Christian Wiens, CEO and Founder of GetSafelooks at the future landscape for insurtechs after the Corona epidemic;
The coronavirus crisis is halting large parts of economic life. Some industries are suffering more, others less from the lockdown. What is the forecast for insurers and insurtechs? Four theses.
1: The coronavirus crisis makes digital insurance the new standard.
Covid-19 has taken a toll on everyone. Everyday life has come to an abrupt halt and the global economy is on the verge of a recession. Yet, with all crises, there comes the potential for innovation. The coronavirus crisis will massively accelerate digital transformation.
What does this mean for insurance companies and insurtechs in the B2C sector? The outbreak of Covid-19 is causing people to think about safety, which is the second most important step in Maslow’s hierarchy of needs. The outbreak has them looking for solutions, and insurance caters to people’s needs for physical and social safety.
Still, growth in insurance might decline in the short term, as consumers don’t necessarily look for a new household insurance policy in a crisis situation. In the medium term, however, we will see a shift from physical sales towards online sales. As long as people need to distance themselves socially, technology will help us stay connected to the world outside. The national lockdown makes people realise that they can buy insurance online – the same way they order goods from Amazon or food with UberEats. There is a realistic possibility that this shift towards digital insurance will last. Why should they change back once they have realised how easy it is to manage all insurance coverage on their smartphones?
2: Small and medium-sized insurers will be the biggest losers of the crisis.
The coronavirus crisis has hit many insurers, brokers and agents unprepared, and it forces them to close the doors of their offices and start working from home. Operations and sales still rely on physical contact and paper-based processes and documents.
But how do you manage to have hundreds or even thousands of employees working remotely, without technical infrastructure? The problems already arise when insurers cannot access customer data from home. Many traditional insurers depend on an architecture that relies on local server landscapes which are immovable.
What’s more, many insurers, agents and brokers neither have the experience nor the mindset to sell insurance online. Insurers and particularly agents and brokers that have not adapted to digital structures will have difficulties, especially the small and medium-sized companies. The crisis will set them back further than before.
3: The coronavirus crisis will fuel the growth of established insurtechs.
While traditional insurance companies have to almost stop operations in times like these, digital insurers are hardly affected. They don’t rely on brokers or agents and they are built on a strong and modern technological infrastructure that allows them to continue their daily business even when all employees work in isolation from home.
Insurtechs have already succeeded in attracting young people as either customers or employees. Millennials prefer solutions that aren’t paper-based, where they can see and change their coverage instantly. However, insurtechs still only have a tiny fraction of the market share.
Over the next ten years, the millennial generation in Europe will buy almost one billion new insurance policies. That’s a huge potential. Now, insurtechs even have the opportunity to change customer behaviour for good. It is up to them to convince older generations of the benefits of digital insurance.
4: The greatest challenge for early-stage insurtechs will be access to capital.
Modernity and innovation alone are not enough to survive the crisis. The effects of the coronavirus pandemic will be felt in the global economy. No startup has experienced anything like this – so the crisis will serve as a stress test for them.
Insurance is a very long-term business model: Customers keep their contracts for many years, often decades. This is why insurance companies and insurtechs might be less susceptible to the economic challenges of the coronavirus crisis.
For underfinanced startups, however, the situation is uncertain because financing is expected to collapse in the coming months. Investors are very cautious right now, particularly CVCs. Financial markets have crashed and public valuations are at an all-time low, and public valuations affect private valuations. Conditions may be stabilising a bit as investors see governments stepping in to create a safety net, but there is still a lot of worry and uncertainty. Some insurtechs may fail because they will not have access to risk capital. This is likely to affect early-stage insurtechs in particular.
In time, the situation will improve and people will want to invest again. At that point, VCs will be interested in companies with meaningful traction and tried-and-true models. Scale-ups, i.e. startups that have already proven product/market fit and have strong growth prospects, will then be better positioned to attract investors’ interest.
Conclusion
The coronavirus crisis heralds the decline of the brokerage business as we have known it until now. Insurance companies that have already adapted to new customer expectations will continue the path of digitisation. Their greatest challenge is not so much a technological change, but rather a change in mentality. They need a cultural change. Insurers and particularly agents and brokers that have not adapted to digital structures will face existential difficulties. The coronavirus pandemic will test their business models, and some of them will fail or be bought by larger insurers. For insurtechs, the crisis serves as an opportunity to outpace their more analog competitors. In a few years, we will no longer be talking about insurtechs and traditional insurers, but only about technology-driven insurance companies. Those who sleep through this wake-up call will fail.
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