The insurtech sector has had the roughest of rides in the past couple of years, as funding has plunged from a peak in 2020–21. The $700 million in venture capital investments in the first quarter of 2024 was down more than 80 percent from the first quarter of 2021 and is less than half the VC funding of just a year ago. Private equity funding also remains subdued, and far below prior levels.
In that context, the ITC DIA Europe conference that took place in Amsterdam last week—the continent’s largest insurance innovation gathering, with more than 900 participants—provided some useful insights into what the insurtech industry is focusing on. Our three main takeaways based on conversations with attendees center on scale, collaboration, and the potential of generative AI:
The struggle to scale. The magnitude of the funding decline understandably feels to some of the insurtech players like a descent from heaven to hell. The higher-for-longer interest rate environment that has crimped funding means that hoped-for scaling has been limited—and hyperscaling essentially nonexistent. Yet amid the disappointment, there remains a sense of purpose—and some straws of optimism to cling to. Insurtech players remain convinced that there is still strong growth potential for their products and services, given the desire for innovation in the insurance sector more broadly. And some insurtechs are starting to see the first signs of a capital market rebound: of the 20 insurtechs that launched IPOs in 2020–22, just over half saw a bounce in their stock in the past year.
Teaming up with incumbents. The talk about insurtech disruption of the whole insurance sector that was prevalent just a few years ago has all but disappeared. In its stead, we are seeing a new and significant focus on collaboration and partnerships. Direct distribution of insurtech products to consumers, which was the dominant model of insurtechs in the years up to 2022, has been largely replaced by distribution through traditional intermediated channels, via brokers and agents. The big insurers are in turn looking at insurtech players to provide the innovation and cost savings to which they aspire. Areas for fruitful collaboration notably include claims, which is the most mature and scalable area: insurtechs’ analytical skills can improve aspects including claims prevention, first notification of loss, claims management, loss assessment and repair, and settlement. We estimate there is room to improve the loss ratio by as much as 3 to 5 percent. We’ve already seen moves by some big traditional insurers to acquire or partner through investment in the most promising insurtechs.
The productivity promise of gen AI. The advent of this new AI technology is one of the biggest topics of the year for financial services and other sectors in general, as our colleagues have already written in respect to financial services institutions. In insurance, the potential productivity boost is attracting the most attention: in a sector that has historically not been able to improve productivity markedly, new AI-fueled transformations could have a productivity improvement potential as large as 30 to 40 percent, based on McKinsey Global Institute projections. Potential areas of application include:
- Sales and distribution, with the technology facilitating hyperpersonalized marketing
- Pricing and underwriting, with AI potentially helping to retrieve streamlined risk information from large unstructured documents
- Operations, customer servicing, and IT, as the technology gives rise to customer-facing bots and automatically converts legacy code, among other benefits and use cases.
In short, there is a multitude of opportunities for insurtechs opening up in a new tech age, and both insurtechs and large incumbents have an interest in teaming up to capture them. Value-adding innovation that enhances productivity will be the big differentiator going forward. Even in a hell-like funding environment, there is much room for hope—and concrete steps forward.
Piero Gancia is a senior partner in McKinsey’s Milan office, and Simon Kaesler is a senior partner in the Frankfurt office.
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