Ways Insurtech Can Catalyze The Next Boom Wave

The insurance sector is being substantially reshaped by technological innovation. Emerging technologies such as telemetry, intelligent systems, advanced analytics, and automation have altered almost every part of the value chain of insurance and continue to provide new and enhanced omnichannel consumer experiences. Insurtechs are driving this transition, and investors are taking notice. Venture capital (VC) investment has expanded faster than private equity (PE) or public markets funding. The entire amount of VC invested in insurtechs in 2021 alone will exceed $11 billion, more than double the amount spent in 2020. Furthermore, private-equity investors aim to participate earlier, boosting the amount of cash moving into the market.

It has placed a mounting burden on insurtechs to grow swiftly. While some insurtechs may opt to combine with incumbents, others would focus on expanding independently. The road to accelerated growth varies depending on the sort of insurance player. This piece focuses on two types of familiar actors: rising carriers and distributors and ecosystem companies.

New carriers and aggregators

Growing carriers and distributors are B2C firms with digital-native branding that aim to change the way insurance is purchased and priced. However, to expand effectively, they must first create a route to profitability, establish an accurate investor tale, and renew their strategy to extend the development trajectory and confront incumbents.

Steering Profitability:

The most difficult challenge for insurtechs once they have raised funding and recruited clients is navigating the route to profitability. Insurtechs at this stage, in our experience, frequently struggle to scale their preliminary unit economic principles. However, after insurtechs have developed distinctive processes and technologies in their core industries, many effectively pursue profitable development by tapping into other revenue generation prospects. Life insurance, for example, decided to market its software system and transition from an agency to a B2B service platform. With a pricing approach that provided profits of up to 30%, the business penetrated a $1 billion to $2 billion annual rates market.

Insurtechs that exhibit sound economics and a feasible road to profitability will differentiate themselves from the pack when financiers are less eager to make pure expansion bets (compared to previous years).

Improve the investment narrative:

Insurtechs have failed to perform effectively in public markets. Insurtech stock prices are fallen nearly 75% since January 2021. Investors are frequently unclear whether to evaluate these developing insurtechs as insurers or tech firms, and the time required to attain profitability might be concerning. When share price levels and initial growth expectations fall, there is a clear need to update the investing story—and back it up with factual data. Leading with a clear and engaging investor story becomes even more crucial for insurtechs headquartered in Europe, where there is less IPO activity than in North America.

This entails creating an initial idea, collecting data-driven proof from financial results and operations, and teaching management to convey the story to shareholders properly. When done correctly, this approach may assist an insurtech in acquiring clarity and coherence on its strategic route forward while also increasing investor and shareholder trust.

Rethink the strategy:

Following the attainment of scale in their main markets, insurtechs will inevitably turn their attention to new and appealing categories and locations that potentially unleash next-horizon growth prospects. This is the moment for a thorough strategy refresh, necessitating analytical rigor and outsider viewpoints. The purpose is to develop a road map for an aggressive development trajectory and identify a clear set of enablers and strategic M&A prospects to meet these growth ambitions. According to our observations, the most successful insurtechs have properly delineated the playing ground on which they can succeed and doubled down on certain client subsegments (such as millennials or brokers). Once the strategy is defined, insurtechs may expand the concept to other areas and drive global expansion.

Ecosystem Participants

Ecosystem players are business-to-business utilities that help to improve the insurer ecosystem (for example, by improving claiming process). To accelerate growth, they must streamline their go-to-market (GTM) strategy, enhance the effectiveness of their engineering and advisory services units, and look for possibilities in adjacent areas. As huge insurance companies began establishing their utilities, the need to grow swiftly became more pressing in a winner-take-all market.

A well-thought-out GTM approach may open up enormous potential for ecosystem participants, particularly in a crowded market where insurtechs compete for carriers’ attention. For instance, a claims insurtech obtained significant financing while under pressure to speed growth. As a result, the firm established a new sales and account structure, reset its pricing approach, and updated its product road map after identifying more use cases for its products and evaluating the value at stake. Consequently, the insurtech developed a thorough GTM strategy to increase profits and market share, as well as a road plan to capture a $45 billion market for its main product.

A well-functioning engineering and professional services division is critical to scaling and sustaining a favorable customer reputation. As ecosystem companies expand, many discover that the increased number of client projects can cause delays and escalating costs, especially if the product includes a significant service component. This was the situation for a multinational software vendor for insurance and investing. By comparing the size and expense of its in-house professional services organization to those of its counterparts, the insurtech found a 25% savings potential on the delivery cost base and drew out a clear implementation roadmap with more than 20 levers that can help realize the savings within three years.

With many ecosystem providers fighting for a place in the insurtech industry, it is vital for companies to go beyond their core competencies and drive development in adjacent markets—both organically and through innovative M&A possibilities. For example, a top claims insurtech began by interviewing clients to discover their present pain points and potential chances for improvement, then defining a potential market for adjacencies and prioritizing the most appealing subsegments. During the process, the firm not only identified a possible competitive challenge to its core position but also broadened its reach through an add-on purchase to allow for future development. In addition, in the face of increasing challenges and capital restrictions, B2B utilities can gain a significant advantage by pooling technological assets through M&A and utilizing a professional GTM engine.

Bottom-line

In an increasingly divided competitive landscape, the next several years will define the insurtech winners—both among rising carriers and distributors and the next generations of ecosystem suppliers. Those with a clear route to scale will be in a good position to become leaders in the industry and drive profitable expansion.