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InsurTech Connect Recap
Maturing InsurTechs bolstered by symbiotic relationship with insurers
The InsurTech startup boom may finally be fading after a giddy decade in which nearly 1,200 new entities were launched, backed by over $18 billion in venture capital.¹ Yet few expect an InsurTech bust anytime soon, with valuations likely to keep rising thanks to the law of supply and demand and the increasingly symbiotic relationship developing among InsurTechs and incumbent carriers.
The InsurTech startup boom may finally be fading after a giddy decade in which nearly 1,200 new entities were launched, backed by over $18 billion in venture capital.2 Yet few expect an InsurTech bust anytime soon, with valuations likely to keep rising thanks to the law of supply and demand and the increasingly symbiotic relationship developing among InsurTechs and incumbent carriers.
InsurTech Connect 2019
The annual InsurTech 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 more than 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.3
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 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 the research report Deloitte released at the ITC: “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.”4
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 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.
Supply and demand likely to drive valuations higher
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, with strategic plays likely to reshape the InsurTech landscape. Among the investment trends cited at the conference:
- The number of InsurTechs being launched may have dwindled, but strategic exits remain few and far between while capital continues to pour in at record levels. Valuations are therefore likely to keep being pushed higher at the first sign of traction and monetization among the survivors.
- Adding fuel to the fire is that insurers that passed on early seed rounds for a variety of reasons may try to catch up by seizing later-stage funding opportunities now that InsurTech capabilities are becoming more tangible.
- More carriers are expected to acquire InsurTechs outright—both to assimilate their technological expertise and entrepreneurial culture and to prevent innovative products and solutions from bolstering legacy competitors.
- Consolidation is expected to increase within the InsurTech sector, as startups with similar or complementary offerings look to combine forces, eliminate duplication, and offer a stronger value proposition.
- Some InsurTechs with more proven track records could decide to go public, rather than keep going back to the well for more venture capital or take their chances accepting a takeover offer from an insurer. That would allow InsurTechs with this mindset to capitalize on the growing demand for innovative solutions while maintaining their creative and cultural independence.
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, challenge 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.
1. Venture Scanner data through first three quarters of 2019, analyzed by the Deloitte Center for Financial Services.
2. Venture Scanner data through first three quarters of 2019, analyzed by the Deloitte Center for Financial Services.
4. Sam Friedman, Malika Gandhi, and Mark Purowitz, “Accelerating insurance innovation in the age of InsurTech: Insurers of the future will need to evolve and transform,” Deloitte Center for Financial Services, September 24, 2019.
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.