Who are the long-term and short-term winners in insurance following the coronavirus pandemic?

While Covid-19 has caused InsurTech investment to plummet, the market will see both short-term and long-term winners.

It was evident the coronavirus was going to more than the average flu when governments began to lock down countries. The world has fundamentally changed and the long-lasting effects of the coronavirus  remains uncertain. Last month, the White House’s coronavirus taskforce’s senior public expert Anthony Fauci told MSNBC that we will not see normality return until mid to late 2021.

However, InsurTech companies do not just have to survive the pandemic, but also ensure they remain competitive. “If an InsurTech’s first and only thought at the moment is of how they are going to survive, they are probably already doomed,” warns Yuval Zimerman, the director of marketing and global partnerships at traveller and doctor connection platform Air Doctor. “They need to be thinking about how they can find ways to thrive and come out of this period of uncertainty ahead of the competition.

“A crisis is the perfect time to invest in creativity – if business is down, how can your product, service, or platform be applied to a category in insurance where there are more opportunities? So many of the world’s most successful companies have had to pivot in times of trouble at least once in their journey to where they are now – don’t be afraid to rip up existing plans and go where the opportunities are.”

When the pandemic first struck, the world went into panic mode. While the public raced to fill their cupboards with toilet paper and pasta, businesses tried to save money to ensure their survival. Initial reactions were a little naïve, with many people believing the social restrictions would only last for a month. Tops. That was not the case.

Jon Cooper, CEO and co-founder of end-to-end digital client experiences provider life.io, argues that this misconception about the longevity of the crisis also extended to businesses. “When the pandemic started to unfold, everything went on lockdown and we weren’t hearing from anyone about anything,” he says. “Maybe after a month of getting their budgets in order and rethinking what the rest of the year looks like, there was this sudden a mad frenzy to do business to readjusted to the new normal.” Realising this, companies clamoured for solutions that would turn their ten-year modernisation strategy into ten-months modernisation strategy.

Due to this increased appetite for digital solutions, InsurTech companies were pegged as one of the industries to benefit from the pandemic. The insurance industry has notoriously been slow to adopt new technology, often reliant on legacy infrastructures and old business methods. The coronavirus was a real reality check for the industry. Their existing systems were not built for remote working, online operations needed to be improved and the face-to-face side of business was inviable. “This has already been a huge wake up call for many large companies that have been slow to modernise,” Stephen Brittain co-founder of InsurTech incubator Insurtech Gateway told FinTech Global in May.
While InsurTechs are positioned to do well, they may not have lived up to their full potential. Total investment volume in the first half of 2020 reached $2bn, which is a 13.3% drop compared to the same period of time in 2019. Despite this decline, the number of deals has actually increased by around 5.4% compared with 2019. If the investment rate continues for the second half, InsurTech will see its first decline in annual funding since 2015.

During the first half of 2020,  only 6.1% of InsurTech deals were valued under $1m, suggesting there were fewer small seed or earlier rounds or these were just larger in size. The InsurTech market did notice a big increase in the number of deals valued between $1m and $5m, accounting for 37.8% of the investments.

“While on one hand, carriers are spending more money and recognise the need to invest in a digital platform, the venture world is more cautious right now,” Cooper adds. “Many of them don’t necessarily have capital to deploy or they haven’t been able to close their new funds, at least in the early part of the pandemic. As a result some of these InsurTechs that are earlier stage and are fundraising have found themselves with a market that’s ready to buy, but not a whole lot of investors that are ready to invest. I think [it has been a good environment for growth] for the InsurTechs that were well capitalised to weather the storm and are focused on digital enablement and helping carriers transact digitally without face-to-face meetings.”

With $2bn still invested in the InsurTech space so far this year, it is safe to say that companies are still able to receive funding if they have genuinely appealing products on offer. As the market is now a little more stable, the final half of the year will show if the market has been impacted. “My guess is that if we were to look in another quarter’s time, InsurTech funding may very well be back where it was pre pandemic,” Cooper says.

Christoph Wagner CEO at document scanning platform Scanbot said “We believe it is quite normal that funding levels would drop in the economic climate resulting from the Covid-19 pandemic. Venture capital firms and institutional investors needed time to focus on their existing portfolio companies. They had to invest a high amount of time helping these companies navigating a very different and quite rapidly changing environment.”

As the initial shock has subsided, it might be the time for InsurTechs to capitalise on that surge of confidence that was placed on the industry at the start of the pandemic. “Innovation thrives on instability: I think what we are seeing is the bar being raised on qualitative investments,” says Adrien Cohen, co-founder and president at AI solution for accident and disaster recovery Tractable. “There is still funding available for companies developing and applying disruptive technology; for example, we raised $25m from leading US VCs in February 2020, as our investors believe in the possibilities offered by our AI to create a step change in how companies carry out visual assessment tasks.”

The digitally led InsurTech companies have all been noticing a positive impact on their operations. Life.io, Tractable, Air Doctor and Scanbot all stated they have seen business grow during the pandemic, with customers eager for their digital tools. Air Doctor has secured a growth of over 300% of B2B partners during the pandemic because new opportunities.  Scanbot’s Wagner said, “we’ve seen continued growth with business going up. And we do expect that business will continue to grow in the coming months.” While Tractable’s Cohen stated, “While Covid has had a dramatic effect on our everyday life, from a business standpoint we’ve actually seen a substantial increase of interest during 2020 – interest levels are roughly double what they were pre-Covid.”

With some InsurTechs seeing an increase in their usage, some of which have doubled, this leaves the market to look towards the long-term prospects. The pandemic has made clear that consumers want things online. While the world might return to a state of normality, where people can go to the shops or cinema without fear, people are unlikely to want to do away with online experiences for things like insurance. It is not just on the consumer side as many businesses might look to have a more remote working team, as to keep costs down on pricey offices.

“While the pandemic has had a negative impact on InsurTech in the short term, if anything, over the medium- to long term it will reinforce and accelerate the trend towards digitisation in the insurance sector,” Zimerman says. “This trend pre-dates the pandemic, but large insurers in particular had perhaps lacked the impetus to fully commit to it.” But as with everything, there will always be losers and this could even be the ones that initially did well out of Covid-19.

Cooper suggests there are likely to be two types of winners from this pandemic – short-term and long-term ones. The short-term winners are going to be the ones that have click-to-buy digital services. These were the companies that did well at the start of the coronavirus lockdown when firms were frantically looking to digitise to ensure their operations could continue. However, this is not going to last long. While they had a competitive advantage of being digital direct, but now every carrier is looking to have a seamless digital experience. “I don’t know if that competitive advantage is going to be long term and sustained or if it’s going to have been a flash in the pan from the pandemic,” he says.

Instead, he believes the long-term winners will be the ones that enable insurers to transform themselves into a digital business. “It’s like the old expression [that it’s] better to sell the pickaxes than to mine for gold,” Cooper says. “Companies like Life.io that are selling the tools so insurers can transform themselves to accept digital transactions and have the same or better capabilities of digital direct startups.

Ultimately, though, it is difficult to tell how the future of the industry is going to look like. “Giving an accurate assessment is hard here,” Wagner concludes. “We would argue that the repercussions of the pandemic, especially the necessary social distancing measures, reinforced the point that businesses need to change and adopt a way faster rate of digitisation than before. Just looking at claims processing, insurers must understand that a frictionless digital solution will delight customers, reduce costs, and make contactless claims handling possible.

“The global pandemic led to a lot of insecurity for consumers and businesses alike. But once this has settled we believe that insurance [and] InsurTech companies are well-positioned for rapid aggressive growth.”

Copyright © 2020 FinTech Global

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