The insurance technology space had over 1500 firms in 2024 and as companies look to acquire or grow these enterprises, there are some common factors and red flags that could affect a successful merger.
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"I would say one that is often under looked and underestimated is actually cultural alignment," explains Malval-Beharry. "Insurtechs tend to come with the mentality of 'let's move fast, let's break things, learn, rinse and repeat.' And then insurance carriers are in the business of managing risk by design. They are very careful decision makers."
She says that the inability to bridge this cultural gap can cause some partnerships to fall through. "But again, there are ways to bridge that cultural gap. And I think one of the ways to do that frankly is on the carrier and the vendor side, working jointly to identify the real pain point they're looking to solve. Aligning on the KPIs, the success metrics, the timelines for milestones, and having a clear business unit sponsor inside the insurance carrier I think is very important."
Malval-Beharry finds that companies can also underestimate the complexity of their technology integration, which can affect their success. "I think there is an underestimation on both sides, both from the vendor side and the carrier side about how complex these systems are to integrate. Often, we are API driven as if it's going to solve all the problems. And it goes beyond being API driven. It's also understanding, like I said, the tech stack, the data of infrastructure, the business processes around how this is going to be implemented."
Speed to execution can be a third challenge for companies shares Malval-Beharry. "So, some companies will move fast without proper vetting and then others will be stuck in the paralysis of analysis as well. And that's why so many times insurtech vendors are discouraged because they are on this course that only further lengthens the sales cycle. But again, I think really understanding who makes the purchasing decision inside of the carrier, really embedding yourself into the business unit, can solve some of that challenge."
In addition to considering these factors, she shares five red flags that could derail a merger or acquisition:
- Technology that has not demonstrated scalability. It may perform well at the proof-of-concept stage or in a small pilot, but products that struggle to reach an enterprise level of operation could be an issue.
- Ensuring AI model transparency. Malval-Beharry says the focus is really on an open disclosure of how the model works, how it was built and the ability to review the model's performance over time. "If a vendor tells you, well, this is our secret sauce and they cannot talk about these three statements, the transparency, interpretability, auditability and also the maintenance…then I would say that I would not partner with this particular vendor."
- Identify use cases. "It is very important for the vendor to be able to demonstrate its clear use cases where their solution is deployed at scale in full production," she says. "And they can share the metrics that are relevant to the carrier that you're engaging with. That is really critical, and I think it's absolutely important for carriers."
- A lack of insurance domain experience. Tech vendors should understand insurance terminology, how insurance works and the role it plays in the financial sector. More and more insurtechs are hiring for that domain expertise.
- Over-reliance on one or two insurance carriers as customers. Vendors who depend on one or two insurers for a significant portion of their business have a concentration risk, which Malval-Beharry says can destroy a company overnight if the carriers decide to change vendors.
There are other factors to consider as part of any business collaboration and the full
