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Who’s afraid of InsurTech: An overview of the industry

  • $2.6b invested in insurtech during 2015
  • 70% of startups in space don't threaten incumbents
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Who’s afraid of InsurTech: An overview of the industry

Q1’16 topped the record for seed and A investments in InsurTech startups by VCs. Investment in insurance tech startups rose from $800m in 2014 to more than $2.6b in 2015, according to the Financial Times.  

With the hype, some pundits are trying to ring the alarm bells, claiming incumbents are threatened by agile newcomers. According to a recent report by PwC, nine in ten insurers fear losing part of their business to technology companies.

Are those fears substantial? Though we might be drawn to the David vs. Goliath narrative, or enticed by the prospect of big corporations facing “death by a thousand papercuts,” neither metaphor is accurate.

CB Insights insuretech ecosystem

Power not shifting anytime soon

Using data from CB Insights, we classified the leading insurtech companies according to their attitude towards current incumbents.

Out of 124 companies, 31.5 percent have positioned themselves as partners to incumbent players. Analyze Re, which provides real-time analytics technology meant to improve pricing and planning of reinsurance contracts, is an example of a partner-friendly insurtech startup

40.3 percent of top insurtech upstarts are considered reformers. Reformers don’t aim to replace the current market participants, but they do provide an analytical and comparison layer for customers to find the right insurance products at the best terms. That being said, reformers do have an effect on margins, as they add transparency and ease-of-use to the ecosystem. PolicyGenius, which offers customers advice, quotes and comparison, and easy online applications for various kinds of insurance is a good example of this category.  

Only 28.2 percent of companies in the dataset are challengers, actively taking on the status quo. This category includes new digital native insurers like Oscar Health.

That means over 70 percent of insurtech startups don’t directly threaten incumbents, giving current leaders in the space plenty of time to develop their own responses to demand for new technologies.

Incumbent-lead innovation

Incumbents aren’t content taking a back seat in the innovation process, though. Many of the world’s largest insurers, including Aviva, Axa, Allianz, AIG, MetLife and XL Catlin have established their own in-house venture capital funds. Startup deal making by insurance firms is on pace for a record high in 2016, according to CB Insights data.

Many insurers have also opened their own incubators and innovation programs to keep pace with the startups. Insurance giant Allianz has a digital accelerator program to tackle the group’s digital challenges. AXA opened up AXA Labs in 2013, and has invested 950 million euros in digital technology since, according to Bloomberg Intelligence.

Even with the investments in innovation, legacy insurers should focus on retaining, servicing, and growing their customer bases. According to a 2015 survey conducted by IBM, only 43 percent of customers trust the insurance industry. To counter this perception, insurers must improve their image to build trust with today’s consumers.

In recent years, technological and social trends are changing the needs of customers and the way insurance companies operate. The rise of the sharing economy, for example, gave birth to pay-as-you-go policies. The consumer’s demand for mobility and transparency puts an emphasis on multi-platform digital experiences for managing policies.

On the operational side, connected devices in homes, cars and on consumers themselves allow insurers to collect and analyze far more data than was ever possible. This, in turn, could allow them to personalize coverage, better tailoring policies to the consumer, while also reducing their underwriting risk.  

“Added together, these digital trends offer insurance companies an opportunity to stretch their businesses beyond the boundaries of traditional insurance,“ states Accenture’s Technology Vision for Insurance 2016 report.

The plethora of technological trends will change the way the insurance industry operates and services its customers. The degree to which insurers react to or embrace these changes can be the key to their success.

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