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Could insurance face an innovation crisis?

Author: ICAEW Insights

Published: 15 Aug 2022

The insurtech sector is facing a credibility crisis due to rising rates and mounting losses, and only the strongest and most adaptable will survive.

Novel insurance businesses are seeing their net asset values or share prices drop as their underwriting is called into question and losses mount.

Higher growth startups are suffering while more established profitable traditional firms attract investment.

Crisis management

Is there a real danger that insurance could suffer an innovation crisis if investment is not forthcoming to fund new tech?

“From a broker perspective, I don’t believe we will suffer a crisis, but we will suffer if we don’t evolve,” says Richard Tuplin, CEO of Towergate Insurance Brokers.

Harvey Wade, Founder and Managing Director, Innovate21, agrees: “Innovation does not always equal new tech,” he points out. “Innovation is about solving user/customer problems better than they are being solved today. Insurtechs can often be a solution looking for a problem, and as a result fit into insurance’s product-driven mentality, rather than taking a customer-centric perspective.”

Danger ahead?

A more focused set of short-term investments will mean that only the strongest, most viable investment opportunities will stay the course. “Darwinian style, the most agile and adaptable will survive and thrive, leading to a better longer-term solution than an overly financially buoyant insurtech sector could deliver,” comments Tuplin.

Philip Goss, Chief Risk Officer, Volante Global, points out that the onus is on start-ups to prove demonstrable benefits of their tech more quickly than ever before.

“Given the current environment post-COVID-19, insurers are not going to be as free with their investments as they were before,” he says. “Any new start-up is going to have to demonstrate sustainable advantages that can be obtained from their solution. I think before, ‘new and sexy’ was good enough. Additional investment will follow successful implementations.”

So, how do tech startups cope in an environment of low growth and higher losses?

“It’s all about doubling down on the key start-up success areas: how will the big idea fit into the current industry ecosystem? What are they key benefits, and who are the beneficiaries? How will it be monetised? And how it can scale up,” says Tuplin. “Many insurtech start-ups are unclear on these and are delivering a solution to a problem that either isn’t clear or not widely understood. So starting with a solid answer to ‘what’s the problem you are trying to solve?’, followed by a clearly articulated view of how they will bring it to market and scale it is key.”

While this will mean that start-up investors are likely to be slower to invest, it will also, ultimately, lead to a better partnership based on mutual benefit.

“Hard times always reduce the availability of funding, but in a time of scarcity, the best companies often emerge,” adds Wade. “Tough times means that something different is needed, and perhaps an Insurtech business may just have the answer.”

Overall, the message is, there will always be opportunities for good ideas. “Insurers will still be open to fintech firms who bring a unique proposition that can give insurers a market advantage,” says Goss.

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