Revealed - the top five insurtech trends reshaping America's insurance landscape

Insurers that are ready to embrace change to benefit the most, expert says

Revealed - the top five insurtech trends reshaping America's insurance landscape


By Mark Rosanes

The insurtech space continues its rapid ascent as manifested in the market’s growing range of capabilities and business models – and those who will benefit the most, according to experts, are the insurance companies and investors with a deep understanding of “emerging technology and commercial trends.”

“Insurers and private equity (PE) firms are investing in insurtechs that improve business efficiency and penetrate new markets by creating fresh approaches to traditional insurance activities,” explained Martin Spit, principal at EY-Parthenon and Ernst & Young LLP US, and EY Americas Insurance Strategy and Transactions Leader, in a recent article.

“At the same time, today’s customers expect the same seamless, personalized digital experiences around insurance that they get from other service providers. These heightened customer expectations are pushing insurers to embrace new technologies and customer-centric business models.”

Spit added that investors can emerge successful amid the ongoing disruption by screening for solutions that address the technological and commercial challenges facing the insurance industry.

In a separate article, however, a group of partners from consulting giant McKinsey and Company warned that the prevalence of new technologies brought by major insurtech players could result in insurance providers facing stiff competition from “a new wave of digital attackers” – a trend reflected in the large number of greenfield insurers established in the past few years.

“To survive, incumbents will have to adapt their operating models, products, and core processes to a new reality,” the partners wrote. “All executives must understand the impact of these technologies and ensure their organizations are positioned to unlock their potential. Leaders will need to let go of entrenched perceptions and business models and embrace new ways to manufacture and distribute what will in many cases be fundamentally different products.”

Insurtech hits record deals and financing

Globally, insurtech firms established records in terms of the most deals and financing last year, with funding soaring to an all-time high of $15.4 billion, data gathered by market intelligence platform CB Insights and insurance giant Gallagher revealed. This figure nearly doubled the total amount raised in 2020, with Q4 2021 posting the highest single quarter on record for insurtech investment.

As regards the deals, there were 564 completed in 2021, another record. New records were also hit for international participation, unicorn creation, and IPOs.

According to the report, $9.4 billion was invested in property and casualty (P&C) insurtechs, with the balance of $6.4 billion – about 40.5% of the total – invested in life and health (L&H) companies.

In a statement, Andrew Johnston, global head of insurtech at Gallagher Re, said that the market’s growth over the past decade has been “incredibly impressive” and has shown no signs of slowing down, with the first quarter of 2022 recording $2.2 billion worldwide.

He pointed out, however, that there were only five mega-rounds recorded in the first quarter, lower than Q4 2021 numbers.

“This may be an indication that capital invested is actually becoming democratized – a more equally distributed spread of total capital invested,” Johnston said. “This possibility is further bolstered by the fact that 2022 Q1 observed the highest-ever recorded participation of early-stage investment, with a highly impressive $660 million invested into insurtechs globally at their earliest stages.”

What are the top insurtech trends reshaping the insurance landscape in the US?

To find out how insurtech is changing the insurance game, Insurance Business turned to market intelligence and fintech experts. Here are the top insurtech trends these specialists say will have the biggest impact on the industry.

1. Increased partnerships between insurers and insurtech startups

As the insurtech sector remains primed for significant growth in the next few years, Spit expects the market to be “ripe for partnerships.”

“Insurtechs were once intent on competing directly with incumbent insurance companies, but today’s players are often focused on partnerships,” he wrote. “And insurers that once felt threatened by insurtechs are now willing to invest in and ally with firms that can help them deliver innovative insurance products to the market quickly and efficiently.”

Spit added that a good example of a solution emerging as a driver of collaboration is embedded insurance, with conventional carriers and non-insurers alike making “strategic bets” to acquire insurtechs that can help embed revenue-generating insurance products into their ecosystems.

The situation has also led to increased spending on third-party technology.

“Replacing legacy homegrown systems with third-party solutions is now recognized by most carriers as the fastest and easiest way to access innovative capabilities,” Spit explained. “The P&C industry is expected to continue to improve speed to market with new products and coverages by shifting more of its core systems to cloud-based solutions run by established service providers.”

2. Digital technologies help deliver better customer experiences and improve efficiencies

Spit pointed out that many insurance companies are also embracing platform-based business models and leaning on data-driven insights to help facilitate customers’ digital journeys.

He added that apart from embedded insurance, the other “technology themes” reshaping the industry are the use of:

  • AI-based platforms to boost the effectiveness and efficiency of critical functions
  • Big data from third parties and carriers’ own systems to improve underwriting processes, mitigate losses, and enhance customer personalization
  • Cloud-based platforms and as-a-service business models integrate components of artificial intelligence, big data, and open APIs in pursuit of greater speed and efficiency across their value chains

3. “Avalanche” of data from connected devices will allow carriers to better understand clients

There will be an estimated one trillion connected devices globally by 2025, which will lead to an “avalanche of new data” that will help enable insurance carriers to understand their clients more deeply, according to McKinsey.

The global management consultancy firm also predicts that this explosion of information will result in “new product categories, more personalized pricing, and increasingly real-time service delivery.”

Spit added that many insurers are “distilling increasingly large troves of proprietary and third-party data into usable insights” to gain a competitive advantage.

“Insurers with business models that rely on data-driven insights to enhance customer value are embracing insurtech solutions that can automatically procure, validate, and incorporate third-party data into pricing models,” he noted.

4. More insurer-insurtech collaboration aimed at enhancing cybersecurity and compliance

According to Spit, the increasing frequency and exorbitant costs of security breaches, as well as heightened regulatory scrutiny are pushing more insurance carriers to “embrace more sophisticated compliance and security solutions.” Because of this, more insurers are partnering with insurtech firms to protect their platforms and detect cyber exposure across lines of business.

The McKinsey partners added that the adoption of zero-trust security and similar approaches would help carriers create resilient networks that can protect against cyber intrusions.

“Across lines, insurers handle sensitive customer information, and the ongoing evolution of products and services will require customers to share even more of this information with carriers,” the group wrote. “New technologies will allow carriers to more effectively manage risk and make use of complex customer data – a critical step in evolving to a ‘predict and prevent’ model of insurance where data is shared more frequently between parties with insurers playing a more active role in claims prevention.”

5. An increasing shift among carriers to digital infrastructure will likewise fuel the market

The McKinsey partners described insurance providers as having “significant technology debt,” meaning many of their core processes are weighed down by “extensive on-premise legacy technologies.” But as cloud technology matures, they expect a rapid transition to the cloud for all core systems. This will allow insurers to become more flexible in launching new products and creating better customer service.

“Cloud will also be critical for enabling the type of computing power that is needed to fully understand and make use of the incredibly large data sets (such as tens of millions of claims data points),” they explained. “As ecosystems continue to develop globally, cloud-native insurers will be best positioned to act as ecosystem orchestrators – acting as a connecting hub among customers, distributors, insurtech, healthcare providers, carriers, and reinsurers, among others.”

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