StartupsBroad Range of Carriers Investing

10

Hedge Funds Insurance Veterans Entrepreneurs Venture Capitalists Technologists

The Barbarians are at the GateAnd their Numbers are Growing

11

12

Entrepreneurs and Investors

Learning about Insurance

Early Focus on Obvious

Sectors (i.e., Personal

Lines & Distribution)

Incumbents Embracing

Startups

Regulatory Creep

Complex Insurance & Reinsurance

Require Incumbent

Support

Innovation and Digital Transformation StatusWe’re Early in the Process (“InsurTech 1.5”)

13

Selection

Customer Satisfaction

Cost

Automation

Simplicity

Efficiency

AI / ML

Automation

Data

Analytics

Over Capitalization Efficiency

Velocity

Investment

Taxation

Sourcing

Acquisition & Distribution

Operational Costs

Business Intelligence Cost of Capital

Innovation & Digital Transformation OpportunitiesXL Innovate Focuses on These Four Pillars

14

Greatest Opportunity for InsuranceEngage Customers Beyond Purchase, Claims and Renewal

15

Source: Satisfaction Survey — BCG / Morgan Stanley“Insurance Technology Evolution and Revolution

Customer Service Rivals TelcosKey Vulnerability and Opportunity

16

Startups are Already Raising the BarWorld Record Timing for Claims in Three Seconds Flat

17

Digitally Transform Operations with Mobile Faster, Simpler and Transparent

18

Text a photo of license plate for a quote

Get bid from local autobody shops

Uber-inspired app re towing, accident,

and insurance

Automotive Insurance DigitizedInnovative Startups and an Industry Stalwart “Uber-izes”

19

SMB Distribution Reinvigorated Customer Focused with Greater Data and Risk Accuracy

20

Value Add Broker Online Insurance Data Scoring

SMB Experience Reinvented and AcceleratedLeveraging Tech to Improve SMB Coverage

21

New Products for Sharing & Connected EconomyReady to Ingest 26 Billion Devices?

22

Insurance Partnering with IoT CompaniesPersonal Lines….Commercial and Industrial Bigger Markets

23

Telematics for Usage-Based Insurance (UBI)Transparency for Value

24

35% of Consumers Willing to Share Digital DataThe Trend is Well Underway

Percent of Customers Already Sharing Data

Source: Celent

25

32%

35%

38%

41%

Social Location

Connected Home

Exercise

Telematics

IoT Reshaping the Insurance IndustryPotential Impact is Non-Trivial

Reduce risk, claim numbers

and volume

Decrease loss rates dramatically

Monetize risk and partner with OEMs

to reduce risk

Develop and price real-time micro

insurance

26

Partnerships are Incredible CatalystsInsurers, Marketplace Platforms, Mobile Network Operators

On Demand Microinsurance Smart Home

27

Water Leak is the 2nd Largest Cause of Claims$8 Billion in Losses Annually

Source: ISO®, a Verisk Analytics® business

28

58%Kitchen

72%Storage

53%Basement

21%Bedroom

80%Laundry

Home Awareness Beyond ThermostatsSensing Water Presence Throughout the House

29

Insurance + IoT Influences Customer BehaviorCustomers are Active Partners in Prevention

Burst Water Pipe Average Damages: $15,0005% of Sensors Detected a Leak

50% of these leaks were tests50% of these leaks were confirmed leaks

100% of Customers Took Action to Avoid Damage

30

Massive Amounts of Data Captured EverywhereData Deluge Requiring Key Business Intelligence to Process

31

Blockchain, Cyber and Fraud Detection“Fingerprinting” Diamonds, Buyers and Data Itself

Blockchain Fraud Detection Cyber Security

32

Underwriting

Specialized Data Analytics for InsuranceComputer Vision, Machine Learning and AI

Claims Transportation

33

Relationships & Distribution

Knowledge & Resources

Regulatory Interface

First Customer

Capital & Investment

Incumbents are Critical PartnersStartups Recognizing the Strategic Advantages

34

Incumbents difficult to displace

Incumbents may absorb

startups

Regulatory barriers are

high

Incumbents can

innovate, too

Ultimately startups become

insurance companies

The Barbarians Don’t Have to WinParallel Strategies & Collaboration vs. Outright Disruption?

35

Start Swimming with the Big GuysLots of Opportunity - InsurTech Hasn’t Hit Commercial Yet

Develop/offer new products leveraging data and analytics Identify risks from new tech (drone, autonomous vehicles, etc.) Drive IoT strategies for personalized pricing & risk management

incentives Pursue digital distribution to cut costs Deepen client engagement beyond renewals and claims Launch pilot projects with startups

36

Questions?@MarthaNotaras

Hiked the 67 Mile Backbone Trail in the Santa Monica Mountains