Only a few years ago, it would have been difficult to imagine InsureTech reaching its current heights. Yet the market shows no signs of slowing down, and insurer interest and funding rounds continue to grow. Some industry vets have even jumped in on the wave, founding startups of their own or joining existing companies. Nowhere was this enthusiasm more evident than at InsureTech Connect this year. Attendance nearly doubled, and lines were longer than ever, but the increased presence and involvement of carriers, established vendors, and service providers made it clear that InsureTech is touching all parts of insurance.
Novarica has covered more than 200 startups since 2017. In that time, only seven have failed; many more have “graduated” to established market players by raising over $100M in investments. Many InsureTech startups are positioning themselves as partners, helping insurers bring more innovative practices and technologies in-house. Others are entering the market as competitors.
Now that InsureTech startups have the attention of the industry, how should insurers be thinking about them?
Approaching InsureTech Partnerships
Startups can help insurers bring more innovative practices in-house while providing technology for a fraction of the cost required to build up an internal team of experts. Beyond cost, startups can offer resources that insurers may not be able to find should they go it alone. Yet insurers should also be prepared for some coaching; expectations and reality won’t always align. Startups often won’t understand the complexity of insurer legacy environments, for example. They also tend to be underprepared for long-term maintenance issues around rates and processes. To this end, avoiding building startups into the critical path is a best practice.
Approaching InsureTech Competition
Some startups have identified underserved markets and are going after customers using solid processes and customized insurance products. Many startups present like carriers, but it’s often incumbents or reinsurers writing the risk. Not having to constantly worry about risk and losses means these companies can focus on experience. This separation of channel interactions and risk management is an important lesson for insurers, if nothing else. Another enabler of short-term success is that startups aren’t built for scale and duration. They usually have robust technical expertise, but they’re forced to prove a business model with limited funding. The startup approach to customer experience may be competitive in the near term, but insurers are better positioned for long-term success. Insurers can learn from these new entrants and replicate their models down the road, or possibly even acquire them.
Whether InsureTechs are approached as competitors or partners, it’s important to note that startups are unlikely to take substantial business away from established carriers or shift the market dramatically. And should some startups scale and become incumbents, the market will adjust as it always has.
More on approaches to InsureTech is available in Novarica’s recent report, the InsureTech for Insurers: 200 Startup Profiles, which outlines trends and provides descriptions of startups and lessons learned for insurers.
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