A related expectation: The idea that property/casualty insurers will continue acquiring startups as a way to modernize their digital capabilities as they increasingly move away from developing those technologies themselves.
Here’s a summary of some of the big predictions from both InsurTech investors and experts.
Erik Ross, Head of M&A, Venture Capital at Nationwide
Private InsurTech and fintech companies that survived the last year and have continued maturing will likely trigger more initial public offerings and M&A activity, Ross said.
The M&A route in 2021 also looks like a smart option for insurers and InsurTechs alike, Ross said.
“Incumbents will continue the trend of using M&A as a capital-efficient R&D strategy and hedge … finding it more efficient to acquire capabilities versus building them,” Ross said. “This includes acquiring not only technology, but also distribution, talent and brand for the growing digitally native consumer and business.”
Ross also said he sees the ongoing environment of low interest rates contributing to more venture capital investment and opportunity for the sector. Last fall’s successful InsurTech IPOs from the likes of Lemonade, Root and others should spur greater investment, he said, even as the global economy struggles with the ongoing coronavirus pandemic.
“With the success of several recent InsurTech IPOs in the public markets and the current economic environment, we should see more entrepreneurs come to the space like we did in the global financial crisis,” Ross said. “Some of best companies were started during that time like Credit Karma and Square. Silicon Valley Bank stated that [roughly] 40 percent of today’s unicorns were started during the GFC [financial crisis]. We see that happening during this time as well.”
Martha Notaras, Managing Partner at Brewer Lane Ventures
Notaras predicts InsurTechs will play a key role in 2021 in the push to embed insurance into every financial and retail transaction.
“When consumers are financing a home or a car, they can now buy insurance as part of the process,” Notaras said. “In 2021, InsurTechs will embed insurance in financial services (traditional and neobanks), as well as into retail purchases and experiences. Whether the consumer is buying a bike or signing up for a race, they can include insurance in a single transaction.”
The year 2021 will also be all about partnerships, Notaras added, but at a greater scale than in previous years.
“Incumbents and startups will enter into deeper partnerships, as incumbents finally believe that buying [technology] is faster and better than building,” Notaras said, noting that AI will be a big driver of the trend. “Startups bring a depth of technical expertise; traditional insurers identify customer and employee pain points and supply rich data to improve the performance of AI.”
Overall, Notaras added she also expects InsurTechs to enable greater industry use of the cloud.
“Startups will deliver coretech at scale. The pandemic has accelerated the urgency of moving to the cloud. With existing systems that are over 15 years old, and long implementation times for new coretech systems, insurers are enthusiastic about cloud-native coretech, and low code solutions,” Notaras said. “The goal is to achieve agility and put control into the hands of the business unit.”
Nigel Walsh, Global Future of Insurance Lead & Partner, Deloitte Digital
At least two things stand out for Walsh in his views of the industry for 2021: “digital indigestion” and consolidation.
What is digital indigestion? He explained in a recent LinkedIn post that it covers the idea of insurers coping with all the technology changes they’ve made, and figuring out what to do next.
“As the number of InsurTechs increases, the capacity for insurers to understand, try and test them is getting ever smaller,” he wrote. “As a result, I think we will see broad collaboration slow down and the number of InsurTech partners decreasing and competition here as a result getting harder amongst the InsurTechs.”
What that means, Walsh said, is that “quicker, faster, better” won’t be good enough anymore.
“How will insurers use new InsurTechs to revolutionize what they do? Resources (time, money & talent) are becoming more scarce—so competition will get harder. Differentiating will be key,” Walsh added.
Walsh also said he sees the advance of embedded insurance, something InsurTech advances will allow. As well, he said, consolidation will run rampant in 2021, after 2020 produced an initial wave of M&A activity and IPOs.
Both will accelerate through the coming year because of changes in funding priorities and insurers slowing their focus on innovation and new technology after the great binge of 2020, he said.
“InsurTechs dominance for 2021 will focus on those that enable further [the] existing carriers vs. full-stack competing ones … or those that have specific communities or niche groups they serve,” Walsh wrote. “With the latter, the question will always be—how do we get to scale still?”
Source: Carrier Management
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