- 2022 results become the second best in the historical series, only behind 2021’s. In addition, 470 alliances were closed.
- Europe continues to close the gap with the United States and concentrates 50% of operations in the initial stages.
- The main concerns: Climate change, persistent inflation and political instability that impact the development of the economy and society. It leads to a search for solutions aimed at responding to safety and efficiency.
Insurtech market reached 8 billion dollars of investment in 2022 through 470 deals, which represents the second-best period in terms of the number of alliances. This is the main conclusion extracted from the Insurtech Global Outlook 2023 report prepared by the technology consultancy NTT DATA. Throughout it, the company examines the current and future situation of the insurance sector, analyzing the 5 challenges that this very sector faces, such as sustainability, cybersecurity, intelligent distribution, on-demand insurance models, and the involvement of companies after the social changes of recent years.
2021 was marked by the greater maturity of the traditional sector, reaching 11 billion dollars in investment. 2022’s results indicate that it was a great year since the 8 billion dollars make it the second best since records are kept (2016) despite representing 28% less investment. High investment has been affected by 'global socio-economic uncertainty': conflicts in Europe, high inflation and rising interest rates have caused changes in the lives of citizens around the world, and in all markets, including the insurance.
According to Ebrahim Afennas, Insurance Director at NTT DATA "The Insurtech market has seen remarkable growth in recent years, even amidst global socio-economic uncertainty. The NTT DATA Insurtech Global Outlook report notes that climate change, persistent inflation, and political instability have impacted society and the economy, creating a need for solutions that prioritize safety and efficiency. The insurance industry is facing new challenges, such as cybersecurity, intelligent distribution, and sustainability, and technology is playing a crucial role in its evolution.”
“Thus, one of the most remarkable applications of technology in the insurance industry is its ability to predict and mitigate the risk of natural disasters, protecting human lives, property, and resources." added Afennas
Europe moves closer to the US thanks to investments in early stages
Europe continues to close the gap with the United States, being nowadays the smallest gap between the two historically. In fact, the continent concentrated 50% of operations at initial stages of 2022, with the United Kingdom, Germany, and France, followed by Italy, Spain and Switzerland, the most active countries in financing rounds (highlighting areas such as innovation, integrated insurance, and mental health).
If 2021 was marked by a wave of innovation led by the United States, in 2022 their investments decreased, in part due to the change of focus of the country’s Insurtech Startups that were oriented to the reduction of expenses. This rapprochement of the European market with the North American market is mainly justified by investment in companies in initial stages that have suffered the least this year. Primarily, due to the pursuit of investment in models oriented to profitability rather than growth, aiming for a higher return in the early stages than in other years.
Meanwhile, European Insurtech steered towards markets with higher profitability and trending business lines. As for the rest of the world – Asia, Africa and Latin America -, there has been a slight growth in recent years in the initial stages.
The insurance sector is experiencing an unprecedented evolution and advancing in the use of technologies. In fact, according to the report, there are four technologies that have experienced or a special growth in their use throughout 2022. These technologies solve distinctive challenges in the insurance industry, including API integration, analytics and predictive analytics, and health diagnostics, a technology that uses health data and analytics to address current and new health challenges, improving personalization and decision-making in processes.
5 challenges ahead, derived from the behavior of the Insurtech sector
All the information analyzed in this edition of the report helps to understand how the Insurtech sector faces the new challenges ahead, with a focus on the insurance ecosystem. The behaviors analyzed in all phases of maturity, together with the growth detected in this last period and the movements of the sector that make investment the second highest historical figure.
This analysis reveals 5 relevant challenges for the Insurtech sector, which reveal the concerns and areas on which they will focus:
- Sustainability: climate change is identified as the first risk in the sector, since the catastrophic natural phenomena that are occurring in recent years cause significant losses. Therefore, insurers must identify and develop climate-focused solutions, identifying three areas of action in this regard: ensuring the transition to Net-Zero, creating risk transfer solutions for growing physical risks, and adapting services.
Technology plays a key role, as insurers employ IoT, stationary sensors, radar or sonar data, computer vision, drones, digital twins, machine learning and statistical analysis, which are harnessed to predict and mitigate the risk of natural disasters, and prevent and reduce the loss of human lives, property, and resources.
- Smart distribution: Distribution is a key factor in achieving greater customer retention and tighter profits. In this sense, having partners in the distribution sector gives insurers access to a new market - within an existing market- thanks to being able to offer products to the distributor's customer base. For the channel owner himself, the benefits materialize in cross-selling without having to try for the development of the same product.
Digital risks: Cyberattacks are increasing by 50% year-over-year, prompting many governments to study new laws, with Europe having the highest adoption rate at 91%. In this hyper-connected context, companies are looking for new ways to protect themselves from harmful attacks and to invest in protection, especially to ensure the security of data, which is the fundamental foundation and essential core for insurance underwriting.
Although cybersecurity in insurance is not a traditional line of business, due to the high cost of applied technologies, the reality of the current context where insurers' investment in insurtechs has multiplied by six in the last three years. This is motivated by the vision of the future in the prevention of risks, also cybernetic, and in IoT devices, it is a challenge that cannot be ruled out.
- On-demand insurance models: On-demand models simplicity increases the likelihood of taking out insurance by 58%, and the industry should take advantage of these new models to increase its ability to reach a wider audience. In this sense, technology plays a fundamental role for the growth of this model, to eliminate, or rather automate, non-essential tasks in subscription products (45% claim to have already used it for these purposes), while 35% indicate that their workload has decreased thanks to digital solutions.
- The involvement of companies in society after the social changes of recent years: after the social events of recent years (with a special focus on the COVID-19 pandemic), consumers consider the importance of well-being more than ever. The adoption of digital technologies in issues related to well-being does not stop growing, and proof of this is that 71% of consumers declare that they consider it likely to use virtual care (18% more than in 2021).
Along these lines, companies are required to be socially responsible, especially in health-related matters. Investments in corporate insurance with a focus on health continue to grow continuously since 2015, which denotes that the corporate world is clear about the importance of being a company committed to well-being.