More than a quarter of insurtechs will leave the insurance marketplace in 2023 – just a couple years after investments in the space were at an all-time high, according to predictions from research and consulting firm Forrester.
“It’ll be a buyers market,” Ellen Carney, principal analyst and author of the report told Insurance Journal. “The funding is drying up.”
In the original report, Carney predicted 25% of insurtechs will exit the market in 2023 as wind-downs or via acquisition. But since the report’s publication, she said she believes that number to be “much higher,” based on additional information and sources. The insurtech departures will be driven by high inflation, the black cloud of a recession, and investors looking for more profitable firms. Plus, the tech IPO market is stagnant.
There have been some warning signs insurtech investment reach a turning point from an all-time high of $20.4 billion in 2021. In August broker Gallagher Re said global investment in insurance technology was about $2.4 billion in Q2 2022, down 50%. Forrester said to expect investments in 2023 to look more like pre-pandemic level of about $7 billion.
“The strong will buy the weak, and private equity firms will snag viable insurtechs for their roll-up portfolios,” Carney said in the report. Insurers could use the insurtech downturn to fill talent gaps and acquire digital technology “on the cheap.”
Find all of Forrester’s 2023 predictions: Predictions 2023: Insurance — Recession Reshapes Insurance Priorities
The latter could support another Forrester 2023 prediction that some of the top 10 insurers will introduce value-added services aimed at predicting and preventing loss.
Forrester said consumers are interested in these services – home maintenance programs to manage risk, for instance. Carney said this extension of an insurer’s brand to helping customers prevent losses could “reduce the disappointment factor” during the claims process and keep policyholders more engaged in their insurance while insurers gain more information from an underwriting perspective. State Farm has already adopted a predict-prevent mindset with its investment in ADT, which carries an existing partnership with Google.
Also, say hello to more usage-based insurance, flexible payment options, and embedded insurance, according to Forrester, which said embedded will “boom in 2023.”
Related: Embedded Insurance Is the Future, ITC Panelists Say
“The everyday necessities of daily life – gas, groceries, rent – are going to lead to more policy lapses or coverage downsizing,” Carney said while predicting policy lapses will go up 20%. “This will leading to more willingness to trade data for discounts.”
Forrester said usage-based insurance options as the single way to get discounts will “finally achieve double-digit market share.”
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