Surprise! The best insurtechs are legacy companies

When people think of InsurTechs, they think small, fast, digital and disruptive. We tag legacy insurers as lumbering, conservative and stuck in their ways. Neither is exactly right, and both are more about branding than results.

Look closely at the facts. The top 30 carriers that existed in 1996 have grown their market share despite InsurTech competition. These legacy carriers, who make up 76% of home insurance premiums written in 2024, had a loss ratio more than four points below the home insurance industry's overall loss ratio and a combined ratio more than two points lower. Insurers in their second generation – those founded more than 35 years ago – consistently outperform InsurTechs in customer growth, satisfaction, profits, value creation…and, yes, innovation.

The true worth of an enterprise is in what it generates in profits available for dividends to owners.When startups do not describe their success in terms of operating profits, funding dividends or retained earnings (capital and surplus), it risks signaling a lack of transparency about their true performance. It may take a while, but they are reinforcing the advantage of legacy providers in commanding trust and functional usability, even in the digital domain.

Measured in the real success of growing profits, the most successful disrupters and startups in the market today aren't startups at all. They're legacy carriers willing to break their own rules, decentralize control, and use innovation as a competitive tactic, not a marketing campaign.

Startup urgency is existential; Legacy carriers persevere

Compare the approach of a stand-alone startup and a legacy insurer taking a new approach to a business line. The difference is stark. Startups don't succeed because of hype – they succeed because they operate with urgency. Urgency brings clarity. Founders report that 42% of startup failures come from lack of product-market fit. When survival is on the line, speed and clarity aren't optional. They're existential.

What if the odds of success improve with the ability to persevere? What if you have time to find flaws in the new approach and fix them? Founders are acutely aware that their value proposition must stand on its own; there is no safety net. Those who create the same innovation using the balance sheet strength of a legacy provider may be ultimately rewarded by the safety net of perseverance. The incumbents can build the same momentum that a startup does if they're willing to rethink how they operate. Take the risks and use your advantage to overcome the mistakes.

Plymouth Rock approached the home insurance business like a sponsored startup. The team prioritized speed and simplicity around a major initiative: pricing risks before the customer asks for a quote. We strip away unnecessary questions. You can bind a policy as quickly as you buy a book online, but there is a reason why insurers ask those questions and go through all those steps in home insurance. Some of what we gave up in the traditional new business process came back to hit us in the form of underwriting losses. We worked hard to correct errors in our process at the same time that we were battling extreme cost inflation. It took four years to make the new customer-friendly model work, but the most recent 12 months have delivered terrific results.

Our urgency to succeed wasn't a byproduct of limited resources – it was built into our culture. Disciplined insurers don't tolerate money-losing segments. They quickly fix what is wrong and move on to the next invention that will set them apart. It is easy to grow by losing money. It is easy to make money by raising prices. If the customer is not willing to pay you enough to make money, you haven't created a product valuable enough to them. Growing profitably is the only result that successful companies accept. The long and short-term tactics should always be reflected in financial results.

Innovation doesn't need change management

Innovation, by definition, requires a change in paradigm. After long discussions of change management at a recent industry event, I asked the panel whether a company that needs change management can truly be an innovator. I've always found change management interesting. Its main goal seems to be getting people on board with something that, if it were valuable, ought to sell itself. But if change is beneficial, why does it have to be sold? If an idea requires formal change management to gain adoption, it is not obvious to the user that the idea has value. Why isn't the benefit to the user obvious?

Over 85% of executives say fear (of criticism, uncertainty, or career risk) often or always holds back innovation. Yet nine in ten firms do nothing to mitigate fear.

Legacy insurers have an enormous advantage: resources, brand equity, customer volume, and existing regulatory relationships. What's usually missing is the will to move quickly – and the willingness to decentralize decision-making to allow quick movement.

You can't innovate without friction. The challenge is learning when to let teams break something. Know when to back off and let experiments run. Force the experimenter to correct mistakes when their innovation does not translate quickly into profitable growth.

Let's stop calling unprofitability and the enriching exits that follow "Innovation"

Many InsurTechs have made headlines for growth — but not for profit. There's nothing innovative about selling insurance at a loss. That's not disruption — it's bad math.

If stock buyers are willing to reward startups for a rich exit without a sustainable profit model, they are transferring IPO shareholder capital to founders and series A investors. They are not funding the creation of value. They are funding a bubble. A stock that has risen 50% from a low of 90% below the stock's peak is not success. It may be a dead cat bounce or a variance from a new, more accurate, valuation.

The real innovation challenge – and opportunity – for legacy carriers is to combine underwriting discipline and data-driven infrastructure with the speed, clarity, and customer-centricity of startups. You need to create something people want to buy… something they are happy you made a profit on.

The legacy industry has the capital to get there. We need to add a culture that rewards disruptive and effective execution, not theater. Companies today are about 3 times more likely to link innovation efforts to executive advancement. They know that real transformation isn't about launching an "innovation lab." It's everyone's full-time job to innovate — not just one department. Real transformation is about aligning on outcomes that are measurable and matter to the customer.

The real risk? Standing still

Many of the top homeowners' insurers in the U.S. are dissatisfied with their results — and rightly so. Historically, our industry hasn't outperformed the S&P. But we have every tool we need to change that: data, experience, product expertise, capital and credibility. Regulators encourage innovation that helps consumers, particularly from carriers who will still be there for their customers if the innovation does not work out.

Create a cultural shift — one that treats every business unit like a startup. You don't need to rename a division or change a brand. You need to remove barriers to your high performers' success. Loosen the grip. Let people test ideas that might not work. Reward them for cutting off a failure quickly. Real breakthroughs grow from the informative seeds of failure.

Innovation isn't about building something new for the sake of it. It's about building something better. Build something so valuable to consumers that they want you to profit from it. Sometimes, the best way forward is to break the very thing you've spent decades perfecting.