The insurance sector has evolved considerably over time. Life insurance, home insurance, travel insurance, car insurance and other financial “products” have emerged as more people buy vehicles, holiday abroad and buy expensive items which need cover (e.g. computers and musical instruments). With the rise of digital technologies, however, insurance has undergone even further change through the emergence of “insurtech” (spurred on by changes caused by the COVID-19 pandemic). Below, our investment team at Bure Valley Group explores what insurtech is, past and future trends, and opportunities and challenges for investors in 2022.
What is insurtech?
Insure technology (insurtech) seeks to “disrupt” traditional business models in the insurance industry using digital technologies to improve savings, speed and efficiencies. Many investors believe that the insurance industry is ripe for innovation, with many large established players lacking incentive (or capability) to offer super-customised policies for a wide customer base. Here, exciting startups have the opportunity to carve their mark in the investment landscape.
The insurance industry, traditionally, has favoured wealthier individuals and those who have market experience. General actuarial tables are utilised early in the customer journey to place them in a specific risk category, based on factors such as age and location (e.g. car insurance policies). Similar people are put into the same “baskets” like this in ways that ensure that the company generates a profit, but also results in many people paying higher premiums than is really necessary (due to low levels of data).
Insurtech, however, can utilise a much wider range of data from interested customers – using device data, GPS tracking from vehicles and activity trackers (e.g. wearable fitness trackers). This allows customers to be better-placed into more defined groups, enabling more tailored, competitively-priced policies to be offered without compromising company profits.
Market cap and key players
Globally, the insurtech market was estimated at $9.4m in 2020 and projected to grow at a CAGR (compound annual growth rate) of 32.7% between 2021 and 2022 – reaching $158.9m by 2030. However, the pace could even outrun this as more insurtech companies enter the market and offer insurance innovations using technologies such as artificial intelligence, machine learning, blockchain and cloud computing.
One possible limitation on market growth, however, is regulation. Financial services is notorious for its strict compliance requirements, and future policy changes (e.g. those intended to protect customer data privacy) could act as a possible brake on this projected growth. However, this is likely to be counterbalanced by the market growth potential in countries outside of the UK such as Australia, China, India, Singapore, and South Korea.
The market can be divided in various ways, but it is common to segment it into six main areas: region, technology, end user, deployment model, offering and application. These categories are then subdivided further for greater analytical precision. When exploring insurtech by offering, for instance, this can be examined via solution and service. From the end user perspective, on the other hand, the market can be split into two areas: life & health insurance and property & casualty (P&C) insurance. This allows investors interested in insurtech opportunities to diversify their portfolio across a wide range of areas.
Key players within insurtech include:
- Damco Group
- DXC Technology Company
- Oscar Insurance
- Shift Technology
- Trov Insurance Solutions, LLC
- Wipro Limited
- Zhongan Insurance
Opportunities & risks
Insurtech companies can offer investors opportunities to generate high returns via their scalable, cost-efficient business models. However, regulation is a risk worth bearing in mind. The large, traditional and cumbersome insurance players have survived this long by being very cautious and by building up considerable legal experience. New companies – which are naturally more risk-taking – may land themselves in regulatory difficulties if not careful. Indeed, many insurtech companies enlist the help of larger players when, say, engaging in underwriting and managing “catastrophic risk”. This suggests that, for many insurtech startups, a successful exit may look like a large player buying up the innovation they offer as they prove themselves to incumbents.
COVID-19 has also had a big impact on the insurance industry and is likely to shape its course in 2022. One obvious outcome of the pandemic has been the widespread business interruption caused by lockdowns and event cancellations. Here, it is interesting that many analysts expect most of these losses to be picked up by reinsurers in 2022. As such, technical performance of primary insurers (and many insurtech companies) is unlikely to be dramatically impacted. Life insurance companies may find this a more challenging year due to solid capital levels in the USA. In Europe, moreover, megatrends such as responding to climate change and digitalisation are likely to be high on insurance company agendas.
Cyber risk is also a notable feature of the investment landscape. With the pandemic forcing more companies and customers online, it is hardly surprising that cybercrime has seen a big rise since the pandemic outbreak in 2020. Here, insurtech companies can be a part of the solution. Here, demand for cyber insurance has skyrocketed over the last 18 months and the question is whether supply can keep up. This specific market was worth $5.95bn in 2019 and is expected to reach $32.5bn by 2027, so this could present some exciting investor opportunities.
If you are interested in expanding your portfolio into these kinds of exciting spheres of investing, then we invite you to get in touch with us here at Bure Valley and to consider joining our exclusive investor network:
+44 160 334 0827