The newer cohort of innovators, or insurtech 2.0, recognizes the innovators who came before but takes a more nuanced and collaborative approach to disruption, recognizing that the legacy insurance industry is far too resilient to be demolished into rubble and completely rebuilt. More recently, the economy has made access to capital more scarce, forcing new entrants to think more critically about finding the real opportunities and strive for compelling unit economics. It’s important to remember that Amazon, PayPal, Airbnb, Slack, Square, Facebook and many other world-changing companies cut their teeth in the last recession.
We are still in the early innings of insurtech 2.0, and some companies are already showing product market fit and poise on a path to maturity. 2023 is likely to bring customer-centric development and solidify insurtech 2.0s as a force to be reckoned with. Here are five trends to watch in the new year:
1. Disciplined growth: Insurtechs, while they need to capture market share and demonstrate product market fit, are eager to show better unit economics and combined ratios. The 2023 focus will be on acquiring the right customers, not every customer. Adverse selection is an age-old insurance term which I’m certain every VC and insurtech has learned over the last few years. Expect to see smarter customer acquisition strategies next year and beyond.
2.IOT impact:While insurtech 1.0 used IOT predominantly as marketing tools, expect to see the 2.0s show real impact on underwriting, claims, and loss control, meaningfully utilizing IOT in various insurance lines, particularly specialty commercial; think cybersecurity products as a policy condition for cyber cover, wearables for workers compensation, and telematics for commercial auto.
3.Hybrid distribution: The resiliency of the agent channel is now abundantly clear to all who were predicting their inevitable disintermediation just a couple of years ago. As insurtechs have recently been more willing to work with agents vs. around them, tech-forward agencies have responded in kind. Strong agency relationships will bring sustainable (and predictable) unit economics to insurtechs, and both parties will collaborate on novel ways to distribute products in 2023.
4. Data quality > AI modeling: While AI models are a great tool for internal insights, regulators are still lukewarm at best on black box models as a means to price and segment risk. Equally as important, unexplainable pricing decisions lead to confusion and friction with agents and customers. If you can’t explain your value proposition beyond price, you are in a race to adverse selection. As most policies are in-force for 12 months, insurtechs need to realize that the quality of the data and proprietary nature of the datasets will generate far more alpha than the sophistication of the models themselves.
5. Customer-centric products: We are finally arriving at a point of actual product innovation, beyond the window dressing of a user-friendly app. Expect to see policies with customized coverage forms, loss control teams that help policyholders post-bind, ownership over the claims process, and an alignment of incentives between insurers and insureds.
Source: Digital Insurance
