How insurtechs can accelerate the next wave of growth
The insurance industry is being transformed by tech-driven innovation, with new capabilities like telematics, artificial intelligence, machine learning, and automation reshaping nearly every aspect of the insurance value chain. These advancements are also enhancing omnichannel customer experiences.
Insurtech companies are leading this transformation, drawing significant attention from investors. Venture capital (VC) investment in insurtechs surged in 2021, surpassing $11 billion—double the amount invested in 2020. Private equity investors are also entering the market earlier, increasing the flow of capital.
This influx of investment creates pressure on insurtechs to scale rapidly. While some may merge with established companies, others will aim to grow independently. The strategies for accelerating growth vary based on the type of insurtech. Here, we focus on two types: emerging carriers and distributors, and ecosystem players.
Emerging Carriers and Distributors
These are B2C startups, often digital-native, looking to revolutionize how insurance is bought and priced. To scale, they need to focus on profitability, crafting a compelling investor story, and refreshing their growth strategies.
Drive Profitability: After raising capital and acquiring customers, insurtechs must achieve profitability. While scaling unit economics can be challenging, many insurtechs find success by tapping into new revenue opportunities. For instance, a life insurance insurtech transitioned from an agency model to a B2B platform provider, entering a market with $1 billion to $2 billion in annual premiums and achieving margins of over 30 percent. In a market where investors are cautious, insurtechs demonstrating solid economics and a clear path to profitability stand out.
Enhance the Investor Story: Insurtechs often struggle in public markets, with share prices significantly down since January 2021. Investors are uncertain whether to view these companies as insurers or tech firms, and the long path to profitability can be concerning. To build investor confidence, insurtechs must develop a compelling narrative supported by robust data. This is especially crucial for European insurtechs, where IPO activity is lower than in North America.
Refresh the Strategy: As insurtechs scale, they should target new segments and geographies for growth. This involves a thorough strategy refresh, creating a roadmap for ambitious growth and identifying strategic M&A opportunities. Successful insurtechs focus on specific customer subsegments and then expand globally.
Ecosystem Players
Ecosystem players are B2B utilities that enhance the insurance ecosystem, such as improving claims processing. To grow quickly, they need to refine their go-to-market (GTM) strategies, increase engineering and professional services efficiency, and explore adjacent market opportunities.
Refine the GTM Engine: A well-planned GTM strategy can unlock significant opportunities. For example, a claims insurtech under pressure to grow developed additional product use cases, redesigned its sales strategy, and refined its product roadmap, capturing a $45 billion market for its flagship product.
Build Efficient Engineering and Services Functions: Efficient engineering and services functions are crucial for scaling and maintaining customer satisfaction. A global insurance software provider benchmarked its services costs against peers, identifying a 25 percent savings opportunity and developing a roadmap with over 20 levers to achieve these savings within three years.
Expand into Adjacent Markets: Ecosystem providers need to look beyond their core offerings for growth, both organically and through M&A. A leading claims insurtech identified new opportunities by interviewing customers and prioritizing attractive market segments, leading to an acquisition that expanded its reach and mitigated competitive threats.
Conclusion
The coming years will determine the leaders in the insurtech space, both among emerging carriers and distributors and the next generation of ecosystem providers. Those with a clear path to scale will be well-positioned to become industry leaders and drive profitable growth.
