Thanks to Isabel Rittenberg and Matt Donofrio for their help with this piece. And thanks to DALL-E for generating this art from the prompt "a small robot standing in front of a giant gecko, Dali"
Don’t look up. The thought-leaders are circling. Insurtech valuations are plummeting, waves of layoffs are rolling, and it’s hot take season.
Just kidding, it’s always hot take season for insurtech.
The standoffishness of the legacy players, the deference demanded by agents and brokers, the arrogance of the start-ups — no matter where you stand, you'll find something to feel some sort of way about.
Now though, this discourse is dialed up to 11.
Overheated valuations make a lot of boring business problems seem shocking (especially when prices are on the way down, and especially2 to the investors and media who drove them up).
But I’d treat recent reports of insurtech’s death (or grave injury) with a lot of skepticism. Because here’s the thing:
Right now, I think a lot of people are mistaking their problems for insurtech’s problems.
And a lot of people are making this mistake.
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So let’s dig into a few of these pieces, starting with this high heat from the Financial Times, “Why technology has failed to disrupt insurance.”
(Btw, I don’t think columnists write their own headlines so hats off to whoever decided to just Go For It. It’s confident and it’s wrong and I find that very personally relatable).
In general this piece is vague. And when it does get specific, it falters:
- In his description of how insurance distribution has *not* changed, Oliver Ralphs allows that “Yes, we may buy from a price comparison site rather than a high street broker, but” - let me stop you right there!
- That’s a pretty big change — I don’t think you can just skip it with a “but”
- Shifting the buying habits for an industry like insurance even a little bit (more on this later) should probably count as disruption, right? How long did it take banking to achieve similar change?
- Also, I’m not sure you can square his comment “the actual motor and home insurance we all buy is also little changed” with his approving reference two paragraphs later to the “good ideas” of By Miles (pay by the mile car insurance) and Cuvva (short-term car insurance)1
This FT piece does the same thing that a lot of investors and commenters are doing more and more:
They subject insurtech to an ever-expanding definition of success, while simultaneously holding a very narrow definition of what "insurtech" actually is.
Is “insurtech” only D2C?
When legacy players integrate new tech is that insurtech? And cyber insurance...more like chopped liver insurance(??)
And will insurtech only be a “disruption” if Lemonade, Hippo, and Root can grow into the valuations that VCs need, and bankers set?
Finally, is insurtech only a success if it achieves fintech's consumer and media appeal (which as Matt Donofrio pointed out, is only “appealing” because it involves money), or will it always be “boring," because we don’t relate insurance to the things it protects — the things we love?
These problems surely can’t be all of our problems can they? Maybe idk, but I hope not.
Of course I’m not naive to the expectations that come with private investment. Rather, I’m skeptical that “success” (defined narrowly and self-servingly by a small group of people) was ever possible for the little flock of acceptably-representative insurtechs that always get brought up.
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Adam Chadroff at Equal Ventures also published a good piece that I'd love to take a look at. It includes the provocative subtitle, “Where’s the distribution disruption?”
One of his arguments is that insurtech has failed because it hasn’t become a supercharged, low-CAC distribution machine (emphasis mine):
"The core hypothesis that digitization would massively displace legacy/agent distribution did not bear out, and the disruptive potential of new channels was overestimated.”
Look, I've been on the “stop investing 4 of every 10 venture dollars into distribution” grind since 2021, so I’m somewhat sympathetic to Adam’s point here.
However, I can’t cosign everything he’s saying. For example:
“So much has changed in insurance over the past decade as digital innovation enabled new customer experiences, better price discovery, and vastly more use of data. But one thing that’s hardly budged? The share of premiums through direct channels.”
But the data Adam is referencing above starts in 2017 — not actually a “decade” really. And you only have to look at an older vintage of the same AM Best data he references to find a story that sounds very different:
“In 2005, direct writers [of personal lines] without agents generated 34% of personal lines premium, according to the National Association of Insurance Commissioners. By 2015, that number reached 47%, with much of the remainder coming from agencies, both independent and captive.”
And in 2021 this direct purchase rate was 65%.
That’s thirty-points of channel growth since 2005.
I don’t know that we’ve ever landed on a threshold for “disruptive,” but I think >30% has to qualify.
It’s also worth adding that when you benchmark online, direct insurance sales (65% in 2022) against digital checking account opens (66% in 2020), it's even harder to accept that “the thesis of digital-only distribution fundamentally failed.”2
Could it be a failure from the POV of a VC looking for 10x returns in a world of wildly high valuations set by their peers? I would buy that (without much sympathy).
But outside of that narrow scope, and looking at a less distorted (i.e. more human) timescale and a broader universe of data, it’s hard to conclude that insurtech is a loser at all, yet.
Again, I think Adam’s piece is mostly great and I agree with a lot of his commentary (for example, we share the conviction that agents will continue to be critical in the sales motion).
Unfortunately it suffers from the same problem. The author mistakes his own problems with insurtech for something systemic.
Now I should reiterate that I read and enjoy these posts! Keep up the takes! Often there are incredible observations and insights.
But more and more frequently I read them and feel like, "that’s a you problem” — one created by inflamed valuations, operational expectations untethered from reality, and naivety about the scale + agility of the legacy players3 — not a me problem. I hope other founders and start-up operators feel the same.
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1 Btw, this summer the US registered a new high water mark for usage-based auto insurance adoption. A 16% take rate is…not bad! I’m sure investors etc had higher hopes on a shorter timeline, but that raises the question then, why would they think that?
2 I’m not really sure what to do with this information but two thoughts come to mind:
- First, by this measure insurance doesn’t look like a laggard at all. And I’m on the record with some sharp words for insurance innovation vs. the fintechs. Maybe I need to reconsider that?
- The generally similar rate at which people are buying insurance online and opening checking accounts online makes me question how much influence the insurtechs or fintechs even have? Maybe generational preference and platform availability are just exerting a sort of universal upward pressure on the rate of online transactions?
3 There was a moment in 2018 that I often recall when thinking about the differences of scale between incumbents and insurtechs.
During the 2018 NBA Western Conference Finals, State Farm ran a series of commercials that sort of teased the insurtechs, specifically Lemonade’s AI bots.
With all the grit and hubris of a start-up, the team at Lemonade cleverly turned around and tweeted about the ad saying basically, "hey thanks for the free press." It was cute.
But do you know how many people watched those games in 2018 and saw those State Farm commercials over and over? 9.4 million people.
Do you know how many views Lemonade’s YouTube has across every video they’ve ever made? 726,635.