Deloitte Consulting recently published a report entitled Insurtech Entering Its Second Wave: Investment focus shifting from new startups to more established innovators, a study that zeroes in on where the space is heading, quickly. Deloitte's Mark Purowitz joins us on the podcast today to discuss what prompted the study and where all the money is heading in insurtech. We look at who's doing the investing and who's receiving the money. Importantly, if we're entering the second wave, it's important to understand the first wave, too. Lastly, we dive into how successful startup-incumbent partnerships work and what Deloitte is advising its insurance clients to do in terms of digital transformation. Subscribe: iTunes I SoundCloud I Spotify The following excerpts were edited for clarity. What prompted this recent study on insurtech? We've been working in this space for the past four or five years. There are an awful amount of lessons learned out there in the way venture capitalists and corporate venture capital funds invest in the space. We've been out talking to clients and it was clear, there wasn't one mechanism that brought it all together: where the money's gone, what have we learned, are things evolving as we move into the next wave of investing and the consumption of insurtech products. What was the first wave of insurtech? The first wave started somewhere between 2013 and 2014. There was a recognized opportunity outside the incumbents to take a look at three areas: how to disrupt profit pools, how can we enhance distribution and customer experience, and what are the ways to optimize core infrastructure digitally? One of the core benefits we've seen in the rise of insurtech is the ability not to be constrained by legacy thinking, legacy operating constructs, operations, and constructs. The first wave was all about breaking down the constraint shackles of the past and the industry looking outside itself for the first time. A significant part of the insurance narrative we no longer own. The industry owns product, pricing, and distribution of the products it produces. There's so much going on outside of the industry in terms of customer experience and the way the interaction model is being reframed by mobile phones, telematics, our changing purchasing behaviors -- they're all having their impact on the industry. It was overweight the consumer. Early investing was basically outsourced R&D for the carriers -- something the industry hadn't done well historically. The first wave's early ideas flew under the banner of testing -- decent to good ideas about pain points in the industry. Given the nature of the size of these pain points, the investment opportunity seems significant. Then what's the second wave of insurtech all about? As the first wave went through its cycle of seed stage to A rounds, we're now starting to see more money invested in later stage rounds in insurtechs that have demonstrated some proof of opportunity. They've gone from POC to MVP and now you have a set of investable assets being deployed toward the latter end of the investment cycle. We see a move from personal lines to commercial lines, too. The lower end of small commercial -- SMBs -- to the lower end of middle market is beginning to look very similar to what we saw happen in personal lines. In the first wave, we saw a lot of money invested in ideas. Business models were forced to evolve, pivoting to different models. In the second wave, we're seeing less money invested in ideas. We're seeing more evidence of proof of concepts turned into products and with some mechanism to engage with incumbents in the market. Has the investor profile changed in the second wave and how's it going? We've seen pockets of funding from original established VCs and private equity firms, along with an evolution in corporate venture capital. I'd put the CVC in the FOMO category -- fear of missing out. There's a general lack of clarity for what you're solving for when you make these types of strategic bets. CVCs and innovation arms live on the margins of what most insurance companies do day-in and day-out. And they lack feedback loops. I was with a CEO recently and I asked him how his CVC and innovation labs were doing. He told me it was great -- we're making good investments and generating new ideas. I asked him how the business units responded to that. He told me that's where good ideas go to die. In many ways, we're waiting to see those returns of investments in insurtech and the impact they can have on the core business.