Why insurtech investments are down

Why insurtech investments are down

Insurtech investments fell by 79.6% in 2021, leading to job losses and tough economic conditions for the sector in the first half of 2022 thanks to a “combination of factors,” said GlobalData’s Deals Database.  

This follows after Gallagher Re found earlier this month that insurtech investment dropped by half in Q2 from the year prior, according to Reuters.

“These trends are likely due to a combination of factors. As highlighted, investment into the sector has dried up somewhat. Funding rounds are essential to keep insurtechs running in the early stages before they become profitable, so reduced investment is a significant barrier,” said Ben Carey-Evans, senior insurance analyst at GlobalData in a press release.  

The data pairs with news of insurtechs’ recent struggles.

A notable example is U.S.-based Lemonade, which this year saw its share price cut more than in half. Staff cuts accompanied this, with Lemonade reducing staff at Metromile by 20% after completing acquisition of the pay-per-mile insurer in late July.

Other global insurtechs also trimmed staff. India-based Nova Benefits cut 30% of its team, and U.K.-based Zego cut 17% of its workforce this summer. 

One possible reason for decreased insurtech investments, GlobalData suggested, is that consumers are choosing to turn to more established brands as their disposable incomes decrease.  

“It is also likely that in tough economic times – such as a pandemic and now the cost-of-living crisis – consumers turn to familiar and established brands, as they trust them more to survive and pay out claims. It is also true that a lot of insurtechs focus on gadget or possessions insurance, which is not considered an essential purchase by consumers,” GlobalData says.  

Reuters suggested another reason insurtech investments have dropped is that some firms are finding it tough to compete with established players and have suffered from the broad sell-off in tech stocks. 

One issue is that blockchain (a database shared across computers in which records are difficult to change), which was celebrated a few years ago as a way for insurers to cut costs, has not lived up to  expectations.  

To combat reduced investments, insurtechs need to focus on what consumers will be seeking in the immediate future: value, said Carey-Evans.  

“This can be achieved by relying heavily on artificial intelligence to cut processing costs, or by offering innovative products such as pay-as-you-drive and on-demand policies,” he said.

“The latter would allow consumers to control how much they pay or receive cover only when it is strictly needed.” 


Feature image by iStock.com/tommy

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