Fit to burst: is the insurtech bubble set to explode?

Global investment in the insurtech sector reached a record $7.1 billion (£5.2) in 2020, according to Willis Towers Watson’s January 2021 Quarterly Insurtech Briefing. Deal volume was up 20 percent on 2019—in the midst of a pandemic.

It was, says the broking giant: “The most important year for insurtech to date”.

But how long can it continue? Will it prove the high point for insurtech appetites, or just a milestone on the road to further growth? That was the question for a session of Intelligent Insurer’s Re/insurance Lounge, the online, on-demand platform for interviews and panel discussions with leading players in the market.

Looking at the challenges and future for the sector, investors and providers, the panel was drawn from both sides of the insurtech fence:

Still growing
Whatever the long term may hold, the panel agreed that there’s little sign yet of any insurtech bubble bursting. According to Jones, after a stellar year, the appetite for insurtech from investors is stronger than ever.

“Insurance is now one of the hottest spaces around, and almost everyone we’re talking to wants some kind of part of it,” he said.

Johnston agreed. Investment has broadened from the initial corporate venture capital (VC) vehicles to independent VC and private equity investors to, most recently, the general public through initial public offerings such as Lemonade, the shares of which doubled on the first morning of trading in July 2020.

“Everyone is still looking for that speculative return. Anything tech in the financial services industry right now is still considered a good bet for investment capital,” Johnston said.

“Insurers and other industry investors take a more strategic approach,” he argued.

Blurring the lines
That eagerness does lead to some concerns that the concept is being abused by those coming to market for funding. As Johnston explained, the “insurtech” label is being enthusiastically adopted by those looking for investment in their ideas.

“Anything that’s coming into the industry right now is self-identifying as an insurtech in part because of the speculative addition that it adds to your valuation,” he said.

There’s a risk that this dilutes the term, but equally, as the term’s meaning widens, the likelihood of any bubble bursting diminishes. Much of what is coming to market now are not radical new startups but partnerships with seasoned insurance people partnering with well-proven technology, the panel agreed.

“It’s not new,” Johnston said. “It’s just new to our industry.”

In this respect, insurtech is following the pattern of the wider fintech movement of which it’s part, said Jones.

“Fintech has gone through the same thing that insurtech is experiencing now. It had this ever-increasing scope of businesses that it covered,” he said.

That popularity brings in more generalist investors and may mean some businesses are backed that perhaps don’t warrant investment, he added.

Just as the repeated warnings of a fintech bubble have proved unfounded, a big blowout in insurtech looks unlikely. In fact, the recent crisis provides significant opportunities for new ideas in the sector.

“Out of times of crisis, excellent businesses are built,” he said.

Neither a bang nor a whimper
That’s not to say there aren’t challenges facing insurtech. At Getsafe, Treiber said, while interest in the sector was extremely high, its model—supplying direct-to-consumer insurance products through phone apps—is, he admits, capital-intensive.

“It takes some courage for some business models,” he said. One clear sign of the sector’s success is that investors are becoming increasingly comfortable with funding such ideas at an early stage.

Fundraising is not easy, even in the current environment, said Winchester. “I left the fundraising process with some scars, but also fairly impressed by the critical eye that investors brought to the business.

“This was not something where I could come and wave my hand and say ‘I will have a million users in the next few years’.”

The harder market may add to that challenge, noted Jones, with insurers able to hit targets through rate renewals without the need for fresh thinking.

On the other hand, there’s still massive room for growth, according to Treiber. As he pointed out, insurance remains very regional, with distribution localised in different countries across Europe.

“The opportunity to have a unified approach to communicate and sell insurance management through technology is where we think the conditions are perfect for new players to emerge,” he said.

This is the key point for Johnston: the change the technology enables.

“The technology is almost the least interesting part of this. It’s the business outcomes a technology can achieve: the ability to open up new capital markets; the ability to sell product to the underinsured markets; and the ability to meet changing consumer expectations,” he said.

“The technology is just a way of enabling those things to happen.”

Ultimately, the sector’s real success may be that, with insurance increasingly technologically-enabled, the “tech” part goes without saying—the term “insurtech” could one day become redundant.

To view the full Re/insurance Lounge session click here