In 2016, Gallagher Re embarked on a journey to understand the emerging market opportunities and trends within the reinsurance space. Insurtech, an intersection of insurance and technology, was one of the significant areas of focus at that time. The early days of insurtech were characterised by a prevailing theme of disruption. Incumbent insurers and reinsurers were concerned about the potential threat posed by digital startups. To address these concerns and respond to clients’ fears, Gallagher Re established the ReinsurTech function to conduct research, identify insurtech companies, and assess whether the disruption narrative was justified. However, as Gallagher Re engaged with insurtech startups, they discovered a more collaborative approach. Most insurtechs were eager to work with clients, enhance existing processes, and enable collaboration.
Over time, insurtech itself evolved, and two predominant business models emerged: companies that develop technology for the insurance industry’s benefit (often referred to as software-as-a-service or SAS firms) and digitally enabled insurers. The term “insurtech” expanded to cover a wide range of businesses, reflecting the industry’s increasing interest in seeking investment and embracing technological advancements.
Investment in insurtech has experienced significant growth, with billions of dollars flowing into the industry. External investors, particularly technology venture capital firms from Silicon Valley, were attracted by the perceived growth opportunities and potential disruption within the insurance sector. However, the investment landscape has recently shifted. Funding has decreased due to macroeconomic factors and a realisation that the promised value from previous investments has not materialised as expected. Investors are becoming more discerning, seeking the expertise of insurance professionals before making further investments. While the investment numbers have declined, a few mega-round deals (above USD 100 million) continue to drive the headlines, highlighting the concentration of funding in a small number of companies.
The insurtech investment landscape is experiencing a rebalancing phase, where early-stage investments are expected to regain momentum. As investors become more familiar with the industry and identify likely winners, confidence in investing at various stages of growth will increase. The decline in investment also brings a more disciplined approach, focusing on businesses that truly add value. The label “insurtech” is now applied more selectively, and companies must demonstrate commercial sensibility and tangible business outcomes to attract investments.
Within the broad spectrum of insurtech, three key focus areas have emerged: distribution, business-to-business (B2B) support, and risk origination. Distribution is witnessing the rise of embedded insurance, which involves integrating insurance products seamlessly into other sales cycles. Affinity-based selling opportunities, where insurance products are offered at specific points of sale, are gaining attention. Insurtech is also proving valuable in supporting brokers and agents, disproving the initial notion that they would be replaced. B2B back-office support is another successful aspect of insurtech, with many companies leveraging technology to streamline their operations and improve efficiency.
Additionally, insurtech has played a significant role in risk origination. Using advanced data analytics, artificial intelligence (AI), and machine learning algorithms, insurtech companies can assess risk more accurately and efficiently. This enables them to provide innovative insurance products tailored to specific customer needs and risk profiles. By leveraging technology, insurtech firms are enhancing underwriting capabilities, automating claims processes, and improving overall risk management.
While insurtech has shown great promise, it has also faced regulatory challenges. Insurance is a highly regulated industry, and the introduction of new technologies and business models has raised questions about compliance and consumer protection. Insurtech companies need to navigate complex regulatory frameworks to ensure they meet the necessary requirements.
To address these challenges, collaboration between insurtech startups and incumbent insurance players has become crucial. Established insurers and reinsurers bring their industry expertise and regulatory knowledge, while insurtech startups contribute innovative technology solutions. By collaborating, both parties can create synergies, improve customer experiences, and navigate regulatory landscapes more effectively.
Looking ahead, Gallagher Re believes the future of insurtech lies in integration and innovation. Rather than viewing insurtech as a disruptive force, the industry is shifting towards a mindset of collaboration and partnership. Insurtech startups are increasingly seen as enablers, providing technology solutions that enhance traditional insurance processes and improve customer experiences.
As technology continues to advance, insurtech will play a vital role in driving innovation within the insurance industry. The integration of data analytics, AI, blockchain, and other emerging technologies will enable insurers and reinsurers to make more informed decisions, streamline operations, and create new product offerings.
