In extraordinary times the cost of capital becomes more expensive: High inflation, geopolitical instability and COVID recovery make risky investments less attractive.
Although this, 2022 represents the 2nd best period in the Insurtech industry bar by far with 8 billion dollars investment. The trend keeps increasing even in uncertain times but with a clear correction that implies more mature, reasonable and stable investments.
Investors put their focus to pick early and growth-stage startups, and in the Insurtech area, this was illustrated by the European growth given that it is a more conservator market with a preference for traction and solid businesses. At the later stage, Insurtech also receives funds, but in promising businesses or winners in certain markets.
From the Insurtech side, they are more than ever pushed to look for high growth and profits driving their focus on the protection gap between the incumbent's offering and the unserved demands or providing solutions for the insurance value chain to deal with their current pain points like efficiency or a better customer experience.
Alan, Descartes and Wefox in Europe seem to be a good representation of solid working models, likewise Coalition and Pie insurance in the USA or Betterfly and Qoala in Latam and Asia respectively. And all these companies are uncovering not only the most important challenges and opportunities that the industry is currently facing but the top awareness and concerns of the global population: Climate Change, Health and Wellbeing, Cybersecurity, Real-time Analysis or Convenient and Affordable Products.
Insurers did a soft shift in their investment decisions, related to the commented context. Initial stages surge among their bets but they still concentrate investments in mature business models, especially in growth stages. New or well-established Insurtechs that operate in a growing market such as cyber, distribution, underwriting, or wellness seem to be the best options. Outside the Insurtech spectrum, Insurers are widely diversified to invest in cheap companies, and again these investments were made in growing markets like Biotechs, climate change-related topics, ESG, or electronic health records. Activities are really close to their close business allowing them access to different revenue streams with good traction in segments with promising growth rates.
Let’s see the example of Allianz, they acquired Simplesurance (embedded distribution), invested in Seyna and Clark (B2B2C brokers platform) invested in Coalition (cybersecurity), in Ladder (simple term life insurance for younger generations), in Human API (new underwriting models). A distribution of investment totally aligned with the growing markets and with the insurtechs model investments’ concentration.
Or, in the industry-related startups, we can see Allianz Partners with a strong value proposition for the new mobility ecosystems, now leverage with the acquisition of Simplesurance tech platform, through partnership practices with Heycar including an international digital platform to manage new automotive contracts, the launch of a European embedded insurance programs protection program for Volvo drivers, or partnerships with Uber, Lime or Bolt for new mobility services for drivers, couriers or scooters.
All this allows the company a topline growth to revenues and doubled its operating profits in the last couple of years despite the challenging market context. And like Allianz, we can find all the incumbents' leaders in all geographies with exactly similar movements.
There’s clear evidence that, even in uncertain times, Insurers are still seeing the opportunities to invest or collab with emerging companies for helping them to attend to the current challenges of the industry and continue with their solid role of protecting their clients, especially in tough times.
But emerging companies such as Insurtech are not the only new guests in the industry, Tech and Industry Titans are testing water in insurance gaining progress and becoming more and more important players. Avoiding the dichotomy of if there is a thread or an opportunity the reality is that they’re also finding a way to serve unattended demands and complement the lack of insurer expertise in some areas.
I would like to highlight Amazon’s resilience in cracking the employer health market with simplified, transparent and high-quality health care at a reasonable cost. After a couple of failures in Haven and Amazon Care, which also allow Amazon to get extensive feedback from their own customers (>1 million); now it seems their strategy is pivoting to attend to their customer’s demands in acquiring a third-party company in a moment where stocks are depressing. This is the case of One Medical, a customer-focused primary care platform, and an early adopter of telemedicine practices, that operates with over 188 established clinics and attends nearly 1 million customers, seeing around five times as many virtual patients as in-person visits.
Amazon seems to be building a hybrid strategy (virtual and in-person healthcare) in which the big anchor is going to be face-to-face outpatient care, which complements its current value proposition and provides them with very useful and actionable data to achieve its mission.
Looking ahead to 2023 and beyond we can consider that there’s a big protection gap in top global risks. Insurers can’t face these challenges by themselves and Insurtechs and New entrants are helping to accelerate the transformation of the industry. Capital markets will continue supporting these models with different biases depending on the macro context and the industry will continue to evolve to face these challenges, but no expected short-term disruption seems to happen.