An increased demand of InsurTech services has continued to attract steady stream of innovative new entrants to the industry, and incumbents have had to keep pace. With so many players fighting for leading positions in the market, the industry is likely to see more partnerships, mergers and acquisitions emerge. What will determine who will win and who will lose in the coming years?
Just nine months into the year, FinTech Global reported that InsurTech funding set an annual record; companies raised $9.1bn across 364 deals.
What’s more, is that the investments largely comprised of deals valued at $100m or more, compared to just ten such transactions recorded in the first three quarters of 2020. This raises the question of whether we will see the number of new entrants into the market start to slow, and instead, a period of growth for the incumbents.
A breeding ground for innovating InsurTechs
The past 18 months have provided ample opportunities for innovating InsurTechs. Molly Black, chief product officer at digital insurance company Life.io, said that whilst many industries struggled through the economic disruption of the global pandemic, InsurTechs thrived.
According to Melanie Hayes, chief marketing officer and co-founder of cyber risk management solution developer KYND, the recent growth of the InsurTech industry is simply down to supply and demand, with InsurTechs responding to a greater need for their services. “Now more than ever, there is an increasing demand for greater efficiency within the insurance sector, with InsurTechs providing not only this efficiency but also the opportunity of attractive returns on investment.”
Many will agree that the pandemic accelerated the pace of digitalisation, the InsurTech industry was no exception. Life.io’s Black said, “Digitalisation initiatives focused on consumer engagement, education, marketing, and sales went from gathering momentum as a future aim of insurers to suddenly being a critical and immediate need.”
InsurTechs were able to respond to the changing demands of the industry that came with the pick-up in pace of digitalisation. KYND’s Hayes said, “As a heavily regulated industry with complex legacy systems and large reliance on historical paper-based assessments (even in sectors such as cyber insurance) innovation is challenging to incorporate internally. Therefore, insurers are turning to InsurTechs to provide the expertise they need and bridge the gaps they face, particularly in areas such as cyber insurance.”
Anthony Grosso, senior vice president of EIS, which is a cloud-native, API-first, digital insurance platform that enables insurers to innovate like a tech company, agreed that the pandemic encouraged an acceleration of digitisation initiatives and thus the growth of InsurTechs.
“Businesses were forced to digitise overnight without proper planning, and that created new gaps in the market. With new technology in hand, insurance start-ups have been able to seize the opportunity to spearhead new product development for areas of insurance where the pandemic exposed protection gaps.”
Will we continue to see new entrants?
KYND’s Hayes, suspects that we will continue to see newcomers in the InsurTech space, alongside a period of growth of the incumbents. “Increased demand of InsurTech services will attract new entrants and whilst some may encounter barriers to entry of established technology and services, others can enter a relatively equal playing field where the increased technical capability and efficiencies will fast track partnerships with insurers. Established incumbents may also see a period of growth as they utilise their learning and experience to innovate further, embed their systems and strengthen partnerships.”
Paul Morgenthaler, InsurTech partner at venture capital company CommerzVentures, agreed, “The InsurTech space has matured considerably over the last few years. However, we are continuing to see new entrants focusing on specific verticals, lines of business and distribution trends such as embedded insurance. There is still a lot of untapped potential to innovate along the value chain.”
However, perhaps attempting to categorise the InsurTech space into such binaries is beside the point, as the industry continues to evolve into an interconnected ecosystem of all players. EIS’s Grosso certainly seems to think so, “Rather than looking at whether there will be a reduction in new InsurTech startups within this ecosystem, we should be looking at how many non-insurance services and products, payment services and home security services will join the party. This has helped evolve the insurance market into one built as an interconnection of all of these players – old and new.”
Nevertheless, it cannot be ignored that there have been new InsurTechs disrupting the insurance space. Edward Halsey, COO and co-founder of tech based commercial insurance broker, hubb, said, “There are undoubtedly lots of new InsurTechs popping up, but there are also many that have disappeared. Those that have survived have demonstrated an ability to identify a sector and stay laser-focused on execution of their strategy.” Indeed, the very fact an InsurTech company is new and enterprising, does not guarantee its survival. Ian McKenna, founder of AdviserSoftware.com and the Financial Technology Research Centre, said, “While there have been winners in this sector other early players, such as moneyeXtra.com, have disappeared.”
InsurTechs are embracing technology
Those InsurTechs that have done well are leveraging modern technology. For example, full-stack homeowners InsurTech Slide said its competitive advantage lies with the use of Big Data. The company closed an oversubscribed $100m Series A funding round in November this year. Slide’s technology leverages an immense dataset to power new advances in artificial intelligence and machine learning for modern homeowners, who can then create bespoke insurance policies that fit their needs and budget.
At the time, Slide CEO Bruce Lucas said that traditional industries are being disrupted by modern technology, but the insurance industry has been slow to adapt. “As an industry insider, I have a deep understanding of where technology can be leveraged to enhance the user experience while maximising profitability, something I rarely hear mentioned in the InsurTech industry. Investors saw the future in my vision and the response was overwhelmingly positive.”
