LAS VEGAS – The insurtech sector is well positioned despite second-quarter data showing a year-over-year decline in funding, but companies may need to refine their strategies, according to speakers and attendees at the InsureTech Connect conference in Las Vegas last week.
It has become a sharpened focus on profitability and sound business plans for technology startups, they say.
In addition, some experts say there will always be a human element in the large-account insurance sector amid a growing war for talent fueled by the technological revolution.
“The focus in risk capital is very much on growth. In insurance, the focus is on profitable growth. It took a while for it to catch on, said Jacqueline LeSage, managing general partner in San Francisco for Munich Re Ventures, Munich Re Ltd̵7;s venture capital arm. said during a panel discussion at the conference.
Mrs. LeSage described the past five years as a “roller coaster” for insurtech companies, especially for full-stack companies, or the technology companies that try to underwrite risks. The wild ride doesn’t signal a death knell for insurtech, however, she said.
“For growth companies, there’s really now more focus on the path to profitability, whereas in the past there was a greater willingness to accept growth,” said Ali Inan, US FinTech industry leader in San Francisco for Marsh LLC.
“Capital has become a little harder to come by,” said Mark Anquillare, president and chief operating officer of data and analytics provider Verisk Inc. The insurers that thrived on top-line growth need to pay more attention to earnings and cash flows, he said, adding that growth for the sake of growth “will not be rewarded as it once was.”
Insurtech companies have also moved towards a more collaborative model with respect to incumbent insurers from the almost confrontational approach of five years ago.
“We’ve passed the point of inflated expectations, and now reality is creeping in,” said Bill Pieroni, New York-based CEO of Acord, the insurance industry standards body. “We’re starting to see insurance companies recognize the fact that maybe you need to know something about rules and regulations; maybe you need to understand ratings and pricing and actuarial science.”
Mr. However, Pieroni added that funding is still available and plentiful. “Is there still plenty of capital and dry powder? Absolutely,” he said.
Others have also seen the change in approach.
“People have come to realize and understand that the insurance mechanism is complex. It doesn’t seem like the same effort to completely disrupt, it’s more of an opportunity to tap into and maybe collaborate with,” Mr. Anquillare said.
Mr Inan said technology will generally be used to solve problems in insurance and more broadly. “It hasn’t changed, and I don’t think it’s going to go away,” he said. “Ten years from now, there will be a lot more technology in the insurance process.”
Those who don’t adapt may be left behind, he said.
The change has brought new competition for talent, which is already a problem in the insurance industry. Insurance companies will have to compete in a larger labor pool with other industries for expertise such as computer science graduates, which will require a greater allocation of resources and effort, Pieroni said.
Technology can help businesses and employees free up time that can be refocused on educational opportunities for young people, Inan said. “Greater opportunity for people like myself to mentor,” he said. “The more time we can give back to people will help create capacity for more innovation.”
Ultimately, technology could change the way insurance employees do their jobs.
“To me, the insurer of the future is a data scientist,” said Bryan Davis, Chicago-based vice president and head of personal lines strategy and business development for Hub International Ltd.
Even as change accelerates, there will still be a human element to the business, Inan said. “The dynamic for a large, complex customer is really more than just placing insurance. I think the advisory component will always be there as a human element,” he said.