Insurtech: Alive and Thriving in its Own Way

Although some insurtechs may experience difficulties and even fail, the majority are adjusting to guarantee success.

Contradictory Information

There are distinct reasons for the failure of insurtechs, such as plummeting share prices and unsustainable underwriting ratios of public insurtechs like Root, Lemonade, and Oscar. Private insurtech valuations have likewise dropped with other technology markets around the world. As a result of money issues, many insurance companies had to downsize their workforce significantly. With inflation continuing to be a concern and interest rates rapidly increasing, insurtech players have had no other choice but to collaborate if they want to stay ahead of the game. Due to these circumstances, it’s not surprising that this industry has been deemed fragile by even those in the know.

In 2022, the insurtech industry experienced a substantial decline in investment compared to previous years – dipping by nearly 50%, from $15.8 billion down to an unprecedented low of only $7.98 billion as reported by Gallagher Re’s Q4 analysis. Even more astonishingly, funding for the last quarter was 57% lower than that of Q3: plummeting from its high of $2.35 billion to a shocking low of one billion dollars!

While many insurtech companies remain small, there is a handful that have achieved real success. These firms boast desirable loss ratios, practical unit economics, and rapid growth rates – all hallmarks of sound businesses. By taking an unbiased look at the current landscape it becomes clear that despite different market conditions than ever before, insurtechs continue to find ways to succeed.

Investing versus Impact

It’s an interesting paradox that the progress of insurtech has recently been centered on funding and valuations, with much attention being paid to “unicorns” (companies with a value higher than $1 billion) or even some “decacorn” companies ($10 billion).

As the year 2021 progressed, many investors had become concerned about the lack of revenue and EBITDA from various insurtechs, especially when coupled with exorbitant customer acquisition costs. Realizing that cheap money and over-inflated valuations have led to a bubble in the economy, these apprehensions eventually became reality as they burst into full view. In the past, it was believed that new startups could exponentially grow and make a profit by simply obtaining more capital. Today though, real success for companies in the market relies heavily on revenue, expansion rate, customer reachability, margins, and EBITDA – especially when discussing young insurers.

Battling Through the Insurtech Maze

Making the dialogue around insurtech even more complex is its dual usage to denote two distinct types of firms:

  • Technology-driven start-ups and budding businesses are revolutionizing the insurance industry with innovative solutions.
  • Companies that have exclusively built and launched whole digital ecosystems with new technologies, selling, and servicing insurance are denoted as “pure play” businesses.

Even though the second group has not achieved as much commercial success as its counterpart, many commentators have carelessly grouped them all together under one umbrella term: insurtechs. Shockingly, this categorization includes thousands of players.

It’s essential to understand what is included in the definition of insurtech. Many people think that only digitally native companies make up this sector, but a large percentage consists of providers and facilitators who rely on existing insurance firms for support. This demonstrates how collaboration between traditional insurers and tech solutions is driving major advancements in the industry.

At first glance, the newer digital insurance companies promise to revolutionize the industry; however, it is these more established players who prove themselves to be smarter and faster. Looking back now reveals that many of those involved with insurtech were not truly ‘disruptors’ after all – they spent countless hours perfecting their operations and building robust business models above all else to provide outstanding service for customers.

Despite their high aspirations, it has become apparent that most “full stack” insurtechs have not attained the success level of their founders and investors. Selling insurance profitably is an arduous task they soon discovered. As inflation rises, these companies are typically unequipped to withstand this added strain – technology alone won’t be enough to conquer this obstacle.

Numerous other “insurtechs” have already earned tremendous success or are on the path to achieving it, because of producing profitable solutions and developing an effective marketing strategy for traditional insurance businesses. This procedure itself is incredibly intricate.

Unparalleled Insurtech Triumphs

As the rapidly expanding insurtech industry continues to grow, some of its most lucrative sectors include cyber risk/insurance, distribution, and embedded insurance. Moreover, through specialized telematics-driven connected devices and automated damage estimating capabilities we are now able to conduct virtual claims inspections as well as support digital customer interactions. Furthermore, aerial and geospatial underwriting solutions paired with e-payments for billing can also be used in predictive analytics such as fraud detection or streamlined claim workflow management.

