Mayhem. Flo. The Gecko.

This is the latest batch of characters we see on car insurance commercials to make one of the most annoying processes we have to deal with somewhat comical.

The last time I bought car insurance, I went through at least seven or eight websites. And then sat on hold for hours. I could probably find better prices on insurance by looking around, but I think I’ll pass. I don’t want to deal with the hassle yet again.

The point of this article isn’t to rant about car insurance, though.

I’m actually interested in a new investment opportunity that could have a major impact on how we deal with insurance in the near future.

Insurance Made Easy

All great things come from making something more easy and convenient. With insurance, there’s a lot of room for improvement.

For example, just 15 to 20 years ago, small-business owners would have to set up an appointment with an insurance agent to see if there was a plan that would fit their business. Too often, they’d have to sign up for something that didn’t fit their business, and pay too much.

New innovation is changing the game.

They can  now create a custom plan online in about 20 minutes. No more time wasted in scheduling, meetings and looking over dozens of plans with an insurance agent.

The innovation is also making a huge impact on the health care industry. In addition to flexible plans that fit any lifestyle, you get free, 24/7 consultation over the phone with nurses and doctors, an easy-to-use app, and a rewards program based on the amount you walk each day.

This incredible innovation is called insurtech.

New Ways to Save Money

Insurtech is already making a huge impact on the auto industry.

On websites like CoverHound, you can put in your information, and it will instantly give you your cheapest plan options from over 50 different car insurance companies. It tells you options for different levels, too: basic, premium, deluxe, etc.

Another website that’s a little different is Accuscore. The branch of auto insurtech that it represents is called telematics, which actually uses Internet of Things technology.

With telematics, you put a device in your car that monitors your driving, and can sense things like distracted or aggressive behavior. It records an overall score for your driving, and that information gets sent to your insurance provider. If you get a good score, your policy will be adjusted down, and you’ll save money.

Another auto insurtech company taking the industry by storm is Metromile. Its style of business is called “pay per mile” insurance, and it’s exactly what it sounds like.

This is a very useful type of insurance for the millions of people who live in or around cities that don’t have long commutes or many frequent driving needs. And Metromile was actually the fastest-growing insurance company in the United States last year, increasing its amount of premiums written by 1,061%.

A Huge Growth Phase

You can tell that big insurance companies and private investors are taking note of this growing industry.

In fact, from 2011 to 2017, the number of funding deals received by insurtech companies skyrocketed from 51 to 240; that’s an increase of over 370%.

For example, in 2016, health care insurtech Oscar received $165 million in funding from Google and Founders Fund, and the company is now valued at an enormous $3.2 billion.

That’s a serious amount of money. In fact, if Oscar was publicly traded with that valuation, it would be the 10th largest health care insurance stock in the United States.

That’s even more impressive when you consider that Oscar hasn’t even been around for six years yet. (It was founded in November 2012.)

The chart below shows the increased interest, specifically by big insurance companies, to buy these small insurtech companies while they’re still cheap.

Buying Insurance

Growth in the number of acquisitions means that a market is in a huge growth phase, and one that will pay off for investors.

Big companies are very frugal when it comes to acquisitions, so for the number to jump so high in 2017 means that they see a lot of value in this industry, and they want to have those companies on their side rather than competing against them.

How to Profit

Because this is such a new technology with almost no publicly traded stocks, there isn’t a way to invest directly in these companies. However, there are still a couple options to take advantage of related themes.

One is by buying the SPDR S&P Insurance ETF (NYSE: KIE). This exchange-traded fund (ETF) holds the largest insurance companies in the United States, and those are the companies that are buying up these startups.

The idea with this investment is that these businesses will be enhanced when their acquisitions continue, and they can reap the benefits of their underlying technology.

Another possible idea to invest in the underlying idea of insurtech is by investing in fintech, or financial technology, which includes more than just insurance.

Fintech is the overlying theme of making people’s financial lives easier to manage, from things like payments, banking, taxes and, in this case, insurance. The fund that covers this area is called the Global X FinTech ETF (Nasdaq: FINX).

Either one of these ETFs has direct exposure to the revolutionary technology that these insurtech companies have to offer.


Ian Dyer

Internal Analyst, Banyan Hill Publishing

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