Lucas continued, “Big data is the key to our technological advantage. It is impossible to have credible artificial intelligence and machine learning without it. Not only can we make better underwriting decisions; we can provide more options for the consumer. Modern consumers expect more, even from insurance, and Slide is primed to deliver.”
McKenna, from The Financial Technology Research Centre, said that anything that can transform underwriting processes has huge potential. Incumbents would do well to follow in Slide’s footsteps. “Some incumbents, for example Aviva, have made huge advances through the use of AI and similar technologies, conversely many other insurers have been slow to respond and are potentially putting themselves at an enormous commercial disadvantage in the future,” he said.
What will determine the fate of incumbents?
Life.io’s Black said that incumbents must embrace digitalisation to compete in today’s InsurTech climate. “Carriers that prioritise digital transformation will not only remain competitive but will have opportunities to grow their market share,” he said.
“Product options, the ability to compare offerings, and purchasing have never been easier for consumers. At the same time, the ‘switching costs’ for consumers and consumer loyalty have never been lower. With hundreds of billions of dollars on the table, the industry incumbents need to embrace digital transformation to remain competitive.”
However, matching the digital prowess of neo insurers is a major undertaking, CommerzVentures’ Morgenthaler said. This will require a significant cultural shift, “it’s not enough for incumbents to focus on matching key digital capabilities from InsurTechs, they need to cooperate closely to learn from their culture and mindset too.”
KYND’s Hayes agrees that technology alone will not secure an incumbent’s success. There is no point having the greatest technology if it does not fulfil customers’ basic needs, she said. To stay relevant, any advances incumbents make should be simple and strive to make life easier. “At KYND we have developed cyber risk technology that incorporates highly sophisticated technology, but the output displayed is very simple – forget pages of reports that are difficult to understand unless you’re and IT guru! Instead, it’s easy to use and understand, focuses on the information underwriters, brokers and their client’s actually need but more importantly it genuinely helps them do what they have always done, only faster and better.”
Who will the winners be?
According to hubb’s Halsey, prioritising customer experiences will prove to be key, “The winners will be those who can best mirror customers buying preferences, not just in insurance, but in their everyday lives. They create products and services that the modern buyer wants to consume delivered how they want to consume them.
“You only need to look at the recent research by PWC in which they noted that 86% of buyers will pay more for a product if they have a great customer experience. A study by Walker actually found that customer experience is rapidly overtaking price and product as the key brand differentiator.”
EIS’s Grosso is also of the opinion that seamless customers journeys are paramount. To achieve this, he said, incumbents need technology that is flexible, open, and able to support rapid integrations, which is what InsurTech solution providers and neo insurers offer. Therefore, instead of being concerned by the growth of InsurTechs, incumbents should be excited by their potential, Grosso continued. Rather than fearing disruptive InsurTechs will whittle away at market share, partner with them.
“This partnering helps incumbents transition from being product-centred to being customer-centred. New partnerships have emerged across the industry allowing insurers to embed their product into seamless customer journeys, or embed other insurer products in their customer journey, delivering personalised options to the right people at the right time.”
The industry is seeing such partnerships emerge. US-based Heritage Insurance Holdings, a super-regional property and casualty insurance holding company, entered into a strategic partnership with Slide, a startup InsurTech P&C carrier, to leverage Slide’s InsurTech capabilities to improve underwriting and rating decisions.
Other recent partnerships include artificial intelligence specialist Nuon AI and leading broker policy administration software provider Ignite Systems, reinsurance company Swiss Re and Chinese tech giant Baidu, and financial product innovation company pioneering Social Security protection PlanGap and Insurex.
CommerzVentures’ Morgenthaler said that given the increasing maturity of the InsurTech space, mergers and acquisitions (M&As) will become more important. We are already seeing this trend play out, “with InsurTechs merging with each other, while incumbents start acquiring InsurTechs. Excitingly, we should even start to see well-funded InsurTechs go on to acquire specialised incumbents.”
For example, InsurTech Zywave acquired Califorina-based ClarionDoor, provider of insurance product distribution software to the property and casualty (P&C) market. The ClarionDoor acquisition was the latest in a series of several by Zywave over the last few years. Other M&As include credit rating agency Experian acquiring insurance aggregator Gabi and digital payments business PagueVeloz, and Zurich American Insurance Company (ZAIC) outlined its plans to acquire medical and occupational accident insurance firm Special Insurance Services (SIS) early 2022.
Incumbents cannot afford to be complacent about the rapid growth of their new digital competitors. Several have already captured substantial market share, and have even gone on to eclipse incumbents.
Looking ahead, Morgenthaler said that incumbents cannot afford to be complacent about the rapid growth of their new digital competitors. Only time will tell who emerges a winner or a loser from the next phase of the InsurTech industry’s growth, but, embracing new technologies from pioneering newcomers, whilst providing seamless customer experiences, may go some way to ensuring success.
全文來源：https://fintech.global/2021/12/07/market-consolidation-in-insurtech-who-wins-and-who-loses/
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