5 Insurtech trends that will dominate in 2023
The global insurtech market was valued at $3.85 billion in 2021, according to Grand View Research, and is expected to double in the next decade. Despite this anticipated growth, the industry is set for meaningful turmoil and consolidation in the year ahead.
A recent report by CB Insights highlighted muted funding trends experienced by insurtechs throughout 2022. In Q3, funding dropped to its lowest level since Q2 2022, and deal sizes were down by about a third.
In 2023, as tighter VC funding cycles and recessionary pressures are being felt across the broader economy, we can expect insurtechs to face even more scrutiny.
As we saw with recent insurtech IPOs, the public markets have not been kind. Most of these companies were focused on disrupting or even upending the industry, and their aggressive approach to growth at all costs has yielded volatile results. However, the more recent wave of insurtechs seems to have learned from this, with many of them determinedly recalibrating their strategy to fit with the changing macroeconomic environment and funding cycles. There is no one-size-fits-all approach for insurance, but we can expect the following five trends to dominate the industry in the months ahead.
- A sharper focus on unit economics: The slowdown in VC funding will challenge insurtechs to demonstrate that they have a path to profitability, namely through a more forensic approach to their distribution channels, operating model, and underwriting methodology. Startups will be pressured to detail their revenues and cash flow outlays, and provide investors with greater assurances that their business model has the strength to not just survive, but to grow substantially in the long term. Those that can back up their vision with cold hard data will be well positioned through 2023.
- Partnerships: The more recent cohort of insurtechs will focus on collaborating with carrier and distribution partners to move the dial, rather than smash it. As every business owner knows, it’s tough when you are going it on your own, and insurance carriers offer the strong balance sheets and experience necessary to navigate the increasingly volatile market cycles. Strategic partnerships, such as MGAs, simultaneously enable incumbents to work with passionate entrepreneurs and technical leaders who bring fresh ideas about how data and technology can create more value for all stakeholders. We should expect a greater emphasis on transparency, innovation and mutual value creation between insurtechs, traditional carriers, and brokers to solve the challenges ahead together.
- Greater specialization and segmentation: Most of the major commercial coverages — such as auto, workers comp and general liability are already facing competitive pressure, forcing new insurtechs to focus on more specialized verticals where they can gain a foothold with their unique distribution, underwriting, and support services. We can expect startups to focus on servicing specific types of customers (industry, geographies, sizes, etc.) in a bid to identify lucrative, yet, underserved niches that offer enough headroom to build a sizable business.
- Increased M&A and consolidation: You don’t need a crystal ball to know that there are choppy waters ahead for the startup community in 2023. Course correcting won’t be easy, meaning that the difficult economic period ahead will force insurtechs who have already made adjustments to explore all options. For those that aren’t able to thread the needle with their current strategy or can’t make the necessary adjustments to change course, M&A is an attractive option. Expect many carriers and even other cash-rich insurtechs, to be active in the coming months and drive greater consolidation across the industry.
- Focus on customers: Despite the uncertain outlook, there is one group that is destined to benefit greatly, irrespective of how things unfold — the insureds. The emergence of insurtechs prompted established carriers to focus more on tech upgrades, consumer friendly applications and the quick delivery of services online. We are still just beginning to see what is possible, but the relentless focus on the customer by many of the new insurtechs is bound to help this industry close the gap between customer expectations and reality.
Tanner Hackett ([email protected]) is CEO of Counterpart. These opinions are his own.
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