Insurtech companies have attracted another record level of investment, with financial backing exceeding $10 billion for the first time in any one year on record, according to 2021 Q3 data. This is perhaps unsurprising given the high level of investment in insurtech seen in the first half of 2021 as consumers and businesses increasingly demand insurance services are delivered in the way that suits them – easy to use digital services.
The record investment is likely driven by major insurance companies struggling to innovate their own operations and services. This is hardly surprising, since larger businesses tend to find innovation more difficult than smaller ones. Clearly, the coronavirus pandemic also encouraged an acceleration of digitisation initiatives across many industries, and this has played into the hands of insurtechs and their clients.
The trend of innovative start-ups leading the way for major players in the insurance marketplace follows a familiar story to the telecoms market. For some time, telecoms operators have engaged with start-ups to benefit from their agility, execution speed and disruptive power.
Run by entrepreneurs, Wayra is Telefónica’s Open Innovation Hub, with access to networks, capital and corporations to help scale telecoms start-ups. Wayra was born from Telefonica’s recognition that it did not do innovation as well as start-ups so it make sense to encourage an ecosystem where start-ups can flourish. Telefónica provides access to business development opportunities that would normally be unavailable to young companies through its network of global affiliates.
There are also parallels between the growth of insuretechs and the financial services industry. Recent research by Accenture looked at the business models of more than 300 traditional and digital banks in 11 countries. It suggests banks could earn an extra $518 billion per year by 2025 by adopting the business models of digital-only challengers like Monzo and Starling Bank. This is why the fintech sector has been so buoyant for investment.
Start-ups drive innovation through necessity, with their ‘small company in a hurry’ mentality. Of course, many tech start-ups rise and fall quickly, but their value for innovating impacts right across a marketplace. This results in better services and better value for money for customers, which in turn drives adoption of new services and greater uptake of existing services. The result is that this innovation helps economies grow while creating wealth for investors.