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Insurtech: Today's Most Critical Investment

Simply taken as a combination of “insurance” and “technology,” the idea of “insurtech” has been around for ages. While there have always been insurance-focused tech startups, until recently there has been no impetus to name these companies as a group, or to recognize them as a “movement.”

That distinction has come about as the result of several factors: the addition of an innovation element; the intent on the part of many of these new insurtech firms to disrupt the industry; the allocation of budget money for investment into emerging technologies presented as part of this movement; and the sheer numbers of these new companies have earned insurtech a group-of-its-own status.

This group has become so big, so fast that without a fulltime commitment to tracking activity in the insuretech space, there are now so many startups and developments it is almost impossible to keep up. SMA, in collaboration with St. Nick Media Services, has assembled and continues to track a comprehensive list of these firms, which now numbers well over 800 by our count and grows by the day.

Many different types of firms and publications, from both inside and outside the traditional insurance industry, are tracking and/or reporting on the exploding insurtech phenomenon, and such focus is driving additional interest and investment by insurers, venture capitalists, and private equity firms. Although, for most insurers, it is a daunting task, not only to identify insurtech companies and developments but also to evaluate and determine which are most relevant for existing lines of business or company growth.

It has been said many times that for insurers to succeed and grow, it is important for the focus to remain on the core business of insurance. Challenges for insurers typically become evident when significant time and effort are spent outside the core business competencies—on endeavors such as attempting to stay current with emerging technologies, building and maintaining a new generation workforce that can maintain existing systems and help implement or integrate new solutions, and constantly work to improve things like the customer experience. But the opportunities for insurers to invest in, partner with, and learn from the insurtech world are many. And, the opposite is also true—insurtechs have a lot to learn from insurers.

The Evolution of Insurtech

Most insurers we know consider any relatively new, tech-based company with relevance to insurance to be an insurtech company. The rapid progress of many emerging technologies has resulted in the formation of scores of highly visible new companies based on technologies that have potential implications for insurance.

Startups based on technology with new capabilities for the insurance industry have been appearing on the scene since the beginning of the tech revolution decades ago, but the term insurtech only made its way into the lexicon and burst into prominence over the past couple of years. So, what is different now? What qualifies a startup as an insurtech? And how do these new players align to different lines of business and business areas?

SMA’s definition of insurtech refers to innovative companies enabled by both emerging technologies and new thinking designed to disrupt and change the current insurance industry model: the customer experience, channels, products/services, business models, even business operations and technologies. Many insurers consider all “recent” tech-based startups or new entries with value for insurance to be insurtech.

The tech universe for insurance includes “pure insurtech” and “extended insurtech.” Pure insurtech is defined by SMA as companies exclusively or primarily focused on insurance. Startup insurers, digital agents, and MGAs would all be categorized as pure insurtech as well as those companies with tech solutions that focus on key insurance areas such as underwriting or claims. 

Alternatively, extended insurtech includes those relatively new tech-based companies that serve multiple industry verticals, yet are important to insurance. Firms with smart home or connected car solutions are examples of those that may sell directly to consumers or focus on other industries, but are very relevant to insurance. Insurers are investing in and partnering with many in this category. 

Insurance Convergence

Even pure insurtech companies do not stand or work alone in insurance. There is clear convergence happening in the technology space and convergence across business models, products, and distribution channels. There are already scenarios in which insurtech technologies are blending and converging with existing, current, established technologies (what SMA has dubbed Maturetech). Maturetech can also be considered “pure” and “extended.” Examples of pure Maturetech in insurance would include portals, core systems, insurance BI tools, data, and even insurance document management technologies. Extended Maturetech would include global software companies, CCM, ECM, and BPM. All Maturetech are the proven, foundational technologies that run the business of insurance, today.

One example of convergence is core systems (pure Maturetech) buying or partnering with insurtech, just as they did over the years with extended Maturetech such as CCM, ECM, and BPM. These core systems will need evolved architectures that are ready and available to integrate and support new products and business models. We are starting to observe the leaders in the space doing this.

Examples of extended Maturetech convergence is seen in the big horizontal technology companies like Microsoft and IBM. They will have their own off-shoots of insurtech, either through partnerships, outside investments or in-house development. Both types of convergence are beginning to reshape and create the new technology platforms for insurance that will be required to compete in the digital connected world.

Approaches to Insurtech for Insurers

There are different ways that insurers can participate in and benefit from the insurtech movement. All do not require investment dollars, but in some cases just an investment of resources and time. The four fundamental strategy approaches that should be considered are: 

  • Invest for financial return. Insurers with size and scale are choosing to establish venture capital arms to invest in a portfolio of insurtech companies. Smaller insurers are participating in insurance accelerator groups that share in the evaluation and investments, with more guidance and less risk.
  • Acquire for speed and exclusivity. Some insurers are starting or even acquiring distribution disruptors, greenfield insurer startups, or tech companies to make bolder moves aligned to their strategy. 
  • Partner for value. Partnering is the most common approach for insurers regarding insurtech. Engaging to extend or create new products and services, expand distribution options, improve operational efficiencies, or advance in other areas may be done through innovative partnerships.
  •  Shape a new ecosystem. One of the most aggressive approaches insurers can take is to invest or partner with a variety of insurtechs focused on specific segments in an effort to play a major role in reshaping the insurance role in that area.

Some insurers use a combination of all four, others use some, while many others exclusively work through partnerships. 

Of course, not all insurtech startups will be successful. Many will stall at proof of concept. We estimate that over 80 percent will eventually fail. The industry has not started to see failures yet; we are still just in the opening stages. But insurers will have to track, evaluate, and decide where to place their bets. Doing nothing is not an option.


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