If there is one thing that we have all learned with the spread of COVID-19, it is that there is virtually no industry that is immune to its impact. The global pandemic is disrupting the daily lives of individuals, the operations of businesses, the activities of governments and even the approach of cherished institutions like museums, universities and religious organizations. The P&C insurance industry, like many others, is reeling from the implications of the virus. Amid the rapid changes, it is important to assess the impact of COVID-19 on the insurtech movement. After all, insurtech has always been touted as the ultimate disruptor of the insurance industry. But, might COVID-19 prove to be a disruptor to insurtech?
First, it is essential to recognize that the ultimate impact will depend largely on the duration of the virus. If the U.S. and the world at large gain control of the virus in the next six to eight weeks, then there will be short-term pain for all (including insurtech). But there is likely to be a sharp rebound – the V-shaped recovery that economists are talking about. If the spread accelerates and the fight goes on for months or years, then it becomes a whole different scenario. Let’s look at several dimensions of insurtech and how they may be affected in the short term and long term, with the understanding that the implications for insurtech insurers, distributors and tech companies may be very different.
- Full-Stack Insurers: Companies like Root, Lemonade and Next should be well-positioned to thrive when the virus subsides. As digital-native companies, they can capitalize as the world accelerates transformation to online, digital and mobile engagement. In the short term, there may be fewer claims on the auto insurance side, as the roadways are empty. The offsetting factor is that fewer people will be buying new cars, moving into new apartments or buying/building homes – at least in the short term.
- Digital Distribution Players: Like the full-stack insurers, the digital agents, MGAs, comparison platforms and others in the distribution space stand to succeed as more people gain experience with moving their personal lives online. Of course, individuals and businesses can still call their agents or brokers or use their web capabilities, but, generally speaking, the insurtech digital distribution players have more advanced capabilities. Like the full-stack insurers, they will be affected by fewer “changes” requiring insurance – fewer car and home purchases, less likelihood that business will be expanding fleets, etc. Then again, maybe there will be more shopping around to try to cut expenses.
- Tech Companies: Insurtechs that offer new capabilities for underwriting, claims or internal operations may face a more mixed future. Those that offer digital capabilities to interact with agents, prospects, customers and claimants will likely be okay, especially if the economy is starting to recover within 10 to 12 weeks. Self-service, DIY, mobile and virtual capabilities will all be elevated in importance – not just for the period when people are sheltering in place and businesses are closed or at limited capacity – but for the long run. Any insurer that has not already focused on the importance of digital transformation via these types of capabilities is sure to pick up the pace when the storm passes. Fortunately, most insurtechs provide the types of capabilities that enable a digital transformation. On the downside, the ability for insurtechs to be in the market meeting with insurers, increasing their brand visibility and building their pipeline will be reduced. Of course, marketing and sales can be done digitally. But in the case of insurtech, the physical presence is important. In addition, conducting pilots and proofs of concept (POCs) may be more difficult as they often require individuals to be onsite with the insurer. Finally, some insurers may be reluctant to sign new contracts in the short term.
One factor affecting all of this is that the funding picture is fuzzy. Up through the end of 2019, there was great momentum for insurtech around the world, and funding levels were continuing to increase. Now, capital is already starting to tighten up. And the longer the COVID-19 virus continues, the more reluctant investors will be to fund new ventures.
See also: Will COVID-19 Be Digital Tipping Point?
Considering all these factors, will insurtech be disrupted? Over the next couple of months, the answer is most certainly yes. And there will most certainly be failures as some insurtechs run out of cash over the next few months. Another implication is that M&A might accelerate. insurtechs that have been reluctant to sell may be willing to cash out at lower amounts and acquirers are already out seeking bargains.
If the pandemic accelerates and lasts for a long time, all bets are off. If business starts to return to normal by summer, then most insurtech will be very well-positioned for success as insurers look to accelerate their digital transformation and inject even more innovation into their business.