(Image credit: AbsolutVision.)
This year will be considered as particularly memorable for the insurance industry not just because of COVID-10, but also for the extreme wildfire seasons in Australia, Brazil and the Western United States. The direction of the financial markets remains uncertain as the U.S. election remains unresolved. What is certain is that the pandemic has accelerated digital transformation, with companies achieving in months what, under difference circumstances, may have taken five years or more. According to a recent Reuters Events survey, the number of insurers who said digital played a key role in their transformation almost doubled in under a year.
While the pandemic had its effect, more InsurTech unicorns have appeared, and the first InsurTech IPO took place. Lemonade’s valuation is a proof that there is a tremendous amount of value to be created by new and better business models. One could summarize business as being essentially two things. First, Marketing: getting people want to do business with you. Second, innovation: finding a better way to meet your clients’ needs. Lemonade’s IPO casts light on the shortcomings of the insurance industry’s way of working with customers and thus indicates a huge opportunity to create value. The InsurTech movement has established that entrepreneurs are better suited than internal IT departments to develop the innovative applications founders that will drive the industry forward.
In the early days of pandemic-related lockdowns, there were reports of investments drying up. However, in recent months investment levels have been going back to normal. According to an Insurtech NY analysis, so far, there have been InsurTech unicorns in the P&C, Health and Benefit sectors, though none yet in Life, Annuity or B2B solutions.
Today a great deal of value can be created solving carrier’s pain in areas such as claims or risk management. Startups and investors have already proven that, although this industry has the reputation of being conservative—and having formidable knowledge barriers to entry and long sales cycles—insurers’ willingness to look to entrepreneurs for innovation means that significant opportunities can be found. Timing is a key factor for any investment opportunity, and while insurers are much more open to change, cultural barriers are likely to slow down some of the most profound changes to the industry.
Entrepreneurs—and change agents within insurance carriers—may need to be patient, but opportunities in the InsurTech space continue to grow, and there is no shortage of capital. With the pace of change InsurTech has driven—and which COVID-19 has accelerated—the competitive pressure for insurers to change has grown proportionately more intense. That competitive pressure will cause pain, and that in turn creates further opportunity for entrepreneurs to provide relief.