A glimpse at the future of insurtech: An outlook on 2025

October 22, 2024 4:32 PM

ITC 2024 Panelists Josh Cohen (director at Liberty Mutual Strategic Venture), Nicole Gunderson (principal on the investment team at ManchesterStory), Clive Thompson (SVP, Treaty Broking at Guy Carpenter) and Sarah Kim (partner with Centana Growth Partners.)

While insurtech funding has continuously decreased since 2022, insurers are still looking towards digitalization and automation across the insurance value chain that provides an opportunity for insurtechs to carve a space for themselves.

During "The 2025 Outlook for Insurtechs" session at the 2024 Insurtech Connect, held Oct. 15, investors and professionals from Liberty Mutual Strategic Ventures, ManchesterStory, Guy Carpenter, Centana Growth Partners and Celent discussed the current state of insurtechs and which areas of the insurance industry will most impact the space in 2025.

Insurtech funding is changing

Insurtech funding in terms of money invested and the number of companies was down this year, according to Celent. The panelists shared that part of the reason for this, among many factors like a changing economy, was likely due to shifting expectations from specialized investors and insurtech understanding of the industry.

"This is a really unique ecosystem, because it's not just a software ecosystem. People need to understand balance sheet risk, and that we're really taking on risk. Whether you're taking on the front-end distribution or the carrier is behind you, you're in a risk ecosystem," said Sarah Kim, partner with Centana Growth Partners. "I think there were investments that came in…and they didn't understand that, the value chain or the economic sharing of what happens in that value chain."

Kim said that she is excited because she believes that insurtechs and insurance-specialized investors now have more realistic expectations and understanding of the insurance ecosystem, as well as which parts of the value chain are in need of innovation.

"Now, we're actually trying to build long term, sustainable businesses," said Kim.

Nicole Gunderson, principal on the investment team at Manchester Story, agreed. She shared that as an investor, it is "refreshing" to know that an insurtech understands the needs of an insurer and their pain points.

"Just being specialized as an investor in insurance brings a lens that has created a return to expectations of sustainable businesses to be built from a very early stage," added Gunderson.

Taking on more of the value chain

The panelists agreed that insurtech companies have and will continue to gain more touch points across the insurance value chain. Clive Thompson, SVP of Treaty Broking at Guy Carpenter, shared that carriers are looking to digitize processes now more than ever, looking at increasing technology usage or automation to improve customer experience, underwriting and claims or at any point in the first notice of loss (FNOL) period.

"Really high quality, best-in-class professionals are continuing to enter at a rapid pace," said Thompson. "You see insurtechs taking on all aspects of the value chain from an insurance value chain perspective, rather than just focused on distribution…or claims. As a result, I think there's this very, very healthy equilibrium that then has a great downstream effect on venture investment."

Gunderson advocated for groups such as the Global Insurance Accelerator to help insurtechs navigate the insurance ecosystem and bring fresh ideas to the industry.

"I think it's a great place for both early-stage companies to find their footing, but also for different players within the insurance ecosystem. Whether you're a carrier or broker, there's a lot of opportunities for those organizations to get involved, mentor these companies from the earliest stage, give the feedback around if this is actually a need that [the] business has, or if you are barking up the wrong tree," said Gunderson. "I'm a continued proponent of that, because I think it provides a healthy path for each party in that equation."

Focusing on improved data and automation

Josh Cohen, director at Liberty Mutual Strategic Ventures, said, "All the companies we're seeing are all about better collection of data that they are harvesting, focusing on how to make more informed decisions and how to create better experiences."

He also added that there are specific areas ripe for insurtech potential.

"One of the areas we've been spending a lot of time in is specialty commercial. I think it's an area that got overlooked in some of the earlier waves of insurtech, but still a massive market, very huge potential for digitization and better use of data," said Cohen. "We've seen this real influx over the last few years of folks starting to impact that space and I'm looking forward to seeing more."

Gunderson also said it will be interesting to see how AI and emerging technologies impact this space.

"We have a fund that is specific to broker-centric technologies and solutions, and I'm really interested in how AI is going to kind of advance and change distribution largely. I'm really excited about what we're already seeing there and the potential," stated Gunderson.