State of InsurTech - Doubling down on Frictionless Digital Insurance

State of InsurTech - Doubling down on Frictionless Digital Insurance

The pandemic had a huge impact on the global economy. The International Monetary Fund states that the global economy will shrink by 3% which is the worst decline since the Great Depression in the 1930s. The insurance industry, which shoulders businesses through tough times, is one of the sectors which is challenged the most by the pandemic.

The spread of COVID-19 has shown us that the digital infrastructure of traditional insurers was mixed. This resulted in sometimes poor customer experience, slower customer growth, and financial losses from increased health, life, and commercial insurance claims. This trend will continue given that people will work and shop from home more frequently. Next to that Insurers realized that their distribution and interaction models with end-users is not frictionless and ready for a digital age.

There are thousands of insurers globally that still have to catch up and respond to the new world of insurance. Although the crisis is massively accelerating the existing trends, we see that leaders are leapfrogging and others are widening the gap. By leapfrogging we mean being more opportunistic and adopting new solutions at an increased pace while eyeing potential acquisition targets to boost tech play. At Digital Insurance Group, we see a global increase in demand for our digital solutions, most importantly around digital sales and customer engagement." Ingo Weber, CEO, DIG.

Although Venture Capital investments in insurtech slowed down during the pandemic, growth in this space will likely remain unaltered by the crisis. Those Insurers that made bold investments in Digital were able to continue to reach out to policyholders and new customers.

“The insurers we work with know that they must upgrade their digital infrastructure in order to provide customers with a simple and seamless onboarding experience—while also cost-effectively maintaining compliance with changing regulations. They also recognize the value of partnering with providers with deep regulatory expertise and modular offerings that can be rapidly integrated and customized to their needs.”  Krik Gunning, CEO, Fourthline

During the last 5 years, investments in InsurTechs flourished, however, Insurers were reluctant to actively outsource or partner with Insurtechs, RegTechs at scale. That being said, Finch Capital sees a fundamental change with the industry now being more eager to partner and outsource with young technology companies that can address and that can help Insurers to quickly Digitalise, bring frictionless experience or massively reduce the administrative costs and eliminate inefficiencies in the claims process and amounts.

However, before enjoying the long-term business prosperity by the incumbents, InsurTech companies will have to survive the operational and liquidity challenges caused by COVID-19. Companies should, therefore, increase their runway as much as possible and expect the unexpected. There are, however, also short term opportunities which can be ceased early on if the company has the necessary flexibility and resources. One example would be Fixico which went out of its product road map and started building “FixiCovers” which are protective screens for taxi drivers and ended up being a huge success.

Below you will find a list of sub-industries in the insurance space which we believe will fail, slow down, or strive during/post COVID19 crisis:

At Finch Capital, we expect the crisis mode to continue at least till the end of Q3 2020 which will then be followed by a 12 to 18 months recovery.  We expect as a result of the strong demand by insurers for Tech, that B2B InsurTech will flourish, also putting pressure on distributive B2C InsurTech models as they are facing increased competition from the incumbents.

We expect an increase of M&A and trade-sales transactions below the $250m category for insurtech companies. This trend will result in fewer IPOs as companies will be less likely to reach full maturity.