Insurtech investment keeps pace, but not all will survive the pandemic
However, it’s also important to note that although this data points to the sector staying on track to raise potentially the second-highest amount of money in any given year, it was the top 10 insurtechs who have walked away with the majority of the capital spoils, leaving the rest of the community to fight over the leftover one-third of total funds invested.
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Meanwhile, another key trend to highlight is that while there are some insurtechs that are making headway by writing coverage and directly competing with traditional insurers, legacy insurance companies are still dominating the playing field, says one expert.
“I don’t see a behemoth insurtech out there that’s going to essentially end the insurance business as we know it, and take over massive amounts of market share,” said Sam Friedman (pictured), insurance research leader at the Deloitte Center for Financial Services. “Where insurtech is having a huge impact is in helping insurers become better at what they do.”
Insurtechs have helped insurers to become more digital, improve the customer experience, access new sources of alternative data, and get better at advanced analytics and predictive modelling to help with policy administration and claims handling. This in turn has helped with fraud management and augmenting underwriting so that underwriters can focus on more cognitive work, including portfolio management, and working with brokers and clients to set terms and coverage, explained Friedman. Rather than serving as direct competition, the insurtech-insurer relationship has become a much more symbiotic one, he added.
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Nonetheless, there has been a ripple-effect from the pandemic on this relationship, in that “it’s forced insurers to prioritize who they’re going after now and who they need to work with, which is anybody that can help them accelerate digitization,” said Friedman. “There may be some areas where they’re going to decide, ‘I’m not going to work on that this year, or maybe for another 18 months. I [instead] need help to get my claims adjusters virtual so that they can look at a damaged property, whether it’s through a drone or the policyholder’s camera phone.’”
As a result, there’s more emphasis being placed on insurtechs that are ready to go to market, and have products that have been proven and can be scaled, in order to help insurers get through the transition prompted by COVID-19.
Moreover, according to the Deloitte expert, “You could see more merger and acquisition activity in insurtech, both among insurtechs, because what you’re seeing is there’s a lot of duplication of solutions out there that may have to be consolidated, and also, because insurance companies are now looking for holistic solutions, rather than point solutions,” said Friedman.
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While the market for insurtech investment is dynamic right now, there are some insurtechs that may get left on the sidelines because either they’re not far enough along to be of immediate value to the industry, they duplicate what too many of their peers are doing, or their products are not exactly what the industry needs during the pandemic.
“You’re going to have to wait and see, do they have enough money to sustain them for 12 to 18 months when they are not necessarily going to do a lot of business – that’s going to be the interesting thing to watch,” said Friedman.