Global fintech and funding innovation ecosystem

Here is why InsurTech is heating up as an investment category

Luge Capital | Karim Gillani and Laviva Mazhar | Dec 22, 2020

Why insurtech is heating up - Here is why InsurTech is heating up as an investment category

The global InsurTech startup ecosystem saw record-breaking level of investments of US$2.5 billion in Q3 2020. Despite a slow start in the first quarter of the year, due to the impacts of COVID-19, global InsurTech funding for 2020 has already surpassed $5 billion and is likely on track to match the 2019 figure of $6.3 billion.

Our Luge Capital data for Canada, presented in our  Status of the Canadian InsurTech Landscape report, shows that $1.2 billion of venture capital has been invested in InsurTech startups headquartered or operating in Canada between 2011 and H12020. The number of InsurTech startups founded in the last few years has also picked up significantly.

So why is there so much buzz about InsurTech? Why are entrepreneurs choosing to dedicate their resources to build solutions for this industry? Why are investors bullish on this category? Some of the key drivers of heightened activity in this sector are discussed below.

Massive industry

The  Canadian  insurance  industry  wrote  in  excess of $187 billion in premiums through Property & Casualty (P&C)2 and Life & Health (L&H)3 in 20194. Together, the P&C and L&H insurance sectors paid out

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$144.5 billion in claims or benefits to Canadians in the same year. Globally, the industry placed more than  US$6  trillion  in  premium  in  20195.  The  sheer  size  of  the  industry  in  itself  attracts  both entrepreneurs and investors aspiring to build massive businesses.

Legacy technology and cost-centre mindset

Many insurers still have legacy core systems built on monolithic, on-premise applications. This poses several challenges including time-consuming maintenance, lack of scalability and an inability to be fast and nimble. Today’s customer expectations demand rapid innovation, and this is difficult to achieve with siloed databases and inflexible core systems. In addition, historically, IT spend has been viewed by many insurance leaders as a cost-centre6. The industry is being forced to completely shift its mindset to view technology as an avenue for faster time to market and superior customer experience. But this is not going to happen overnight.

Enter InsurTech startups, who take a technology-first approach to insurance and build their software on cloud-based architectures, allowing them to go to market fast and innovate quickly.

Expectations of Amazon-like experience

Entrepreneurs have identified an opportunity to make the process of buying and keeping insurance suitable for today’s consumers, who now expect Google, Amazon and Uber-like experiences. Other entrepreneurs  and  investors  see  the  opportunity  to  help  incumbent  players  such  as insurers and brokers bring their customer experiences up to par.

Yet other startups are helping insurers with automating their internal processes, and improving  their underwriting and claims functions. Gartner expects the global IT spending of insurance companies to be US$222 billion in 2020 and forecasts the IT software sub-segment to grow at 8.4% CAGR between

2019-20247. This demonstrates the growing demand for software from insurers.

Whether it’s in distribution, process automation, underwriting or claims, there is an opportunity for technology startups to drive innovation in the industry.

Data = oxygen

Data and underwriting are the lifeblood of insurance. Yet, historically, insurers have used a pre-defined and limited set of data to underwrite policies. This worked fine for the last 100 years. However, today’s consumers want significant personalization, which can only be provided with the use of contextual data. Increased  access  to  alternative  data as well as structured data have opened up a whole world of possibilities when it comes to better personalization of insurance products and experiences.

See:  Fintech Canada Directory Category: Insurtech

To that end, InsurTech startups have identified an opportunity to either become the provider of such alternative data to incumbent insurers, or compete head-on against such incumbents to use contextualized data and provide a better experience themselves.

Shift in talent demographics

The  average  age  of  a  life  insurance  agent  in  the U.S. is 598   and this is comparable to the talent demographic in the Canadian insurance industry. As a large part of the insurance workforce starts to enter  retirement,  the  industry  is  facing  growing  challenges with replacing that talent. There is an opportunity for technology companies to help insurers and brokers continue to deliver their topline numbers in a scalable way with a smaller workforce. In fact, the use of modern technologies may even work to attract a younger talent demographic to this industry.

Commoditization of core product and need for standout brand

As  the  ease  of  insurance  product  distribution  accelerates    with  the  help  of  technology,  we  may eventually   reach   a   point  where  insurance  products  themselves  become  commoditized  due  to competitive  pressures.  Insurers  will  need  to  find  other  ways  to differentiate from competitors by offering superior customer service, smooth claims experience and add-on services. Many InsurTech startups are building technology solutions to help insurers differentiate in those respects and build brand loyalty.


The InsurTech space is beginning to see some mid-to-large startup exits. To make matters even more interesting,  some  of  these  startup exits have happened within just a few years of operations. For example, earlier this year, Lemonade went public with a valuation of US$1.6 billion and the shares soared 139% on the first day of trading9. Prudential acquired Assurance IQ for US$2.35 billion last year10. As investors, we believe that the industry will continue to see more acquisitions as incumbent players use M&A as a strategy to add new technologies and revenue.

These are some of the key factors driving innovation and venture funding in InsurTech. We expect this category to continue to grow from a funding and M&A perspective for the next few years.

Fintech Confidential issue 3 cover 1 - Here is why InsurTech is heating up as an investment category

This article appears as a featured article in NCFA's digital magazine, Fintech Confidential (Issue 3 Dec 2020). Click to read the latest thought leadership, insights and trends about Fintech in Canada:

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