4 InsurTech Themes We’re Excited About In 2021

Themes from investors, founders, & executives in the InsurTech landscape

Themes from investors, founders, & executives in the InsurTech landscape

By: Rick Zullo and Ali Afridi

2020 was a defining year for the InsurTech ecosystem as a confluence of factors brought startups & tech-forward insurance companies into the spotlight. COVID-19 forced companies across the insurance value chain to accelerate digital transformation efforts to effectively operate in the new world. This catalyzed the adoption of new products across departments and ushered in a wave of IPOs with Lemonade, Root, GoHealth, Clover Health, and several other big InsurTech startups going public.

Going into 2021, we anticipate several catalysts will drive changes across the ecosystem. On the backs of digital transformation efforts accelerating during the pandemic, we expect brokers and carriers to continue making major moves to update their IT stacks for the modern world. Rising interest rates could create greater scrutiny in reinsurance markets and energize life insurance / annuity products that have been under pressure. We’ll continue to see new vectors of risk emerge with changes in consumer & workforce behavior in the wake of the pandemic and as the effects of climate change become more pronounced globally.

As we look to the year ahead, we queried our network in the InsurTech landscape on the top themes & predictions of interest to them. We’ve highlighted some of the insights they shared along with themes that we’re most excited about.

1. Embedded Insurance

We expect to see a continued increase in insurance products that are distributed through existing digital products that facilitate transactions or have access to customer data that can be leveraged for improved underwriting. This trend is well in-force within other segments in fintech and has been a huge force multiplier for companies we’ve worked with like RigUp, Wrapbook and SmartHop. Historically, this has created tension between commoditized and customized products offered within these platforms, forcing teams to choose between generic off-the-shelf solutions or lengthy (and expensive) build-outs. Players like Boost have ushered in a new wave of opportunity through enabling insurance as an embedded solution within the platforms, enabling customized products that are as easy to access as their fintech counterparts. According to Simon Torrance, this could be a $700b opportunity in P&C alone.

“We anticipate insurtechs to continue to improve the efficiency and workflows associated with insurance and reinsurance placement in small business as well as specialty lines, and for these efficiencies to be delivered in different forms to sub-scale players vs. those at scale in the distribution chain”

– Shawn Ellis (Managing Director, NFP Ventures)

“FinTechs enter the insurance category with vigor. Beginning to happen with a couple of the major Neobanks (Nubank, Revolut) and other fintechs (creditkarma/intuit). They bring many assets and capabilities to the table that matter for insurance.”

– Caribou Honig (Partner, SemperVirens Venture Capital / Co-founder, InsureTech Connect)

Embedded has been a buzzword in fintech for several years, best illustrated by Buy Now Pay Later (BNPL) players like Affirm and Klarna. Embedded insurance started with travel insurance and extended warranties sold at point of sale, like Square Trade and Assurion. Branch Insurance now sells home and auto as part of the mortgage process and Matic is embedding with mortgage servicers. 2021 will bring opportunities to embed insurance into transactions, with the end goal being delivering a seamless experience of product plus protection.

– Martha Notaras (Managing Partner, Brewer Lane Ventures)

2. Rising Interest Rates Drive Need for Innovation

As the global reinsurance market hardens, insurers will be forced to focus on reducing loss ratios and improving their underwriting practices to build stronger books of business. Low interest rates flooded markets with reinsurers seeking yield, creating a window for digitally-enabled MGAs to achieve capacity far easier than they were previously able to do so. However as inflation ticks up, markets will need to identify new ways for operating leverage through margin enhancements. We think this will drive carriers to find new forms of distribution and data to produce returns.

“Hardening reinsurance markets -> increased emphasis on UW profitability -> insurers raise rates -> dissatisfied distribution partners and their customers. That bodes well for startups and innovators that have i) better insurance products and underwriting, ii) efficient CAC/LTV, and/or iii) have collaborative partners like Boost!”

– Alex Maffeo (Founder and CEO, Boost Insurance)

“Low interest rates will focus carriers on expenses over top-line growth. IT projects that drive real operational efficiency will shift from the “could have” to the “must have” column. The pandemic will refocus carriers on what they do best (insurance), and prompt collaboration with insurtechs for what they do best (tech).”

