Insurance technology startups (insurtechs) have been disrupting the insurance industry for several years, offering customers on-demand products and streamlined services driven by technological advancements. The traditional insurance industry provided the perfect landscape for insurtech disruption as the industry generally lags the pace of digital transformation adopted by other industries. Now, in 2022, insurtechs are seeing sharp declines in their stock values and struggling to maintain a competitive advantage in the market.
With inflation, higher interest rates and the potential for a recession, venture capitalists are being more conservative with growth stocks and investments. While insurtechs may see some growth this year, investment deals and funding for such companies have slowed to less than half of what they were in 2021.
Partnerships are the path forward
This challenging environment has forced insurtechs to shift from a growth mindset to a profitability mindset. Typically, this means raising prices and cutting expenses in areas such as staff, marketing and plans to scale.
But cuts aren’t the only solution. As initial growth expectations come under pressure, many insurtechs are rewriting their playbook. To maintain relevance in the market, insurtechs are partnering with traditional insurers and shifting their focus from disruption to process improvement instead. Traditional insurance companies, meanwhile, realize that they aren’t adopting emerging technologies within their business models fast enough to keep up with customers’ shifting demands. That means partnerships make sense from their perspective as well.
For any partnership to be successful, there must be mutual benefits, trust and commitment by the parties involved. In this case, benefits for insurtechs include the ability to scale products and services and leverage an established brand. Traditional insurers can benefit by gaining the ability to attract and retain customers seeking a digital experience. Customers may prefer self-service options by using their mobile phone to renew a policy or file a claim, while the insurance company provides an intuitive user interface to make it effortless for the customer, for example. These types of partnerships will enable both parties to provide products and services faster and smarter.
Traditional insurance companies are also partnering with insurtechs to offer embedded insurance products and services—digitally bundled coverage offered as part of the purchase of another product or service at the point of sale. This allows customers to purchase affordable, personalized insurance products and services that apply only to specific scenarios or products and pay only when it is used, via seamless, fast interactions. For example, rental vehicles offer insurance coverage for the rental period at the point of sale. While embedded insurance is more prevalent in Britain, it is slowly gaining momentum in the United States.
This type of coverage requires more streamlined processes, sophisticated risk and price modeling, and technologies that leverage data-driven insights. Partnerships that offer embedded insurance may generate new business and revenue, as well as insights from data analytics to drive future decisions and continuous improvements.
By coupling traditional operating models with innovative products and services, insurtechs and traditional insurance companies can adapt more quickly to new ways of working to capitalize on data capabilities, differentiate customer and employee experiences, and improve speed to market.
