September 22, 2020
Reflections on Insurtech, Pandemic
Will the dramatic change to work and life patterns unleash innovative startups and new rounds of funding?
Much has already been written about the implications of the pandemic, the related economic slowdown and the effect on insurance startups. As usual, there is a wide range of opinions. Will insurtech be a casualty of COVID-19? Or will the dramatic change to work and life patterns unleash innovative startups and new rounds of funding?
The answer probably lies somewhere in between. SMA’s perspectives are documented in a recently released research report, The Top 10 Themes for Insurtech 2020: Operating in the Pandemic Era. The first part of this blog will provide some quick observations about the developments of the last few months, but the remainder is more about the future of the startup movement.
Since the pandemic began to take hold and dramatically affect the business environment, there have been some significant shifts. Generally speaking, insurers have been less eager to start exploration and projects with startups. The exceptions are those with solutions that address some of the digital gaps that have been exposed by the work-from-home, restricted-travel environment. The successes include companies that enable self-service in the claims space, digital payments and other areas that reduce the processing of paper documents and the need to meet with customers in person. Projects already underway that have demonstrated ROI are continuing as insurers strive to maintain momentum and reap the value.
On the investor side, more funding has shifted to later-stage deals during this transition. Interestingly, there seem to be just as many launches as ever – there is no shortage of innovative ideas. Full-stack startups, especially, seem to be gaining momentum in terms of capital and expansion into new product and geographic areas.
The bigger question is where insurtech goes in 2021 and beyond. My sense is that insurtech will pick up steam and be a formidable force for industry transformation throughout the decade. Some of the full-stack insurers and the digital distribution firms are already starting to deal with premium volumes that are causing insurers to take notice. As they expand next year, their financial impact will continue to grow toward billions in premium, up from the tens or hundreds of millions today. By the end of the 2020s, we could see some of the startups from the 2010s decade listed among the top 25 insurers in North America.
What about all the startups with tech solutions to address business problems in specific lines or business areas? We expect solutions for underwriting and claims – for both automation and insight – to play significant roles throughout the decade. There are many opportunities in various lines of business to advance digital transformation, thus improving customer experience, operational efficiencies and financial results.
Another area that is already starting to bloom is solutions for the property insurance line. Increasingly rich data sources and new AI/analytics capabilities offer tremendous opportunities to understand exposures at a deeper level and underwrite/price risk. Many opportunities for claims management exist, including those that leverage connected devices.
See also: The Future Isn’t Just for Insurtech
From a technology standpoint, there is still a lot of runway ahead for AI-based solutions. Technologies like machine learning, natural language processing, computer vision, robotic process automation (RPA) and voice recognition/generation are likely to be core elements of many startups into the next decade. AI technologies are transforming many industry sectors and will result in changes to customers, risks and operations for insurers.
Overall, SMA predicts an active, healthy, growing insurtech movement for the decade of the 2020s (barring something like a long-term global depression). There are just too many good ideas and too much money and expertise to be harnessed for capitalizing on the many opportunities for transformation across the P&C industry.