Winning business models of InsurTechs: Venture capitals are noticing the evolving InsurTech and insurance landscape

InsurTechs have attracted more investment from VCs post Covid-19. Collaborative business models with established insurance companies to drive distribution or specialised value chain enablement were key focus. With rising inflation especially services inflation and possible slowdown, operational efficiency beyond digitalization would emerge as stronger theme for InsurTechs

InsurTechs have seen significant investment during the calendar year 2021 with more than USD 10bn in investments through 300+ transactions. InsurTech investments have grown multifold post Covid considering possible growth in specific types of insurance. While US has seen highest investments especially in the mature companies, Europe has gained momentum with specific countries like India, China, Singapore pulling in more deals in Asia. 

The geographic spread of InsurTech investment is quite expected, however, within that there are certain themes that are attracting more VC money. These different themes are driving the maturity curve of InsurTechs, newer launches and future growth. While InsurTechs cater to a smaller market as compared to FinTechs, they are more specialised and require more domain knowledge to succeed. InsurTechs have been focusing on two models: build a technology driven full-service insurance company with monoline or limited product focus; alternatively, InsurTechs build a focused capability at a component of value chain. 

For full-service Tech driven Insurer with monoline product focus, the path to build-up and break-even is longer and more capital intensive. Insurance, like wealth management, relies strongly on brand and trust, which is built over time by the insurers. The business further focuses more on managing solvency margins, underwriting capabilities and regulatory dimensions. This type of pure technology driven insurance companies is not more than 10% and the traditional players have an overall strength by being a full-service insurance company. However, the newly formed technology driven insurance companies have a key benefit of having lower technical debt. Successful InsurTech like Vitaance is a life-insurance player with well-being as a core theme. Sidecar health converges healthcare, insurance and payments in one platform thereby taking away the hassle around insurance. 

InsurTechs with focus on a specific value chain component pivot themselves on deep Technology capability. The focus on a value chain component allows them to solve a specific industry problem. Different pricing models e.g., pay as you drive for motor insurance, lifestyle-based health premium, specific disease dynamic coverage through regular monitoring, IoT driven variable price home insurance, Smart contracts enabled marine insurance are some examples of innovation that are becoming prevalent in the market. Insurers are partnering with these InsurTechs with guidance of consultants. Consultants are enabling insurers to stitch a ‘mutually exclusive collectively exhaustive (MECE)’ model to enable scale with business benefit driven investments. 

For the next stages of growth, InsurTechs would need to continuously augment their business model. A few key business models that InsurTechs can adopt based on the industry trend, macroeconomic headwinds and technology maturity are as follows: 

• InsurTechs that can enable both inclusion and operational efficiency will be more favoured due to the macroeconomic headwind of inflation and possible recession. With higher wage inflation, it is the right time to drive operational efficiency to minimise specific individual driven dependency, eliminate manual and redundant processes. The business cases are more robust and would get right level investments that can drive short term and long term benefits.
  
  o InclusiondrivenInsurTechshelpedbothLifeandGeneral(P&CandHealth)insurance in increasing reach through Phygital, agent enablement, Banca and broker integration. The pre-filling of forms from alternate sources, digital capture of supporting documents, eKYC, vKYC, triangulation of data, intelligence in automation has played a key role to simplify the processes of an insurance company. Further value chain unitization is being possible with modernisation of core platforms, API-fication by the insurers. InsurTechs can now plug in faster into the integrated value chain of the insurer. Insurers are also seeing the InsurTechs as partners than competition. The replicability, collaboration with multiple traditional insurance companies and deep understanding of the industry problem are aspects to drive success
  
  
• InsurTechs are combination of Insurance and Technology and as the growth comes into play, a strong focus towards Insurance becomes key. The understanding of Insurance by the Tech co-founders is important, as that would enable them to broad-base the offering and garner larger market share or define new markets.
  
  o Corelating data, especially from alternate sources, meaningfully to manage risk is a key differentiator. Identifying the right data for premium pricing, real-time risk monitoring, dynamic pricing requires deep actuarial knowledge. Similarly, claims adjudication by superposing geospatial data, video analytics, behavioural data would again require deep technology, big-data and insurance know-how. InsurTechs are adopting design thinking led multi-disciplinary product development approach to build their product portfolio.
  
  
• InsurTechs with Insurance SaaS products would have a strong growth with APAC focused products having larger growth trajectory. Mandatory insurance coverage or simplified universal insurance with localised data residency would need to be considered to penetrate this growing market. A fine balance between local, global and regulatory level parameterisation to be adopted to appeal towards a larger target base.
  
  In summary, the InsurTechs that can change the proposition with time would emerge winner. The dynamism of proposition needs to be augmented with deep insurance understanding, niche technology like IoT, block-chain, smart contracts, big-data. Additionally, broad basing the offering for wider collaboration with insurers, modularisation of those and integrating inside the insurers traditional value chain would give more growth potential to the InsurTechs. 

(The article has been written by Siddhartha K Ghosh Cluster Leader, Financial Services Sector, IBM, India/South Asia. The author has consulted many leading enterprises in BFSI, InsurTech, FinTech and eCommerce companies in India and abroad in Digital and Data driven transformation. All viewpoints expressed are completely personal).