Which technology should InsurTech investors move away from, and what should they embrace instead?
These are typical questions investors in the space (and others) must ask themselves over time, in order to maximize their returns and cut losses when a particular bet doesn’t work out. Trends toward increased digitization brought on by the COVID-19 pandemic have also accelerated the need for these questions, some observers say.
There isn’t a particular consensus on priorities, however, even during a pandemic that initially curbed investor appetite across the board over Q1 2020 before venture capital levels generally recovered later in the year.
Re-evaluating Priorities
Matthew Jones is a principal at venture capital firm Anthemis, and he’s focused on insurance/reinsurance and risk management-related technology in the UK, Europe and United States. He said his firm remains interested in multiple opportunities but is beginning to prioritize.
“We continue to be interested in all lines of business and all parts of the value chain, [though] one area that we might be less likely to invest in is software purely for insurers,” Jones said. “To us, there is no doubt about the need for new software within insurers— some are running on core systems older than me!— and there is now substantial evidence that COVID has accelerated the adoption of new technology across the insurance industry.”
So, why should investment move away from software made purely for insurers? Jones explained that the struggle to penetrate the market effectively is ongoing.
“There is … evidence that it is very hard for startups to penetrate this part of the value chain and to take on the established technology incumbents,” Jones said. “People don’t get fired for bringing in IBM or Guidewire.”
Dax Craig is co-founder and president of Pie Insurance, an InsurTech MGA and provider of workers compensation insurance for small businesses. He said that carriers are changing their technology interests rapidly and that investors and entrepreneurs should take note.
“I would argue that carriers, particularly commercial lines carriers, are losing interest in data, analytics and AI technology investments,” Craig said. He added: “I think COVID is forcing people into the cloud and all other technology investments are taking a backseat as a result.”
Martha Notaras, an InsurTech investor and managing partner at Brewer Lane Ventures, said a number of technology points of focus that drew attention in the past are now in flux.
“General market distribution of personal lines insurance has become less interesting, because there are several strong, well-funded players,” Notaras said.
Other areas that Notaras said investors now see as less interesting: “point solutions that require the incumbent to spend IT or resources to implement.”
Matteo Carbone, founder and director of the IoT Insurance Observatory and an InsurTech thought leader, disagreed that investors were avoiding technologies that are no longer in demand. Rather, he said, especially since the start of the pandemic, “many investors are more supporting the companies they have already in their portfolios than investing in new ideas for now.”
Tech Demanding More Attention
Jones, Craig, Notaras and Carbone identified a variety of technology areas that they believe deserve, or are now getting, more InsurTech investor attention.
“If we think about the period between 2014-2017 as being customer experience focused (e.g., apps and taking products online), [and] of 2017-2020 as being insurance infrastructure focused (e.g., building software for insurers), my sense is that the end of 2020 and the next couple of years will be oriented around new insurance products,” Jones said.
He added that the idea of investing in new insurance products is “enormously interesting” to his firm, “as we like to invest with a view to closing protection gaps.” In other words, expect Anthemis to be more active in this space over the coming months.
“Even amid a hardening reinsurance market, we’re seeing an appetite for developing new products, whether it’s around artificial intelligence, intellectual property or climate volatility,” he said. “We hope this continues, even as underwriters hit their targets due to rate increases on traditional business.”
Craig, who was also co-founder and CEO of Valen Analytics (now part of Insurity), said there is a particular area of technology investment that deserves more venture investor attention.
“Microservices architecture accessed through modern APIs for policy and claims administration is an InsurTech technology that is being overlooked but is most needed,” he said.
Notaras said that rather than investors devoting time on general market distribution of personal lines insurance, she instead sees “companies that are reaching targeted populations in more subtle ways, such as delivering real value like relevant content and interactivity, before asking for the sale.”
As well, she said interest has shifted to incumbents who “are doing the cost-benefit and are willing to invest in implementation resources in more holistic solutions that will deliver a solution to more of the problem and deliver more value.”
Carbone said he sees a number of technology areas that could use some InsurTech investment interest.
“I see huge opportunities in the distribution of P&C coverages by incidental channel,” Carbone said. “I consider commercial lines the area where the opportunity is more relevant. There are (non-insurance) players [who specialize] on a business segment, with an existing customer base, with data that can be used to better transfer risks of this customer base or event to mitigate these risks, and a position on the customer journey that allows to effectively sell the insurance coverage.”