InsurTech doesn't make sense ??

InsurTech doesn't make sense.

I mean, describing such a broad range of business models with a single word is insufficient.

Startups providing technology solutions to insurance companies

On one hand, there are startups providing technology solutions to insurance companies, including B2B players, SaaS providers, and enterprise software developers.

It is widely acknowledged that the market offers numerous opportunities in this sector. Several B2B InsurTech have already achieved significant scale, listing, leveraged buyouts, or profitability. The pervasive struggle of insurers with legacy systems, IT roadmaps, low margin business lines and the well-documented challenge of attracting and retaining tech talent present clear opportunities for tech startups to provide solutions to incumbents. However, it prompts the question of whether the number of challenges in the insurance industry matches the abundance of B2B InsurTech players focused on solving them!

Startups selling insurance products

On the other hand, some startups are focused on selling insurance products.

These are D2C players, whether they sell to individuals or businesses. Btw, this highlights another layer of positioning granularity. Beyond customer segments, different operational setups exist. Take Lemonade and Luko, for example. Both began with home insurance, but Lemonade operates as a full-stack insurer, meaning it underwrites its policies, while Luko started as a broker, selling policies from other insurers. There's also a middle ground setup known as MGA (Managing General Agent). The distinction is significant. A full-stack insurer’s revenue comes directly from the gross written premiums (GWP) of the policies they sell. For brokers, GWP is akin to GMV in eCommerce, with their turnover being only a fraction of these premiums. This difference has a substantial impact on their financial models...

I chose examples from the distribution part of the value chain deliberately: two-thirds of all startups created in the European InsurTech ecosystem over the last decade have focused on this area. However, this encompasses a wide array of go-to-market strategies. The first wave primarily involved online distribution, typically through websites and occasionally mobile apps, targeting end customers. The second wave introduced SaaS solutions to existing distribution channels like agents and brokers. More recently, startups have leveraged technology to enable third parties - such as eCommerce sites and platforms - to become insurance distributors themselves by integrating insurance offers into their existing customer journeys. This is known as Embedded Insurance.

While the most visible and well-funded InsurTech players have often been D2C, the diversity within this sector prevents us from generalizing their outcomes to all players. Back to the two mentioned startups, for instance. The first one has partnered with a top-tier bancassureur in France, while the second was acquired by a leading European insurer. These examples show that incumbents see value in these InsurTech startups (though the extent of that value is another discussion entirely).

To conclude on D2C players, several have achieved significant milestones, gathering between 500,000 and 1 million customers. While these numbers may seem modest compared to insurance giants, it's important to remember that most of these startups are under ten years?old. Therefore, it's more relevant to compare these figures to the influx of new customers at incumbent firms. Spoiler alert: these startups are on par with many traditional insurers in this regard!

Opening a new chapter in insurance innovation

Let's wrap things up by examining insurance products: some, like home, car, or health insurance, are often mandatory, while others, such as pet or bike insurance, are optional. This diversity presents various opportunities for startups to innovate within these sectors. Technology and data could play crucial roles, either facilitating enhanced risk assessment and pricing accuracy, or improving distribution efficiency.

Established insurers have historically covered these traditional risks with extensive historical data, but emerging risks like climate-related damages, electric vehicles, digital assets, and cyber threats are also on the rise. This dynamic landscape creates specific opportunities for startups to leverage technology and data to introduce new, value-added solutions to the insurance industry.

In the current environment where funding is down across industries, including InsurTech, it's tempting to assume that "InsurTech doesn't work," a sentiment often echoed by incumbents...?

Instead, I would rephrase a recent WSJ article: "Investors need to accept that?i?n?s?u?r?a?n?c?e? ?i?s? ?b?o?r?i?n?g? insurtech is varied".

To me the question should be: what is the value you are adding to the insurance industry?