InsurTech startup boom fading but far from going bust

Few expect an InsurTech investment bust anytime soon.

Until recently, InsurTech investment was often motivated by a “fear factor” — concern among insurers and general financiers about missing out on future unicorns. Now, investors and carriers appear to be getting more savvy and demanding about where they place their bets. (Image provided by Deloitte)

The InsurTech startup boom may finally be fading after a pioneering decade in which nearly 1,200 new entities were launched, backed by over $18 billion in venture capital. Yet few expect an InsurTech investment bust anytime soon, with valuations for the survivors likely to keep rising thanks to the law of supply and demand and the increasingly symbiotic relationship developing among InsurTechs and incumbent carriers.

The annual InsureTech Connect (ITC) conference is often considered a good barometer for the state of this vibrant, eclectic, yet maturing, community of non-insurance innovators, venture capitalists, and established insurers. While attendees may have rarely heard a discouraging word during the first three ITC gatherings (which saw attendance soar from 1,500 to over 7,000), this year the tenor, although still bullish, was tempered by the fact that launches have been reduced to a trickle over the past two years.

There were more circumspect sessions on the program for a change, such as one dealing with the “InsurTech hangover” experienced by some disappointed investors. With insurers eager to innovate but leery of falling victim to the hype, their focus as both investors and end-users appears to have shifted to InsurTechs showing real progress over those offering intriguing but unproven ideas.

It was encouraging to hear all the talk at ITC about the need for greater collaboration between the old and new guard, with insurers and InsurTechs repeatedly emphasizing the importance of working together to take advantage of one another’s strengths while counteracting their respective weaknesses.

This echoed what we heard when speaking with a wide variety of insurers, venture capitalists, accelerators, and rating agencies for Deloitte’s recent research report, “Accelerating Insurance Innovation in the Age of InsurTech.” A key message from that report resonated throughout the ITC conference, urging insurers to “start dealing with InsurTechs more as co-developers and partners, rather than as just another vendor with a point solution.”

ITC speakers repeatedly noted that symbiosis has become the consensus approach across most of the industry.  InsurTechs looking to compensate for their limited financial resources and lack of insurance-specific expertise are more likely to become strategic partners with incumbents, which are drawn to the more entrepreneurial and experimental culture of InsurTechs that fosters bolder innovation.

By working together, they seek to speed up their respective learning curves and shorten development and implementation time. Meanwhile, more insurers are looking to tag team with multiple InsurTechs, mixing and matching capabilities and solutions as needed to resolve systemic challenges in distribution, underwriting, and claims that no one InsurTech can address.

The impact of supply and demand

Until recently, InsurTech investment was often motivated by a “fear factor” — concern among insurers and general financiers about missing out on future unicorns. Now, investors and carriers appear to be getting more savvy and demanding about where they place their bets. Among the investment trends cited at the conference:

My overall impression from the ITC conference is that investment opportunities still abound, boosted in part by the increasingly symbiotic relationship between many insurers and InsurTechs.  However, that doesn’t mean it’s going to be smooth sailing from here on out. I also heard that too many insurers still expect InsurTechs to drive innovation efforts single-handedly, which was likened by one startup to “ants trying to steer elephants” and getting crushed underfoot.

To avoid such a fate, insurers should not only incorporate specific InsurTech solutions, as they would with a more traditional vendor. Instead, they should be open to learning how startups maintain their ambitious drive, keep challenging the status quo, imagine new ways of doing business, and commit to making industry transformation a reality. Reinventing themselves to become more like the bold, entrepreneurial, risk-taking InsurTech community could be the insurance industry’s biggest innovation challenge.

For more information, download our full report on “Accelerating insurance innovation in the age of InsurTech.” You may also listen to our archived webcast on the subject.

Former National Underwriter Editor-in-Chief Sam J. Friedman (samfriedman@deloitte.com) is now insurance research leader with Deloitte’s Center for Financial Services in New York. This column is published with consent from Deloitte. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. Visit www.deloitte.com/about to learn more about Deloitte’s global network of member firms.

These opinions are the author’s own.

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