Lockdowns and the Corona virus crisis have given digitalization a spark in countless industries. A significant measure to prevent infection was to avoid direct contact with other people. This meant the best possible situation for insurtechs to contact customers primarily through digital channels. Did they profit from the Corona crisis?
Shopping while the shops are closed, holding a video conference instead of a risky consultation with a broker in your own four walls: The corona crisis strengthens digital business models. This environment should therefore offer the best requirements for insurtechs. Or not?
Messages of jubilation from the German insurtech scene
Two messages definitely caught attention this summer. One of them was the huge financing of 650 (!) million Dollars for the insurtech WeFox. And just a few days later, another investment in the insurance company Element, but this was for a significantly smaller sum of 16 million Euros. Both insurtechs want to use the money to promote expansion and develop new products. In particular Wefox is aggressive and announced that it wants to be a global player within a few years.
And because it fits so well, both companies can point to numbers that should make “traditional” insurance companies not look so great. Extremely high dark processing rates and impressive loss ratios were used. This, of course, served the narrative of the young dynamic companies on one side and the snoring dinosaurs on the other side, but it was more or less a sham debate. Because for an economic assessment, there was no information provided about the combined ratio, which would have been much more interesting - as well as the note that specifically in the SUHK industry in which primarily young insurance companies are found, the classic insurance industry also did its homework and definitely does not have lower dark processing rates.
The long way to disruption
The blueprint for a few insurtechs in the B2C segment, which like to be referred to as “digital insurance companies” or “neo-insurances”, is Lemonade from the USA. The startup apparently obtained the status of a unicorn (company with a pre-rated assessment of over 1 billion USD) effortlessly in its domestic market.
However, looking at the USA doesn’t help now. Because in the context of Lemonade, the simple access through an app may play an important role. However, the company is also active in a segment in which there was a clear lack of support for customers. The situation in Germany is much different, which is something Lemonade is being exposed to.
The US company was not really able to get wind in its sails in Germany. A podium participant at the industry event “Banking Exchange 2021” summarized it clearly: “All insurtechs in Germany put together make up just around one percent of the market share.” This describes the long way until disruption, which the company must first pass.
Winners and losers - it depends on the segment
The considerable funding this year cannot hide the fact that it is still borrowed money. The investors believe that the insurtech will earn money in the future with their business model, or that they will have so much power on the market that the company will be taken over by a bigger player, an “exit”. High investments do not automatically make an insurtech a winner of the crisis.
Whether as a provide of independent policies or in a broker role, all insurtechs suffered during the Corona crisis if they were active in the B2C sector to offer travel or car insurances to customers. This market was more or less non-existent over the past 12 months. And due to a lack of sufficient reserves, a few companies are most likely under much more financial distress than they publicly admit to.
The stories of success from a few market participants, which were mostly written for investors, do little to change this. Because doubling the number of customers sounds very positive. But comparative numbers from the overall market are regularly missing. And this is why the insurtech scene still has its training wheels on.
The young companies that are seen as partners to the insurance industry have significantly better future perspectives. They could actually profit from the Corona crisis, because the crisis clearly showed the companies where they still have deficits. Startups that are dedicated to the digitalization of sales, topics like video consultation or electronic signatures and KYC processes were able to gain additional momentum through the Corona crisis.
Do you want to find out more about digitalization in the insurance industry or talk about how Software-as-a-Service (SaaS) helps tackle the challenges of the future? Then please contact our expert Karsten Schmitt.
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