Some thoughts from Mark Huxley, Consulting Special Adviser at Altus Consulting, on insurtech; is it too easy to label all kinds of innovative ideas, new concepts, or refining of existing products as “insurtech?”
I’m proud to say that I’ve been active on the frontline of the so-called “insurtech” communities since it was no more than a concept. Originally as a commentator, then co-founding an early entrant, more latterly advising many others and mentoring those operating within them. I’ve also helped many of the incumbent organisations better understand the benefits that these new entrants bring and why the need to be invested in their futures. Invested being both philosophical and financial.
There can be no doubt that the pathway since time has moved the needle considerably and many bits of legacy hard wiring in the sector have been much changed and improved. A few of those in the sector gaining significant inward investment and valuations to match. However, for the rest, given how long the period has been since they came into our collective consciousness I am surprised about how many of these businesses remain at the scaling level.
I’m equally surprised that there still seems to be a general lack of deeper connective tissue between the insurtechs and the incumbent businesses they align with. The incumbents portray an innovation mindset, speak much about the benefits of digitisation and a data-first approach. They are curious about artificial intelligence and how it can support their people’s decision making. The maturity of insurtechs now deliver proven propositions with clear market fit and many of the people inside them come from earlier industry backgrounds, so have the market intelligence to know what makes a difference.
So why is it then that there isn’t more equality in insurtechs vs the incumbents. By its nature the word insurtech has always carried with it a “hype adjective” that portrays rebellion, disruption and a dissatisfaction with the status quo. A drive for those operating within it to feel they need to fix things that are broken. They dress, look and speak differently. Perhaps even having an echo of punk rock about them. More seriously, those within it have true entrepreneurial mindsets, with the abundance of curiosity and natural abilities to be true problem solvers. On the flipside the incumbents are trying their hardest to be the same, and in some cases are doing it well. However, and it’s absolutely not said as a criticism, they are driven by a risk conservative environment, where there is little appetite to take a real chance, where everything needs to be measured by direct return on investment with little research and development appetite.
Put these together and given the fact that the insurtechs absolutely require the incumbents to support them, then one can begin to see where some of the lack of growth comes into play. The relationship will always be over geared towards the incumbent; they have the money, market influence, the scale and the revenue opportunities the insurtechs need. The success, the scaling and the investment attraction for the insurtech is thereby heavily influenced. What chance disruption or true market-changing innovation when every decision comes under traditional conduct risk scrutiny.
There has been much written of late around faltering investment appetites. I paid particular attention to Gallagher Re’s really insightful and detailed Q4 Global InsurTech Report, which looked at the 2022 macro trends. Just picking out some of the headlines it stated that
● Global insurtech investment fell in the fourth quarter of 2022 to its lowest level since the third quarter of 2020
● Investment declined 57% from the third quarter of 2022
● Insurtech funding in property and casualty plummeted 64.4%
● Investments in life and health fell 33.7%
● Average deal size across 106 rounds fell 42.3%
● Total funding for 2022 was down by 49.5% from the prior year
● Insurtechs also attracted less in mega-round funding in 2022 – a year-over-year decline of 66.7%.
● Early-stage funding fell 25.1% quarter over quarter, driven by a 51.3% decline in early-stage P&C funding
These are snapshot quotes in what is a really detailed piece of analysis but I think we can all see the picture here. Encouragingly Gallaghers did report a change in fortunes for Q1 2023. I worry nonetheless about some of the short to medium term trends, should these swings in fortune continue. The effects of sector confidence, appetite to innovate, desire to support in the longer term and the like will undoubtedly all come up for debate.
I wonder therefore whether the time has come to retire the word insurtech and the connotations that it brings, described above. I think there are some certainties here we cannot ignore. The insurance sector is over ripe for much needed innovation, the demands of customers only increase, regulation is demanding more and the stakes in key markets continue to get bigger. The next generation innovators, bringing their capabilities to address them directly and with intellectual agility can and given the opportunity will solve them. We need to equalise the relationship therefore and democratise it much more, definitely not pigeon hole a young entrant to the sector by calling them an insurtech. What they do and how they meet the needs of the whole sector needs to rebalance and much deepen the connective tissue between them.
For those that follow my writing will know I always speak highly of the Lloyd’s Lab. I’ve proudly mentored there since its founding and watching the journey it has been on close at hand, fascinating. With all credit to the work L Marks did, since Lloyd’s took its production in-house so I have seen the relationship it has built between the increasing number of supporting market practitioners and the cohort members really mature. There is genuine equality between the two with a healthy mutual respect, with dare I say it, a true innovators spirit shared equally by all. It really is fast becoming the exemplar of how innovation must work. No wonder it has recently been picking up prestigious industry awards for what it does.
In closing, I for my part, stopped talking about insurtechs some while back. I prefer to talk about the next generation providers. I’d love to think that having read this you may feel the same and that we all reframe our approaches.