The Rapid Ascent of Insurtech: Trends and Challenges in the Insurance Industry

The insurtech space continues its rapid ascent as manifested in the market’s growing range of capabilities and business models – and those who will benefit the most, according to experts, are the insurance companies and investors with a deep understanding of ’emerging technology and commercial trends.’ Insurers and private equity (PE) firms are investing in insurtechs that improve business efficiency and penetrate new markets by creating fresh approaches to traditional insurance activities,” explained Martin Spit, principal at EY-Parthenon and Ernst & Young LLP US, and EY Americas Insurance Strategy and Transactions Leader. At the same time, today’s customers expect the same seamless, personalized digital experiences around insurance that they get from other service providers. These heightened customer expectations are pushing insurers to embrace new technologies and customer-centric business models.

According to Spit, investors can emerge successful amid the ongoing disruption by screening for solutions that address the technological and commercial challenges facing the insurance industry. In a separate article, a group of partners from consulting giant McKinsey and Company warned that the prevalence of new technologies brought by major insurtech players could result in insurance providers facing stiff competition from ‘a new wave of digital attackers’ – a trend reflected in the large number of greenfield insurers established in the past few years. To survive, incumbents will have to adapt their operating models, products, and core processes to a new reality. All executives must understand the impact of these technologies and ensure their organizations are positioned to unlock their potential. Leaders will need to let go of entrenched perceptions and business models and embrace new ways to manufacture and distribute what will in many cases be fundamentally different products.

A digital image representing the transformative influence of insurtech on the insurance industry, showcasing technology integration, customer experience enhancement, and strategic partnerships.

Globally, insurtech firms established records in terms of the most deals and financing last year, with funding soaring to an all-time high of $15.4 billion, data gathered by market intelligence platform CB Insights and insurance giant Gallagher revealed. This figure nearly doubled the total amount raised in 2020, with Q4 2021 posting the highest single quarter on record for insurtech investment. As regards the deals, there were 564 completed in 2021, another record. New records were also hit for international participation, unicorn creation, and IPOs. According to the report, $9.4 billion was invested in property and casualty (P&C) insurtechs, with the balance of $6.4 billion – about 40.5% of the total – invested in life and health (L&H) companies. In a statement, Andrew Johnston, global head of insurtech at Gallagher Re, said that the market’s growth over the past decade has been ‘incredibly impressive’ and has shown no signs of slowing down, with the first quarter of 2022 recording $2.2 billion worldwide.

To find out how insurtech is changing the insurance game, Insurance Business turned to market intelligence and fintech experts. Here are the top insurtech trends these specialists say will have the biggest impact on the industry:

  1. Increased partnerships between insurers and insurtech startups. As the insurtech sector remains primed for significant growth in the next few years, Spit expects the market to be ‘ripe for partnerships.’ Spit added that a good example of a solution emerging as a driver of collaboration is embedded insurance, with conventional carriers and non-insurers alike making ‘strategic bets’ to acquire insurtechs that can help embed revenue-generating insurance products into their ecosystems
  2. Digital technologies help deliver better customer experiences and improve efficiencies. Spit pointed out that many insurance companies are also embracing platform-based business models and leaning on data-driven insights to help facilitate customers’ digital journeys.
  3. ‘Avalanche’ of data from connected devices will allow carriers to better understand clients. There will be an estimated one trillion connected devices globally by 2025, which will lead to an ‘avalanche of new data’ that will help enable insurance carriers to understand their clients more deeply, according to McKinsey.
  4. More insurer-insurtech collaboration aimed at enhancing cybersecurity and compliance. According to Spit, the increasing frequency and exorbitant costs of security breaches, as well as heightened regulatory scrutiny are pushing more insurance carriers to ’embrace more sophisticated compliance and security solutions.’
  5. An increasing shift among carriers to digital infrastructure will likewise fuel the market. The McKinsey partners described insurance providers as having ‘significant technology debt,’ but as cloud technology matures, they expect a rapid transition to the cloud for all core systems.

Our Perspective

As a leading digital consulting company, Pinnacle Digital Advisors recognizes the rapid evolution and increasing significance of insurtech in reshaping the insurance landscape. The innovative solutions and consumer-centric business models offered by insurtech firms present immense opportunities for insurance companies to streamline operations, enhance customer experiences, and stay competitive in a rapidly changing market.

Pinnacle Digital Advisors

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