Mark Colonnese, director at Aquarium Software explores…
The insurtech market is booming right now with record levels of investment in insurtechs in 2021. A record-breaking $15 billion of funding was raised in the third quarter last year according to Forrester, which is more funding than in 2019 and 2020 combined.
The value of innovation created by insurtech start-ups is becoming clear in the market. Consumers and businesses want insurance delivered in a way that suits them and insurtechs are driving this change by creating digital services that are quick and easy to use.
Part of the reason for record investment is the fact that big insurance businesses are struggling to innovate their own operations and services. Major insurance companies are becoming increasingly reliant on insurtechs to attract investment so they can innovate services, which major insurers then use to gain competitive advantages in the marketplace. At the same time, the coronavirus pandemic triggered an acceleration of digitalisation initiatives across many industries, and this has played into the hands of both start-up and scale-up insurtechs and their clients.
Innovation in different industries
Innovative start-ups pioneering developments for major players in the insurance sector follows a familiar story seen in other markets such as banking and telecoms. Telecoms operators have engaged with start-ups for some time to benefit from their agility, disruptive power and execution speed.
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For instance, global telecoms operator Telefonica works directly with start-ups through Wayra, its Open Innovation Hub. Wayra offers access to networks, capital, and corporations to help scale telecoms start-ups. Wayra was born from Telefonica’s recognition that it did not innovate as well as start-ups so it was logical to encourage an environment where start-ups can flourish. Telefonica provides access to business development opportunities through its network of global affiliates that would normally be inaccessible to young companies. In return, it benefits from accessing this innovative ecosystem to deliver disruptive solutions for the company and its customers.
In the banking industry, research suggests that traditional banks could boost revenues by more than $518 billion per year by 2025 if they put product innovation, embedded distribution, and sustainability at the forefront of their business models. The study of more than 300 traditional and digital banks in 11 countries suggests that these banks can achieve this by changing their pace of innovation and adopting the business models of digital-only banks like Monzo and Starling Bank.
The value of innovative start-ups
Start-ups innovate because of necessity with their ‘small company in a hurry’ mentality and they can implement changes quickly thanks to on demand computing and cloud storage. Although many tech start-ups grow and fail quickly, their value for innovating has a positive influence right across a marketplace – especially in the insurance industry. Their impact leads to enhanced 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 businesses and economies grow while creating wealth for investors.