Stock markets are struggling. Venture capital funding is drier than it’s been in the last few years. Even with the midterm election wobbles in the rearview mirror, caution will be the byword for insurtechs in the coming year.
This is hardly the flush, adventurous atmosphere of yesteryear, where “disruption” was everyone’s favorite buzzword. Now, insurance technology companies are adapting to center on legacy insurers, which puts these insurance companies in a prime position to move technology forward and have their needs met, changing insurtechs from provocateurs and adversaries into peers and confidants.
As this year’s InsureTech Connect conference in Las Vegas demonstrated, more insurance carriers are recognizing their need for modern insurance infrastructure, even as edgy insurance technology companies begin to copy legacy insurance’s notes for how to grow and scale responsibly. Let’s examine the current conditions that drive home the point that insurance companies and insurtechs should encourage their blossoming spring-and-winter romance.
1. Market conditions will still drive insurance technology successes
Venture capital is down but not out
Venture capital funding may be down from its pandemic-era high, but it’s hardly bone-dry. This isn’t the Ogallala Aquifer. An intriguing blog from the Ernst & Young blog, sourced from Crunchbase VC data, shows that the so-called slump of VC funding we’ve seen in the last quarter or so is more likely just a return to pre-pandemic levels. In this view, it’s more useful to look at 2020 and 2021 as the exception, an anomaly rather than a trend.
So, while investors may not be spending without limit, insurance technology startups that have a solid business plan are as likely as ever to find a path to success.
Mobile and remote options aren’t going away
Regardless of funding, however, the pandemic pressures that led to the (possibly brief) bump in VC-backed insurtech startups are still real. White collar workplaces look like they will remain distributed, with a mix of in-person, hybrid, flexible, and remote jobs. Workers and consumers alike are more likely to demand mobile-first (though not mobile-only) options.
An insurtech ecosystem that can leverage these insurance consumer trends and help humans do their jobs better and faster will win market share.
Mega-producers demand tighter time margins for insurance operations and administration
A wave of retirements has also led to small agency mergers and acquisitions, and will likely lead to the rise of “mega-producers” as the core of the industry, at least for a time before talent-acquisition efforts catch up. This translates into producers who have far less time to devote to any aspect of the business that isn’t absolutely core to production, and drives home the value of a tighter, tech-enabled business that reduces distracting or unnecessary tasks. An insurtech ecosystem built to solve these boring-but-critical value propositions, removing time-consuming administrative tasks, will be set up for success.
Challenges and Opportunities
The hardened market itself is one of those opportunities-within-a-challenge setups that will likely serve as a jumping off point for savvy (and lucky) businesses even as many others struggle or stumble. As one 2016 blog makes the case, the last official recession was a catalyst for tech-enabled businesses that supported the gig economy, and there’s good reason to think the current market will do the same (although not necessarily gig-economy based).
2. Anticipated increases in M&A activity emphasize the importance of ease-of-work values
When a glut of startups meets a tighter market, it’s nearly a rule that mergers and acquisitions will heat up. If you’re directly involved in a business consolidation, you’ll want to ensure you can make the most of the opportunity. You don’t just want to slash valuable workers (and risk having to re-hire them at higher cost later), nor do you want to duplicate tech and tools across multiple parts of the business. Instead, legacy carriers that leverage better technology can help realize the value proposition of M&A without sacrificing the characteristics that made the merger or acquisition attractive to begin with.
Even if a legacy insurance carrier doesn’t have the appetite to snap up smaller businesses, investing in software-as-a-service solutions that make you easier to work with is still critical as your downstream agency distributors will likely face M&A. Tools that use intelligent data to capture and automatically update existing records go a long way to stop “but this business used to be called” and “oh, they’re now doing business as” conversations.
Staying competitive in a high-M&A world means making it easy to keep working together, reducing turnover even when retirements or market consolidations necessitate change.
3. Tighter margins necessitate more efficient tech stacks
During hard markets, many insurers lose headcount via attrition over time. But in the current environment, talent acquisition hasn’t kept pace to supplant burnt-out and overworked employees. If you work with too thin of a people margin, you can’t necessarily just post an advert and expect to welcome an experienced administrator through the door.
Instead, insurance technology can reduce the load on your human teams. In fact, many insurers may be surprised by how much they can benefit from integrating their current tech stacks, giving them more flexibility and margin without even touching headcount. Even tech-forward insurance companies may be unaware of the opportunities they’re missing by not ensuring their data collecting efforts integrate across their siloed departments.
When markets drive your margins down, you have to build your own buffers and widen your own margins. Making better use of your existing tech through smart automation and efficient integrations is one obvious way to do it.
4. Hard markets mean speed wins
As generations get more tech-savvy, speed equals trust. Consumers believe it. Producers and adjusters believe it.
So how can insurers adapt?
Automation technology isn’t just about having a bunch of engineers at your beck and call – see above for the industry-wide trouble of maintaining head count. Instead, modern insurance infrastructure is increasingly built on low-code and no-code platforms, meaning the new functionality that used to take months of development can now take weeks or days.
If you’re an insurance carrier that built bespoke internal software decades ago, it may be time to evaluate what the current insurtech ecosystem can offer. Instead of clinging to a sunk-cost fallacy, imagine whether you or your competitors are more likely to scoop up market share in rolling out a new automated function.
5. Shared learning – someone is going to benefit from solving pain and it might as well be you
The nerve-wracking reality of building modern insurance infrastructure to solve new (and old) challenges is that there is trial and error. You can’t keep doing things the way they’ve always been done – paper and pen are being left behind in an era where digital record-keeping isn’t just a nice-to-have but now a regulatory mandate.
Yet, many solutions in the industry haven’t kept pace with regulatory changes or consumer demands. This is the real proposition of insurtechs: bringing new solutions to real, long-term industry pains. And that’s where insurance carriers’ engagement becomes essential. Without taking the time to help insurance tech companies understand and work through legacy insurer needs, the insurance industry as a whole will continue to struggle its way into the 21st century.
Carriers that engage in this process of sharing learning and solving pain points alongside emerging tech companies will undoubtedly profit from their efforts; early adopters get to dictate product functionality. Instead of allowing the word “legacy” to be code for “old” or “out of date,” carriers that embrace tech-forward innovations will encode “legacy” as a signal for businesses with powerful pasts and even brighter futures.
If you’re ready to set the industry pace for compliance and ease-of-work values, then see how AgentSync can help.