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Earlier this week, Travelers announced that it had acquired the technology assets of Trov, a startup that began its trajectory as distributor of insurance coverage for individual items of property and has evolved to focus on technology enabling the embedding of insurance products. The deal, whose terms were not disclosed, emphasizes the opportunity rather than a threat posed by InsurTechs of the distributor variety.
While historically InsurTech distributors have been seen as potential competitors, capable of eventually capturing significant market share from incumbents, the Travelers/Trov deal shows that even startups that have behaved like competitors are not necessarily so, observes Stephanie Dalwin, an Advisor at Aite-Novarica Group (Boston). “InsurTechs bring more opportunities than competition to carriers,” Dalwin says. “InsurTechs offer opportunities for carriers to learn and to bring technology expertise in-house.”
Incumbents are obviously better positioned for longevity, whereas InsurTechs contend with the struggle of maintaining funding runway sufficient to demonstrate their business proposition, Dalwin stresses. “A related trend we’re seeing is that the InsurTech MGAs are realizing that there is a potential revenue stream from becoming software companies or licensing their tech stack. In other words, there are increasingly more opportunities for them in partnering than competing with carriers.”
Whatever the InsurTech’s strategy, the incumbents are not willing to sit and watch them steal a march as consumer preferences evolve, according to Donald Light, Director, North America Property/Casualty Practice, Celent (Boston). “The majors are resisting this by building platforms that offer the look, feel, and AI-powered experience that rival the Lemonades of the world,” Light says. “Examples of this fighting back trend include Chubb’s Blink, Farmer’s Toggle, and Traveler’s Traverse.”
Traveler’s acquisition of Trov’s technology assets serves as an example, Light adds, by deepening the carrier’s ability to create a broader range of InsurTech-style offerings.
Cash Scouting for Ideas
More acquisitions in this vein are likely to follow, as insurers seek to bring innovative people, assets, and relationships into their companies, according to Mark Breading, a Partner with SMA (Boston). There are many InsurTechs that are maturing and looking for exits,” he elaborates. “Although they may not have considered carriers to be their target acquirers, the insurers have the cash and continue to scout for new ideas that can accelerate their innovation.”
InsurTech distributors have sometimes vaunted themselves as the next wave of commerce in insurance, but whether that was out of confidence—merited or otherwise—or simply a tactic to make them an attractive acquisition target is hard to say. As either MGAs or full-stack carriers they offer something new and exciting, but as startups, being bought by a bigger company is a natural trajectory.
That said, mere opportunity may not be the only driver, suggests Stephen Applebaum, Managing Partner, Insurance Solutions Group. “I think it is inevitable that most pure-play InsurTechs will either get acquired—either in whole or in part, as with Trov—or just fail,” Applebaum says. “Either way, their investors aren’t likely to be happy.”
Applebaum insists that it simply takes too much capital and experience to scale a new insurer and acquire new business while also being price-competitive and controlling loss ratios. “Companies such as Travelers who acquire these assets and people can do so at attractive prices compared to developing these resources themselves,” he explains.
Applebaum sees the Travelers acquisition of Trov technology and talent as a reflection of several macro market factors that will cause more such M&A. “Pure play InsurTechs of the Trov generation have now had several years and many rounds of funding to try and achieve their vision but few have,” he comments. “However, what they did accomplish is highly valuable to legacy insurers such as Travelers.”
Micro-Duration and Hyper-Personalization
“InsurTechs have built and patented new business models and insurance products which more closely match the needs and demands of the modern consumer,” Applebaum continues. “Micro-duration and hyper-personalized insurance product technology is valuable. They demonstrated how innovation cultures and partnerships can accelerate growth and distribution in a cost effective manner. They also developed numerous valuable industry partnerships which may be portable.”
The majority of early InsurTech startupstargeted consumer-centric insurance products such as personal and small commercial lines, primarily auto and property, and insurers with a strong focus on these markets—such as Travelers and personal property in the Trov example—will acquire all or part of these InsurTechs in order to promote their own internal innovation and accelerate time to market with more relevant solutions, Applebaum says. “Since most InsurTechs were developed on all digital platforms, they more natively support B2C distribution and integrations into modern platforms and marketplaces,” he adds. “Micro-duration and hyper-personalized insurance product technology is valuable to the incumbents.”