Insurance is a USD 6 Trillion business globally, and big tech and startups have started taking aim at it. It has high capital costs, fragmented distribution, and regulatory hurdles and is therefore ripe for disruption. The availability of capital from investors reduces the entry barriers in this space.
New entrants are pursuing a couple of strategies:
- Challenge the incumbents (as per a Dealroom.co report, 58% of European insurtechs operate in this space)
- Augment incumbents (examples: Akur8, Cytora, Shift)
In pursuit of disruption, insurtechs have expanded their reach to provide insurance plus services, including risk prevention, analysis, transfer, and recovery.
More and more insurtechs are structuring themselves as MGAs to deliver innovation. MGAs can underwrite risks using capital advanced by reinsurers or insurers. One or more insurance carrier extends the ability to "sign" underwriting risks. MGAs can move fast unfettered by legacy systems and thinking. They are essentially capital-light and attract fewer regulatory requirements. Notable examples are Zego, Wefox, and Trov.
MGAs and Insurtechs are increasingly becoming the lubricant behind ecosystems like mobility, health, smart home, industry 4.0, Data& Cyber Security, and Wealth management. As per a McKinsey report, digital ecosystems will generate $60 Trillion of global revenue by 2025. That is the size of the pie at stake.
It is not an easy task for insurtechs to disrupt this industry, even when they are flush with venture capital.
Customer trust and strong brand values will be essential to establish, which is not a straightforward task. Incumbents have decades in headstart. Powered by technology, huge funding rounds and superior customer experience, the upstarts plow on!