The State of Insurtech

Haytham Elhawary, Founder and CEO of Kinetic Insurance

Our new Leadership Q&A series talks with the leaders of Kinetic, and sheds light on their specific areas of expertise. This edition features Chief Executive Officer Haytham Elhawary. 

We sat down with Haytham to talk about the state of insurtech as we complete the final quarter of 2022. He dives into how the industry is changing, trends that are gaining traction, how Kinetic fits into the insurtech picture and more. 

Q – How has the insurtech industry changed in the last year?

A – Kinetic Insurance is an MGA, so our business is scrutinized similarly to how a carrier would be looked at versus how a SaaS company might be traditionally analyzed. In this category, the main change we‘ve seen in the last year is a shift from premium growth to loss ratios. 

Kinetic’s technology is focused on injury prevention, so we primarily focus on reducing losses for our policyholders, which has led to industry-leading loss ratios with our customer base. However, we have seen many other similar businesses that were solely focused on distribution and premium growth not fair as well.

Q – How have business models been shaped by previous successes and challenges in the sector?

A- In the past, the new wave of insurtech carriers and MGAs all had a similar model: bypass the traditional broker and agency model by acquiring customers online and aggressively grow premium. This often happened without paying too much attention to expenses, with the mantra being that cheap and abundant cash could fuel growth, and profitability could come later once the insurtech carrier was huge and dominated the market. 

The result was that many companies went public with huge books of premium but very large loss ratios and growing customer acquisition costs. The part of getting to profitability has proven to be a struggle and their large valuations have taken a battering, which has put into question if this model makes sense. 

With cash being no longer easily available, new MGAs and insurtech carriers are returning to using brokers as a sales channel – where customer acquisition costs are more predictable – and are also focusing on profitability at much earlier stages. 

For example, in cyber insurance, insurtechs are offering tools to improve resilience to cyber attacks as part of the policy. Similarly, at Kinetic we’re offering wearable technology that prevents workplace injuries as part of our workers’ compensation offering. 

Q – What big trends are you seeing and how does Kinetic fit into them?

A – Insurtechs that are using proprietary data to gain an advantage in underwriting or using technology to prevent claims, or both, are getting more attention. And the effectiveness of those solutions to really drive down losses is receiving more scrutiny.

For example, our wearable device uses real-time feedback to reduce the number of high-risk movements industrial frontline workers perform on the job that can lead to injury, while also collecting valuable data about risk. So it’s both preventing injuries and claims, and improving our underwriting accuracy and efficiency.

Another area of development is the use of technology to improve every process in the insurance workflow. We are seeing a lot of tech being used to automate aspects of the underwriting process, to enable the inclusion of third-party data sets into the underwriting process, API first policy administration systems, the streamlining of claims management, and even to access capacity from different capital sources than has been the case traditionally. 

We are also seeing embedded insurance, which essentially means including the acquisition of insurance into a trusted process that users are already undertaking. For example, the acquisition of car insurance within the buying process of a new car. Ideally, insurance is getting embedded into a process the customer trusts more, and hence the insurance recommendation would carry more weight.

Q – How are insurtechs balancing growth and profitability goals? 

A – Growth proves the market wants your product, while a focus on loss ratios means your unit economics can yield profitability. So we have to focus on both.

The unit economics of MGAs and insurtech carriers are getting scrutinized earlier. Many carriers are partnering with MGAs and including profit share agreements, which means the revenue the MGA takes of each policy can be enhanced if loss ratios are kept low. This structure lends itself well to companies that have an underwriting advantage and can choose the least risky customers, or for those that can really bend the loss curve through loss reduction technology.

Q – As insurtech evolves, what new benefits can policyholders and insurers expect? 

A – The beauty of the prevention mantra – providing technology that reduces claims – is that everyone in the insurance ecosystem benefits. The policyholder sees their claims go down, and therefore is on the path to lower premiums. The workers who get injured less can be more productive and return home safely to enjoy their personal lives. Insurance carriers and their MGA partners see improved profitability and better unit economics. And brokers get to provide an innovative type of policy to their customers, and can even offer value-added services on top of the data the loss control technology provides, becoming a true partner.

Q – What’s on the horizon for Kinetic in the coming year? 

As we enter into our second year of operations, I expect to see a continued focus on prevention with additional class codes and improvements in our wearable technology. We’ll also be expanding the high-risk motions we can alert on.

Stay tuned for the next edition of our Leadership Q&A series, where we’ll chat with our EVP of Growth Gerritt Graham on the role of brokers as risk consultants.