Monday, March 13, 2023

The Development of Insurtech

In attending a recent Insurtech conference, it was interesting to note the changing nature of the attendees. When the Insurtech conferences started up seven to eight years ago, many companies attending were either insurers or start up Insurtech looking to provide differentiation in the insurance products to customers. In the most recent conference, this was dominated by technology companies producing more effective systems and efficiencies within processes for insurers. The question is what has led to this changing role for the Insurtech industry and where can they develop into the future?

What happened to the Customer facing Insurtech?

Some, such as Lemonade and Many Pets, have become mainstream moving to a stage in their development where they are either insurers in their own right or looking to develop into one in the near future. Other niche specialist players have been bought up by existing insurers to develop into their existing portfolios and some are continuing in the MGA space looking to grow their business vertically with differing insurance offerings or geographically by expanding into new territories. However, for new start up’s the problem of getting into the insurance space is harder than ever. Four of the key reasons are as follows:

  1. Increased regulation – increasing regulation such as General Insurance Pricing Practices in the UK has reduced insurers appetite to bring on new capacity because of the increased reporting and oversight requirements. Several start-ups are struggling to find capacity as existing insurers rethink their willingness to take on additional capacity because of the monitoring and oversight burden that comes with this.
  2. Insurance companies are building out flexibility in house. With the need to respond to customer demands pushed sharply into focus by Covid, insurers have adapted pragmatically in ensuring that their digital offerings are far better and more customer focused. The technology gap that once was filled by new Insurtech offerings in the value chain are now either being developed in-house by insurers or by them pairing with technology companies who have also seen the opportunities that the field offers.
  3. The more rewarding opportunities have perhaps been taken up. The quick wins have disappeared, with either insurers responding to areas where Insurtech have expanded into by sharpening up their offerings and/or the areas that could be considered already been impacted by new Insurtech firms. This has meant that any new opportunities have tended to be either more complex insurances or much more niche markets. The ability for Insurtech to get relatively quick positive rewards from the insurance arena is no longer clear which also has an impact on their ability to attract investors (although in some areas, as below, Insurtech remains attractive as an investment opportunity).
  4. With the impact of Covid, Insurance companies have reconsidered their strategies towards growth. Internal realignments and mergers over the last two years have meant that some of the companies that were looking at the Insurtech space as a means of growth and development are no longer interested in supporting start up operations. There are still insurance companies willing to take up opportunities, but it may be said that insurance companies are now a lot more risk adverse when considering new ventures.

Where is the next wave?

It isn’t all bad news. There are still opportunities that are available for Insurtech to take advantage of:

  1. Embedded insurance – the rising use of embedded insurance selling insurance products as an add on to existing products is clearly gathering momentum. Insurtech flexibility in being able to link to other technology and build out offerings on the back of non-insurance products allows for opportunities. Effective understanding of the value chain and how Insurtech can add opportunities especially to existing (non-insurance) digital products can be seen by insurers as adding real value.
  2. Whilst some of the traditional market no longer may provide value, Insurtech firms have expanded into other insurance markets and non-traditional insurance fields in order to find additional customer bases. Insurtech firms in China raised $673.7 million in 2021 and $1.42 billion in 2020 and Insurtech companies in India raised $1.33 billion in 2021. Insurtech are at the forefront of looking into products using parametric triggers developing new data sets taking advantage of sophisticated analytics to allow new insurance opportunities. These new fields could consider not only weather events, but also system outages and other wide-ranging catastrophes.
  3. Active partnerships with existing insurers. Historically, Insurtech firms were looking for revolution in the insurance field by changing the dynamics in consumer insurance. What is now being considered is more of an evolutionary approach; working with the insurance companies to enhance their value chains to provide better customer service and outcomes. Insurtech look at ways to allow customers more control over their choices both at a purchasing and claims stage, which allows insurers to better use their internal resources to focus on customers that may need more support. The win-win scenario is driving these Insurtech firms who have a greater understanding of the needs of insurers than perhaps was there in the past.

Therefore, the days in traditional markets of a new Insurtech launching and in a few years becoming an established market player may be gone, but the importance Insurtech firms add to the evolution of the insurance field is vital. Allowing the development of opportunities both in new fields of insurance and adding value to customers in traditional fields. Insurtech firms, themselves, have undergone substantial change in the last few years from (potentially) aggressive new insurgents to partners for existing firms allowing growth and development. Where the next few years will lead, no one can tell but it is more than likely Insurtech firms will be leading the way in innovation and design of both new insurance products and changes in the value chain to benefit customers and insurers alike.