The Future of Insurtech: Automation and Trends, Including Web3 | by Swati Bhatia | March 2022


Over the past decade, the first digital banks like Chime, N26, NuBank, Monzo, and Revolut have emerged. The ability to make deposits and manage accounts using a mobile app immediately appealed to millions of consumers. Collectively, these “neobanks” are expected to have over 145 million customers in North America and Europe by 2024.

This trend has only been accelerated by the COVID-19 pandemic. Since the beginning of the confinement, there has been a ~72% increase in the use of fintech products and services.

Insurance, on the other hand, has been lagging behind in technological transformation. It has long delivered on the promise of an industry ready for disruption. The size of the industry in the US alone is enormous (~$2 trillion in US premiums in 2021) and close to $6 trillion globally. The industry has been dominated by legacy market leaders and legacy processes and systems.

In 2019, StateFarm, the leader in the American property and casualty insurance (P&C) market, accounted for more than $65 billion in premiums; MetLife, a world leader in life insurance, accounted for $95 billion. Each of them made the north $5.5 billion in profit.

The private market is following suit. From 2014 to 2019, the total annual value of venture capital and private equity deals in insurtech grew at a rate CAGR of almost 60%, with over $6 billion in venture capital invested in 2019 and again in 2020. Insurtechs raised around $11-12 billion from around 450 deals in 2021. Insurance market leaders are noticing this too. Companies like Allianz, Munich Re, Nationwide, Liberty Mutual and others are pouring money into finding the next best thing in insurance. ~50% of InsurTech funding in 2020 and 2021 included a strategic investor.

Figure 1: Annual Insurtech Funding Totals — 2012-2021

Insurance remains a painfully manual and paper-based business. Pricing, underwriting and claims settlement are still primarily done using 20th century technology. But it is a scenario ripe for change. The digitization of insurance involves how policies are distributed, how claims are filed and resolved, how customers can be satisfied in new ways that reduce risk and increase engagement, and how whose insurance risk is calculated and priced.

Insurance policies can be complex and some policyholders may not understand all of the fees and coverages included in a policy.

Let’s look at the value chain of the traditional insurance process here:

Figure 2: Insurance value chain

In legacy insurance systems, after business development and “sale” of a policy, underwriting and closing can take days or even weeks. Once the policy is underwritten, claims management and customer service are cumbersome due to the insurer-centric and paper-based structure. The commission structure of the status quo is such that agents and insurers make the process a misalignment of interests between insurers and policyholders.

Insurance incumbents have dominated the market due to the competitive advantage of consumer trust brand perception, an existing coverage network, regulatory compliance and licensing, as well as their ability attract the most analytical actuarial talent. An insurance premium paid now provides coverage for losses that may occur many years in the future. The financial stability and soundness of an insurance company is a major consideration when purchasing an insurance contract for a consumer.

Profit in the insurance industry can be reduced to a simple equation:

Insurer profit = sum of premiums earned and investment income on premiums after underwriting cost and claims expenses.

Startups are exploring the link between technology and insurance in an attempt to reawaken the dinosaur industry. Insurtech startups have opened up new premium streams, redesigned insurance distribution, encouraged investment income, found an easier way to underwrite costs, or efficiently manage claims costs.

Insurtechs can be broken down into 3 main categories:

Assurtechs Full Stack:

These are companies that offer insurance products either as a managing general agent (MGA), or by leasing the balance sheet of an insurance company for a fixed fee, or companies that underwrite policies insurance using their own balance sheet.

Some insurtechs start as an MGA and move on to writing their own policies and accepting the risks and rewards that come with it. These companies cover all parts (or at least the majority) of the insurance stack shown in Figure 2. These full stacks also typically start in specific areas of insurance (auto, commercial, life, cyber, etc.). ) before expanding to all vertical insurance sectors.

This space has become increasingly saturated, and the differentiator for startups today is having unique acquisition strategies or technological nuance to innovate on part of the value chain (ex. underwriting/claims) .

Figure 3: Insurtechs Full Stack — I

Some are betting on entirely new or hitherto underserved segments:

Figure 4: Insurtechs Full Stack—II

Insurance aggregators and marketplaces:

These companies serve as lead generation for traditional insurers and full stack insurtechs. Often these companies bundle policies from multiple vendors and take a brokerage commission on each policy sold. Insurance distribution is perhaps the first area to embrace technology – taking insurance policies previously sold in person, online.

Figure 5: Aggregators and marketplaces

In developed markets, differentiating between aggregators has become difficult as growth-stage insurtechs have mastered customer acquisition. However, this is still a huge area of ​​opportunity in emerging markets where insurance penetration per capita is still low.

Enablers fostering better automation and AI: the objective of this investment thesis

These companies, instead of offering a complete insurance product, deal with one or two components of the insurance value chain.

Figure 6: The spectrum of automation

Normally, these “facilitator” companies sell directly to insurance companies or comprehensive insurtechs and charge software subscription fees or API fees.

After meeting with industry insiders, implementation experts, and fintech and insurance investors, I discovered the following key automation trends in the insurance industry that startups are moving toward can turn.

Trend 1: It is difficult to achieve even basic process automation given the complexity of existing systems, employee reluctance and skills gaps, and security concerns

  • Importance of renovation: Every insurance company wants to get rid of their old systems, but it’s not easy, especially if a new provider can’t modernize
  • Bridging the gap between CIO and CTO: There is a disconnect in assurance between the CTO and CIO and the business, usually tech people don’t know the business, business people don’t know the tech
  • Cybersecurity is a top priority: Given the amount of individual data, the lack of robust cybersecurity ultimately inhibits risk-taking, adoption and the launch of new products

Trend 2: Next-gen solutions must combine automation offerings with process mining and artificial intelligence to be dynamic and attractive to the industry

  • Combine process mining, RPA and AI: Robotic process automation builds a process based on what humans do, but process mining is really the critical step, using robots to understand what humans are actually doing. Solutions combining process mining + RPA + AI are the next step in automation.
  • AI for more complex use cases: Use AI to solve more complex problems in the field of insurance, such as AI in the legal field.

Trend 3: Selection overload shapes go-to-market strategy

There are about 10,000 insurance companies in the United States, even if 10% buy your product, that’s still a huge market. Traditional insurers and large insurtechs are approached by hundreds of suppliers and startups.

  • Expertise field: In a saturated market, to be successful, startups must find an angle to enter the market against the mainstream of large cloud providers, and that’s where domain expertise pays off
  • The go-to-market strategy is essential: The best go-to-market strategy is channel partners and the inside sales team. Speak directly to the person in the target company who will get the most out of what you are doing. Carrier partnerships can take so long that you can’t use them as an initial go-to-market strategy.

Trend 4: Underwriting is a new frontier

From the perspective of insurance companies, the evolution of insurtech is easy to understand. First, Policy Distribution was ripe for disruption (the initial era of Lemonade, Ladder), then Claims was the next process to be made more efficient (eg, ClaimsX).

The underwriting and actuarial team bring a lot of money to the organization, but much of their work is still done in spreadsheets. Complaints are expensive but underwriting is what an insurance company believes their secret sauce and competitive advantage is. Underwriting automation requires cognitive automation, not just RPA.


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