– Richard Perrott (Co-founder and COO,ThreeFlow)

3. Collaboration Across the Value Chain

2020 was a major year for digital adoption for both carriers and brokers. While willingness-to-pay for broker software solutions remains low, partnerships through carriers seeking more efficient means of distribution and cleaner forms of data have driven tremendous adoption across the broker channel. We’ve seen this firsthand with companies like ThreeFlow and have witnessed similar success in collaborative solutions with companies like TrustLayer. We’ve also seen carriers open their doors to customers in a materially different way than they have in the past, focusing on CX/CS not just in the quoting process, but in claims as well, with companies like Marley seeing great adoption. Developing the connectivity layer between legacy systems still represents a major hurdle, but increased standardization of APIs is enabling several insurtechs to serve as valuable intermediaries in the ecosystem.

“[Acceleration] of API connectivity to better connect brokers, carriers and MGA-MGUs and deliver orders of magnitude faster quotes using smart e-Placing and underwriting solutions. The name of the game will be speed and customization/relationship-building. The winning insurtechs will build both symbiotically to deliver the most immersive experience for all participants, but we bet on brokers to catalyze that value chain”

– Greg Boutin (CEO, Relay Platform)

Connected and open platforms will begin their ascent. Too many apps, tools and too much data leakage, not enough value in return for users. We need seamless handoffs across to continue effortlessly. (Brokers and carriers) want tools and apps to be more than just satisfy a niche function.

– Kabir Syed (Founder, Riskmatch and Ennabl)

4. Reinvention of the Benefits Value Chain

About 47% of the U.S. population gets health insurance through their employers, with over 2/3 of all employees in a self-funded employer plan. Large employers saw health costs increase by just 1.9% in 2020, the lowest it has grown in two decades, but with over 40% of employees reporting they deferred medical care during the pandemic, costs could rise quickly in the year ahead. Employers were already under pressure to reduce health costs, with 40% of employees struggling with the cost of care prior to the pandemic. In the wake of COVID-19, employers will have a great opportunity to reinvent their benefits strategy, implementing new offerings that can increase workforce transparency over benefits that are offered, reduce claims for those with chronic conditions, and further expand coverage of new benefits that are in demand (such as mental health & caregiving benefits). Employer-driven care removes a lot of reimbursement risk by enabling new solutions to target employers with clear-cut ROI. This can happen much more quickly than in traditional fully-funded plans, enabling a faster time-to-market and less concerns about pricing pressure. Making sure these benefits can be fully realized in the fastest, most efficient and most addressable way will be essential to unlocking value within our healthcare ecosystem.

“With the cost of healthcare only expected to increase in the coming years, we will start to see the migration away from traditional plans and the exploration of creative alternatives to ensure employees are still protected but in a more cost-effective, sustainable way. We should expect to see innovation around employer sponsored health repayment plans, new supplemental insurance products and actuarial platforms to help employers understand the tradeoffs.”

– TX Zhuo (Partner, Fika Ventures)

“Innovation is being used to re-engineer self-funded medical/RX strategies, even for mid-market employers. Through enhanced Ai data engines and predictive modeling, employers are being empowered with actionable data to proactively identify gaps in care, and to appropriately incent members to choose high performance providers, who are themselves under a performance and outcomes-based agreement. Employers who are early adopters of these next generation strategies are achieving year-over-year cost savings of (12%)+. The objective is: right care, right time, right provider, right cost.”

– Heidi Cottle (Managing Director, NFP)

2021 represents a pivotal year for many aspects of society and industry and certainly this remains true for insurtech. While these are the themes we have the most concrete conviction on, there are others that we are actively engaging in including a) new, entrepreneurial models for brokers (ex. Goosehead), b) digitization of Medicare brokerages and c) MGA models capable of “bending the risk curve” (amongst others). While we are thesis-driven, one of the most exciting things about the business we are in is that compelling founders continue to show us new ways to transform the industry. We’ve seen this firsthand with many of the companies that we work with and are excited to connect with more founders seeking to make themselves a staple of the insurtech value chain. If you are one of those founders, please reach out to us!