Furthermore, the development of innovative insurtechs is on the rise through their utilization of blockchain technology and virtual/augmented reality.

Uniting Forces, Platforms, and Exchange Opportunities

In the face of a dwindling market, insurtechs are using inventive strategies to gain traction and foster growth. Three key beneficiaries of this shift in the strategy include collaborations, platforms, and insurance technology bazaars.

Insurtechs can maximize their value to customers through the development of personalized platforms, or vendor hubs. These capabilities are not only cost-efficient and quick to deploy but also save time in comparison with building them from scratch internally.

During the last twelve months, insurtechs have taken advantage of the potential collaboration opportunities with marketplaces – a digital platform where insurance companies can access multiple-point solutions and services. By leveraging these marketplace partnerships, they were able to grow their presence in the industry and establish comprehensive offerings.

Remain Attentive to Profitability

The insurtech industry has seen an exponential increase in funding over the past decade. According to Boston Consulting Group’s report, $15 billion of equity investment was allocated from 2012-2019; however, that amount doubled during 2019 alone and is expected to grow even further throughout 2020-2021.

Even though the achievements of insurtechs can no longer be merely calculated by capital received, Venture Capitalists are still some of the most well-informed investors and their judgment holds a great deal of power–especially in this current unstable economy. Therefore, we continue to take heed when they choose to make an investment.

During the first two months of 2023, Digital Insurance’s investigation discovered more than twenty insurtech funding events. These companies and their respective amounts include Ushur ($50M), Wefox ($455M), OpenEyes ($18M), Floodbase ($12M), Flock($38M), EvolutionIQ ($33.1M) Goose ($4 M), Joyn ($17 M) and BOXX ($14.4 Million).

Merger and Acquisition

For InsurTechs in need of funds but unable to secure more capital, mergers, and acquisitions can be a sound approach. Founders and investors may experience reduced ownership as an outcome, yet this ensures that staff stays employed and their concept can reach fruition while still earning from the combined business’ success. Lemonade’s takeover of Metromile is one such narrative illustrating how effective consolidation can truly be.

Plunging into the Future

The insurtech revolution has sparked a wave of innovation and pushed for meaningful change in the insurance industry, prompting major companies to set up venture capital funds to provide these inventive startups with monetary support. This investment is allowing new technologies to be developed that will help offer customers across the globe life-changing solutions.

To remain relevant and competitive in this digital age, insurers have made considerable investments toward modernizing, automating, and digitizing their core processes. This is due to the understanding that they cannot succeed by themselves anymore; instead, these companies are now taking advantage of the potential benefits brought about by teaming up with insurtechs. Nowadays it’s no longer enough to rely solely on legacy technology – businesses must be willing to innovate beyond their own walls if they wish to stay ahead.

We shouldn’t misinterpret the sluggishness of insurers to accept and implement changes as a sign that they’re not interested in transformation. It’s typical for insurance companies to take their time before seeing success from their transformation efforts; however, Insurtechs and the wider industry rely on each other, and this reliance will only become stronger as change management initiatives begin taking off.

As we look to 2023, legacy insurance carriers can capitalize on their available options such as investing in innovative technology and recruiting top talent at a reasonable cost. This will undoubtedly position them ahead of the competition and drive long-term growth.

Insurance companies and investors understand the great worth of tech-enabled startups, particularly insurtechs, due to their contributions to job creation and economic growth. To illustrate this point: recently Silicon Valley Bank obtained a guarantee from the federal government that all depositors—startups included—would not suffer any losses because of certain events. Though this was at first quite concerning for many individuals involved in these businesses, numerous insurtechs have assured customers and shareholders that ultimately no damage will be done to it.

Although some insurtechs may struggle or even fail in this challenging environment, the majority are successfully weathering the current climate and preparing for a thrilling next step of development. Even amidst these trying times, the movement is still thriving and rapidly transforming.

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