Andre Symes from Genasys Technologies can see some worrying parallels between the current Klondike gold rush of investment that is piling into the insurtech sector, and the dotcom bubble of the late 1990s/early 2000s.
Recently on-demand insurance specialist Trov announced that it would be closing its UK operations in October 2019. A few months back Kinsu, an app-based insurtech targeting millennials, and hotly tipped as a rising star by many in the UK insurance sector, closed down.
So, just a blip, or are things about to go pop? Andre looks over the insurtech landscape.
For those of you who were still at school, playing games like Sonic the Hedgehog in the late 1990s, let me explain in a few sentences what went wrong. Ordinarily sane business people, bankers, pension fund managers and more, all started to throw money at almost any company that had .com at the end of its name. Investing in a web-based company became an all-consuming fever, a sort of mania – nobody with money could resist.
20 years ago, Google had only just got going and the relatively few people who had internet access had to use various search engines, or click links on web directories – yeah, that’s right, exactly like a Yellow Pages phone directory – to find out things, or buy stuff. It took about ten minutes to load a web page that had some nice images on it, and another hour to actually exchange several emails and buy something online – which usually involved said customer picking up a phone and placing an order with a real human.
Yet for all its faults, people could see the potential of the internet and that was why billions of pounds were loaned to almost any plausible company, who promised to revolutionise the selling of anything, from cars to tin toys, red wine to cheesy biscuits. People even paid thousands just for domain names, because they believed that simply owning the website name cheapcarinsurance.com was the passport to everlasting revenue.
But as we hit the 21st century and entered the 2000s it soon became obvious that not every internet retailing idea was a guaranteed winner. Companies like Worldcom, Boo.com, Excite, Lycos, Geocities, Freeserve or Clickmango.com all hit the buffers in one way or another – it was a harsh reality check for many investors, who lost just about everything they put into some website dreams.
INSURTECH WILL ALSO HAVE ITS WINNERS AND LOSERS
They say history repeats itself and if you look at the insurtech landscape right now, you see the classic signs of a bubble: Investors are buying into almost any insurtech related idea and cash is flowing in at a ridiculously fast pace. According to Willis Towers Watson some $1.4 billion was invested in Insurtech during the opening THREE MONTHS of 2019. The number of deals announced was up 50% in the UK and 44% in the USA.
That’s a huge spike in investment and it’s interesting that the UK government is also looking to develop a closer partnership with start-up companies in the Insurtech Alliance, helping them reach a global marketplace via trade missions.
But can every new insurtech idea or app become a worldwide winner?
Analysis of the typical insurtech investment reveals that many new companies are effectively acting as go-betweens, linking the old insurance giants, slowed down by their cumbersome ‘oil tanker’ corporate structures, with the newer, much more agile tech start-ups, who are busy enticing new customers online with bright shiny apps, websites, touchy-feely add-ons etc.
So how can all these insurtech companies make a profit in the long run, surely some of them will fail, or perhaps get swallowed up and absorbed into the corporate mincing machine? Yeah, sounds about right to me and a quick look at the history of the dotcom boom shows that while some names, like Amazon and Lastminute.com are still with us, others have vanished into the ether – and all the investment cash with them!
I’m all for insurtech investment of course, because the insurance industry needs to adapt and fine tune its online offer with every year that passes. But let’s put some of these whizz-bang ideas under a microscope before committing millions to developing them, otherwise our industry as a whole will suffer a huge reputational blow if the bubble does go pop big-time.
People will feel conned, and that is bad for any business.
This article was produced in association with Genasys Technologies.
Over to you readers; are we seeing an insurtech bubble which is likely to go pop very soon, or can the current levels of investment be justified as part of the process of sifting the winners from the also-rans? Post a comment below.