Finding the source of a cost leakage requires a forensic approach. Despite growing geographic and value-chain diversity, insurtech investment is still dominated by startups targeting the American health insurance sector. Why?

The world of insurtechs is a burgeoning and exciting place right now. Insurance startups are experimenting with cutting-edge digital tools to improve the customer experience, back-end operations, and all points in between. They attract more and more investment each year—last year’s total reached $4.4 billion, the most ever. The insurtech space is also becoming more geographically diverse each year, with many insurtechs in Europe and Asia recently attracting major investment.

The reason insurtechs are attracting such growing attention and investment is simple: many of them are at the forefront of the industry, with potentially revolutionary products, services, and operational improvements in development. The industry writ large is well aware of their potential. The latest Accenture Tech Vision for Insurance revealed that 90 percent of insurance leaders agree that the integration of real-time delivery with customization—the bread and butter of many insurtechs—is the next big wave of competitive advantage.

Yet when we look at the biggest insurtech investments, a pattern centered on a specific geographic subset of the health sector quickly emerges. American insurtechs targeting the health sector attract a remarkable amount of investment.

For instance, deals involving US-based health sector insurtechs made up half of the 10 biggest global insurtech investments in 2018. Those five deals add up to $1.15 billion, accounting for 52 percent of the 10 biggest deals of last year.

Why are American health sector insurtechs raising so much more money than other insurance startups? Two factors explain the size of these deals.

The first is that the opportunity for these startups is huge. The global health insurance market is projected to grow from $990 billion in 2017 to $1.2 trillion by 2023, with America driving much of that growth.

The second is that health sector incumbents in the US market are particularly entrenched and resistant to disruption. Putting together a health insurance platform that can compete with them takes a lot of cash.

The first factor draws insurtechs to the American health sector. The second drives them to seek very large investments. Together they account for the remarkable size of many American health sector insurtech investments.

So which insurtechs are attracting this money? Analysis from Accenture Research shows that four American health sector insurtechs were involved in the biggest insurtech investments last year. Let’s look at each of them in turn.

Devoted Health

The price comparison platform Devoted Health was founded in 2017 by serial entrepreneurs Ed and Todd Park. Its target market is older Americans, which could be a sound strategy as the Baby Boomers continue to age. Last year, Devoted raised $300 million in a funding round lead by the famous private equity firm Andreesen Horowitz.

Oscar Health

Oscar Health can make a strong argument that it is one of the hottest insurtechs in America right now—perhaps even the world. Based in New York and launched in 2012, the firm received investments of $165 million and $375 million last year, making it the only startup to appear twice in the 10 biggest insurtech investments of 2018. It has recently been valued at $3.2 billion.

Oscar’s main value proposition is simple: a superior, simpler customer experience built from the ground up with digital tools. So far it has attracted 250,000 customers. Oscar currently offers its two principal products (health coverage for individuals and for businesses) in nine states, including New York, California, Texas, and Florida.

Bright Health

Bright Health is a Minnesota-based health insurance startup that attracted a $200 million investment in a single deal last year. Bright Health’s leaders include CEO Bob Sheehy, a previous CEO of health insurance incumbent UnitedHealthcare.

The insurtech uses a “under one roof” model that sees it partner exclusively with one health system in each market in which it operates. Those markets, as of mid-2019, comprised six US states, including New York. Bright Health claims that this care model produces superior outcomes for customers and lower healthcare costs overall.

Collective Health

Collective Health raised $110 million in a single deal last year, nearly doubling its total funds raised, according to Tech Crunch. The strategy of this San Francisco startup could be described as “healthcare as a service.” It provides a platform that allows employers to pick and choose which health products they want for their employees, with the goal of making the overall system more efficient and effective.

Collective Health’s investors include the investment arm of Google parent company Alphabet and incumbent Canadian insurer Sun Life. It covers the health needs of more than 120,000 people, including employees at eBay and SpaceX.

These are four of the leading American insurtechs focused on the health sector, but they are far from the only insurance organizations looking to use health-based products to make waves.

The latest Accenture Tech Vision for Insurance survey, which compiled the views of hundreds of senior insurance leaders from around the world, found that just 12 percent of insurers have no intention to enter the health and life insurance markets with new telematics-based products.

The upshot of all this is that health insurance innovation is more active than it’s ever been.

Stay tuned for more coverage of the insurtech space on this blog.

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