Is the Insurtech Era Over?

Max Drucker says it is. In a provocative talk, he says companies like his eight-year-old Carpe Data are now just vendors to carriers. But is he right? 

insurtech era

Max Drucker, CEO of Carpe Data, said the quiet part out loud about insurtech last week. 

“Insurtech is never going to be exciting again,” he said. “Insurtech is never going to be a thing again like it was before. Companies like Carpe Data are going to be vendors to insurance carriers. Whether we’re providing data, whether we’re providing software, whether we’re providing services, we’re vendors.”

Some numbers back him up. Gallagher Re reported last week that global insurtech funding totaled just $912.3 million in the first quarter, which was down 17% from the fourth quarter and was the lowest total for a quarter in four years. The HSCM Public InsurTech Index has fizzled, down 55% from its peak in early 2021.

Many of the big storylines for insurtech have fizzled, too. Peer-to-peer models never amassed enough capital. Blockchain, while making progress, isn't going as fast as many hoped. The full-stack companies have been a major disappointment thus far. And Big Tech? Those expectations that Amazon, Google, Apple or some other giant would swoop in and redefine insurance as they have other industries? Nope.

So is Drucker right? Should we just fold up our tents, give up on profound innovation in insurance and go home?

That's a nope, too, in my opinion. But we do have to adjust our thinking some.  

I'll concede Drucker's point that lots of innovation, whether from startups or from incumbents, will go toward operational efficiency — what we used to call Better, Faster, Cheaper during the internet boom of the second half of the '90s. 

As he put it, according to an article in Insurance Innovation Reporter: “'We can do all these great, wonderful things for you' is not a sales pitch that carriers want to hear. It comes down to 'How do we cut costs,... how do we really get control of this business?’” Drucker added that incumbents are thinking: “‘The last thing I’m looking to do is really have to really engage in something big again because the last two years have been pretty rough, and so now we’re really just trying to stabilize.’”

In fact, I've said repeatedly that being an "arms supplier"--another term from the first internet boom --to carriers is the most reliable way for a startup to succeed, while trying to supplant them is a high-wire act. 

But it seems odd to give up on insurtechs right as generative AI is creating so many opportunities for innovation. Many of those, at least in the early days, will be of the Better, Faster, Cheaper variety, and many ideas won't pan out, just as happened with the big ideas from 2015-2020. But there sure is a lot of runway ahead for generative AI.

And not all the big ideas from the first wave of insurtech flamed out. The Internet of Things (IoT), in particular, is spreading sensors throughout homes and businesses in ways that enable a switch from the traditional repair-and-replace model for insurance to a Predict & Prevent approach. There's a lot of runway there, too.

Besides, the U.S. economy seems to have managed a soft landing, and recent softening in hiring means the Fed may finally start lowering interest rates in coming months. While rates were so low that money was almost free for years, rising rates in the past two years have greatly increased the cost of money, constraining new investment and leading to the sort of "profitability now!" environment that Drucker says startups are facing. Lower rates should start to loosen the purse strings, at least a bit.

If AI, IoT and falling interest rates aren't enough to convince you of the bright prospects for innovation in insurance, consider the sorts of opportunities Adrian Jones pointed out in a presentation at InsureTech Connect last November. Jones, who was co-head of a $200 million VC fund at the time and is now chief of staff, international and global markets at Acrisure, cited five insurance companies founded in the past 20 years that have built sustained, multibillion-dollar market capitalizations. (One happens to be Acrisure.)

The key was not breakthrough technology or the "move fast and break things" ethos of Silicon Valley. The key was finding a dislocated market and having an experienced management team that could exploit it — as opposed to the newcomers to insurance who ran many of the early insurtech startups, thinking their technology expertise would buy them time to learn about insurance on the fly. 

His presentation describes the five like this:

  • Acrisure consolidated small retail distributors, which tended to be undercapitalized and often were looking for a succession plan. It was cofounded and is run by Greg Williams, who had 23 years of industry experience and had already founded two companies when he started Acrisure in 2005. It last raised capital, in 2022, at a $23 billion valuation.
  • Ryan Specialty Group saw an opportunity when the Big 3 were forced to sell their wholesale distributors. It was founded in 2010 by Pat Ryan, who had 48 years of experience and had been CEO of Aon. It has a market cap of more than $6 billion.
  • Athene spotted the opening in fixed annuities following the 2008 financial crisis. It was founded in 2009 by James Belardi, who had 23 years of experience and had been CEO of Sun America. It was acquired by a private equity firm in 2022 for $11 billion.
  • Kinsale responded to strict regulation in admitted markets by moving into excess and surplus lines, especially for small risks. It was founded in 2009 by Michael Kehoe, who had 15 years of industry experience and had been CEO of James River. It has a market cap of more than $9 billion.
  • Essent jumped into the market for mortgage insurance following the housing market collapse in 2008. It was founded by Mark Casale, who had 22 years of experience and had been an executive vice president. It carries a market value of $6 billion. 

"Insurance executives have been the biggest disruptors of insurance," Jones said.

All those companies were started years before the insurtech movement began, in 2015 or so, and they aren't based on technology, but they show the kind of highly profitable innovation that's possible in the industry. Carpe Data may see itself slotting into Better, Faster, Cheaper work at carriers — and loads needs to be done to make the industry more efficient — but other technologies and other types of innovation can still lead to profound improvement.