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How to make InsurTech investments that meet today’s customer demands

A rapidly maturing market is creating new opportunities for InsurTech investors who understand emerging technology and commercial trends.

In brief

  • InsurTechs attracted record amounts of capital in 2021, driven by higher volumes of late-stage funding and surging interest from private equity (PE) firms.
  • Growth appears to be strongest for firms with leading-edge capabilities in AI, big data, application programming interfaces and digitalization across the value chain.
  • InsurTech investors can succeed by screening for solutions that address the technology and commercial challenges facing the insurance industry. 

The InsurTech market is maturing rapidly, with a growing diversity of capabilities and business models. The market has experienced sharp growth in funding valuations and volumes, as well as robust exit activity.

Insurers and private equity (PE) firms are investing in InsurTechs that improve business efficiency and penetrate new markets by creating fresh approaches to traditional insurance activities. 

At the same time, today’s customers expect the same seamless, personalized digital experiences around insurance that they get from other service providers. These heightened customer expectations are pushing insurers to embrace new technologies and customer-centric business models.

InsurTech investors can benefit from the ongoing disruption by understanding insurers’ critical technology and commercial challenges, then using those insights to identify potential recipients with the most promising solutions.

InsurTech market ripe for partnerships

InsurTechs were once intent on competing directly with incumbent insurance companies, but today’s players are often focused on partnerships. And insurers that once felt threatened by InsurTechs are now willing to invest in and ally with firms that can help them deliver innovative insurance products to the market quickly and efficiently.

One solution emerging as the driver for recent partnerships is embedded insurance. Traditional carriers and non-insurers alike are making strategic bets to acquire InsurTechs that can help embed revenue-generating insurance products into their ecosystems. 

For example, a large US property and casualty (P&C) carrier recently acquired an embedded insurance platform to provide customers with personalized solutions in their channel of choice.

Similarly, a dealer management system (DMS) company recently acquired an InsurTech with the capabilities to digitally embed the auto insurance quote-to-bind process within the car-buying experience.

The InsurTech investment landscape

InsurTech firms raised a record $15.4 billion in funding in 2021 — nearly double 2020’s levels — with 566 deals completed, according to CB Insights.¹ Most investment activity was in the P&C space, which accounted for 73% of InsurTech deals through the third quarter of 2021.²

As the space matures, valuations are increasing. In 2021, the average funding was $33 million, compared with $21 million in 2020. More than one-third of overall money raised in 2021 went to mid- or late-stage deals that garnered anywhere from $100 million to $1.2 billion.³

Funding profiles are changing, as well. Insurance companies invested in 17% of InsurTech deals through the third quarter of 2021, down from 25% in 2020 and 42% in 2019.⁴

Most of the funding came from PE firms and other strategic investors, as interest in the insurance industry remains at an all-time high. Investors are attracted to the growth prospects of InsurTechs, their ability to scale into new markets, and robust exit activity.

In 2021, a record 58 InsurTechs were acquired by investors, while four InsurTechs launched IPOs and another four entered deals with special purpose acquisition companies (SPACs).⁵

Four technology themes to monitor

Digital technologies pioneered by InsurTechs are helping the industry deliver better customer experiences and improve efficiencies. Many firms are embracing embedded insurance and platform-based business models, leaning on data-driven insights to help facilitate customers’ digital journeys.

Four key technology themes that are shaping the industry include:

1. Artificial intelligence

Leveraging AI-based platforms to boost the effectiveness and efficiency of critical functions has become a strategic imperative. Already, automation is being used to streamline the claims journey from first notice of loss (FNOL) to adjustment and settlement. Increased automation is resulting in significant savings for P&C and life carriers, a trend that is likely to continue.

2. Big data

Using big data from third parties and carriers’ own systems to improve underwriting processes, mitigate losses and enhance customer personalization has emerged as a new frontier for competitiveness. Data collected from wearable devices is helping life and health insurers make smarter underwriting decisions. P&C carriers are leveraging sensors in homes, vehicles and buildings to proactively reduce losses in areas like non-weather-related water damage.

3. Embedded insurance

Using open application programming interfaces (APIs) to seamlessly integrate insurance products and solutions into customers’ digital journeys has become an important avenue of growth. For banks, vehicle manufacturers and other partners, adding insurance products to their ecosystems can increase revenue and improve value propositions, resulting in a win-win for insurers and distributors.

4. Cloud

Carriers and InsurTechs are using cloud-based platforms and as-a-service business models to integrate components of AI, big data and open APIs in pursuit of greater speed and efficiency across their value chains. Cloud native core platforms are being used more often to rapidly develop and deploy new products.

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Four commercial themes to watch

InsurTech firms that can meet insurance companies’ critical business needs in areas such as data analytics, increasing scale or using technology to differentiate the brand, will be positioned for success.

Four key commercial themes driving investment activity are:

1. Growing third-party technology spending

Replacing legacy homegrown systems with third-party solutions is now recognized by most carriers as the fastest and easiest way to access innovative capabilities. The P&C industry is expected to continue to improve speed to market with new products and coverages by shifting more of its core systems to cloud-based solutions run by established service providers.

2. Prioritizing automation

Embracing automation with new digital tools has been made easier by advances in robotic process automation (RPA) and AI-driven analytics. The insurance industry’s hunger for greater efficiency can fuel a strong market for smart bots, automation to alter coverages, and other customer-facing solutions.

3. Monetizing big data assets

Distilling increasingly large troves of proprietary and third-party data into usable insights can give insurers a competitive advantage. Insurers with business models that rely on data-driven insights to enhance customer value are embracing InsurTech solutions that can automatically procure, validate and incorporate third-party data into pricing models.

4. Enhancing cybersecurity and RegTech

The growing frequency and costs of security breaches, as well as heightened regulatory scrutiny, have pushed carriers to embrace more sophisticated compliance and security solutions. Insurers are partnering more often with InsurTechs to help protect their platforms or detect silent cyber exposure across lines of business.

What InsurTech investors can do now

In an investment space as large, active and expensive as InsurTech, competition for the best ideas is fierce, challenging investors to stay ahead of the curve and make the right funding decisions at the right time.

The key to success is quickly and accurately identifying and nurturing firms and ideas that best meet customers’ current and emerging needs and help carriers pursue new avenues of growth. Key actions to consider include:

Strengthen commercial screening capabilities

  • Developing a customized rationale for screening emerging technology and commercial capabilities can give investors the best chance of moving the needle. Screening criteria may include factors such as the level of automation and cloud native applications within the business.


Enhance financial diligence

  • Evaluating business models for high revenue concentrations from specific products, customers or geographies can help investors avoid potential risks.


Drive clarity with external partnerships

  • Working with accelerators, incubators and research universities or leveraging in-house venture units can provide insights into the InsurTech innovation pipeline, driving successful investment decisions. 



Jared Kwait, a director at EY-Parthenon, Ernst & Young LLP, contributed to this article.


Investors can capitalize on rapid InsurTech market growth by correctly and strategically identifying and funding firms that address insurers’ current and future critical technology and commercial challenges.

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