As profit margins continue to be squeezed in today’s difficult economic climate, the insurtech sector must ensure they are adding value through the propositions they are putting forward 

As the story of 2023 starts to unfold, the insurtech sector – like many others – continues to face ongoing challenges around inflation and cost of living pressures.

These macroeconomic events have spooked potential investors into acting more cautiously, meaning that insurtechs must demonstrate that they are adding value to a myriad of insurance processes and businesses if they want to woo new investors and funding.

For example, Gallagher Re highlighted in its Q4 2022 Global Insurtech Report that insurtech funding dropped to its lowest level since Q1 2020, plummetting by 57% quarter-on-quarter – this equated to a $1.01bn (£813m) fall.

While this rose 37.6% in Q1 2023, Gallagher Re’s global head of insurtech Andrew Johnston warned investors were being “cautious” due to the current economic landscape.

“There is a general reticence to go out alone as an investor at the moment because of the macroeconomic environment,” he told Insurance Times.

“Insurtech returns have not been as spectacular for the investment community as people probably once thought they might be.”

”That information is well and truly trickling down now to all investors.”

Risto Rossar, chief executive of insurance software insurtech Insly, told Insurance Times that “monetary tightening” was bumping up both the cost of business and short-term thinking.

He explained: “It means investors are not doing any long-term investments because the thinking is more in the short term.”

Furthermore, research and advisory firm Forrester noted in an article published in November 2022 - entitled Predictions 2023: Evolving risks and recession fears will redefine insurer strategies - that as insurtech funding dries up, more than a quarter of insurtechs could exit the market via M&A or from winding down their business.

This situation could create ”a buyer’s market” that is in stark contrast to 2021’s unicorn boom, which saw three insurtechs gain valuations of over $1bn (£81m) in the first half of that year.

This included Tractable, Zego and ManyPets – formerly called Bought By Many.

The article stated: “Though insurtech investment reached an all-time high in 2021 – due largely to the digital transformation of insurance during the pandemic – that funding is now drying up.

”In 2023, look for the strong – or well-funded – to buy the weak.”

Supporting insurers

To entice investors, therefore, insurtechs must showcase every nuance of value they can contribute to insurance processes.

For Oxbow Partners’ principal George Hanks, this is why the business management consultancy has observed a shift away from insurtechs touting legacy system replacements to instead focus on offering incremental technological gains.

“In a world where profit margins are being squeezed, insurtechs [that] can both positively impact the expense and loss ratio of general insurance (GI) businesses are going to be well received,” Hanks explained.

”Insurers are fully committed to their digital transformation journeys and insurtech, obviously, has a critical role within that.”

Ellen Carney, principal analyst at Forrester and author of the aforementioned article, agreed with Hanks’ sentiment.

Although she felt carriers would curtail their overall spend on IT projects and legacy tech replacements in a bid to reduce costs, investments in areas designed to achieve business efficiencies – such as automation and robotics – were likely to continue.

Insurtech developments

Alongside investment concerns, initial public offerings (IPO) – where the shares of a private corporation are offered to the public in a new stock issuance – appeared to have stagnated in the insurtech market in recent years.

US-headquartered Lemonade, for example, shelved its IPO plans in November 2019 after reporting an underwriting loss of $15.8m (£13.7m) in its 2017 full-year accounts, as well as a $1.5m (£1.3m) underwriting loss in the first three months of 2018.

Fast forward a few years, however, and IPOs may be making a reappearance. Insurtech Ondo – previously known as LeakBot – became the first UK insurtech to make an IPO in March 2022 following its purchase by Spinnaker Acquisitions.

A further trend to watch – and another way the insurtech sector can demonstrate its value – is insurtechs being viewed as collaborators rather than disruptors in the insurance market.

One example of this is Akur8, which offers an artificial intelligence powered pricing and rating platform that aims to help actuaries build and update pricing models more effectively.

Another example is RightIndem, which offers a self-service, digital platform to speed up claims’ lifecycles.


A timeline of funding opportunities for insurtechs 

January 2023: Insurance software company Ignite Insurance Systems launched an accelerator programme for brokers to help fund early stage businesses, provide mentorship and help improve diversity in broking and insurance technology jobs by setting a target of having a 50:50 male to female split within its first cohort.

Also in January 2023, insurtech startup trade association Insurtech UK called on UK-based insurtechs to sign up to the next cohort of the Insurtech Corridor Initiative (ICI) - a transatlantic collaboration intended to forge trade links between the UK and US insurance industry hub of Connecticut. 

The ICI initially launched in March 2021 and forms part of the broader UK-US Financial Innovation Partnership, which was signed between the US Department of the Treasury and the UK’s HM Treasury in May 2019. 

September 2022: Aviva invested $10m (£8.6m) into the Anthemis Group’s Female Innovators Lab Fund, which was founded in September 2019 and backs female entrepreneurs.

The insurer subsequently became a strategic partner to the fund, which was co-founded by Barclays.

Also in September 2022, the Isle of Man Insurtech Accelerator Program named seven startups in its first cohort. Two of the chosen firms are UK-based - Kasko and Spixii. The hub is backed by the Isle of Man’s government, the island’s financial services regulator, insurance professionals and Tenity formerly known as F10 - a global innovation system for fintechs and insurtechs.

August 2022: Ed Gaze left Lloyd’s Lab after four years to join insurtech Value.Space as its investor and advisor. Currently, Rosie Denèe is heading up Lloyd’s Lab.

June 2022: Howden Group revealed plans to create an end-to-end platform which accelerates the launch and growth of insurance startups, striving to bring together funding, capacity, governance and distribution. 

October 2021: Software company Guidewire established the Insurtech Vanguards initiative in October 2021 to support  insurtech startups in the property and casualty insurance market.

September 2018: Lloyd’s Lab launched, aiming to providing an accelerator programme for early stage businesses and startups that have fresh ideas to help serve insurance customers. 

The scheme, which was founded by Trevor Maynard, is supported by corporate innovation specialist L Marks and management consulting firm the Boston Consulting Group.