The investment and activity related to the insurtech movement that began four to five years ago show few signs of abating. If anything, the movement is transitioning into a new phase.
But before even evaluating whether insurtech is maturing, it is important to set some definitions and boundaries. Although some consider any tech firm with insurance solutions to be “insurtech,” for our purposes, we are focusing on recent insurtech startups, typically those that have been launched in the last five years. The question posed here is whether or not these startups are collectively maturing and moving beyond the initial stages of a startup effort.
To answer that question, I will conduct my own point-counterpoint before drawing a conclusion. There are arguments to be made that insurtech is maturing, but a case can also be made that it is still nascent and, dare I say, immature?
Yes – Insurtech Is Maturing
We are almost five years into the activities related to insurtech, and much experience has been gained by entrepreneurs, investors, insurers, and others. In the early days, there were a small number of new ventures and limited involvement by incumbent insurance industry players. Now there are over 1,200 insurtech startups that SMA tracks, approximately 50 (re)insurers with insurtech investment arms, and many more insurers engaging in partnerships, pilots, and insurtech strategies. Although there are still new insurtechs being regularly announced, the total number has stabilized in the range of 1,200 due to exits of various kinds. This stabilization, in itself, is an indication that the movement is maturing. Another important development is that winners are beginning to emerge. SMA expects many of the startups to ultimately fail or be absorbed by another entity – perhaps as many as 80% to 90% of the total. But there are currently around 50 that are gaining traction and have the funding to support growth and success in the industry. Eventually, there may be 100 to 200 prominent firms started in the last five years that become more permanent players in the industry.
No – Insurtech Is Still in Early Stages
The counter-argument is also strong – and supports the reasoning that insurtech is still not maturing. Exhibit A for this stance is that there are still only a small number of visible use cases that have made a difference in the industry. True, there are many interesting companies and projects, but there are few case studies that make you say: “Wow!” The impact on individual insurers or overall financial metrics is tiny. Another indicator of the relative immaturity is the lack of industry experience at many of the newest startups. Insurtechs that have been around for a few years have often gained more insights into the complexity of the industry and have brought industry veterans onto the team. And, of course, they have gained their own experience through engaging with insurers over this time. But many of the newer insurtechs still have a negative view of the industry and believe they will disrupt an industry that they see as a dinosaur. A final point in the counter-argument is that there are still vast sums of money set aside in funds to invest in insurtechs. Insurers have billions set aside that is not yet invested. New venture funds are being formed even now. Certainly, much of these funds will be allocated to the firms that are emerging as winners, but there will be just as much going into new ventures, resulting in continued momentum over the next few years.
I don’t want to cop out on the conclusion, but I see elements of both maturity and immaturity present in the insurtech startup movement. What we may see is a bifurcation, with a subset of firms producing results, gaining significant funding, and making a measurable impact on the industry. In the meantime, there will be a second (larger) group of startups still looking for that big win, that big funding round, and the momentum to move them into the winner's circle.
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