Stephen Brittain is late for a board meeting. For the first time in months, the co-founder and director at UK-based insurance technology incubator Insurtech Gateway and his team are back in the office. As a result, he’s finding himself stretched for time.

“It’s been so busy,” Brittain tells Verdict. “It’s one of those days.”

And he’s betting that things may get even more hectic in the next few months as the insurtech industry is gearing up to leverage the momentum gained from Covid-19 accelerating the digitalisation of the insurance industry.

“2021 is the beginning of deep risk,” Brittain says, arguing that more mature startup founders will be able to better innovate in the crucial risk management side of the insurance industry.

For instance, this could mean that car insurers may be able to offer more dynamic and bespoke policies for each individual car owner’s circumstances, where they drive, at what times and how often.

“If I go down this road, it’s one price. If I go down this road, it’s another price,” Brittain explains. “If the weather changes, the price changes. Why? Because the risk changes.”

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Similar on-demand approaches have been considered for years and not just by auto insurers. Life insurers have dished out high-tech health trackers to monitor how often policy holders exercise for years. Others have offered similarly bespoke travel or home insurance.

But Covid-19 has put the adoption of those types of solutions into overdrive, according to insurance stakeholders and market analysts Verdict has spoken with. Insurers are demonstrating a growing appetite for innovation after the Covid-19 crisis proved old legacy structures to be painfully wanting.

This became apparent after many insurers refused to pay out policies to clients, claiming that their insurance didn’t cover a global pandemic. In the UK, this came to head in January when the Supreme Court ordered insurers to begrudgingly pay out hundreds of millions of pounds in claims previously rejected because they were linked to Covid-19.

“It doesn’t make sense to us,” says Quentin Coolen, co-founder and CEO of Waffle, an insurtech which raised a $5m seed round last week. “What’s the purpose of insurance if it’s not there when it happens?”

He’s not the only one asking that question. In fact, trust in insurers seemingly plummeted during Covid-19. The Chartered Insurance Institute’s annual Public Trust Index showed that customer satisfaction had dropped to 79% during the pandemic after surveying 1,000 consumers and 1,000 small and medium-sized enterprises in May and September 2020.

In other words: insurers are actively encouraged to innovate to reclaim customers’ trust. One way to do it is to turn to startups.

“In many respects, the last year has been a perfect storm for the insurtech market,” Andrew Yeoman, co-founder and CEO of insurtech Concirrus, tells Verdict. “It has given focus to helping the market digitise operations and support faster, smarter underwriting.”

Insurance after Covid-19

The insurance industry has been famously sluggish to innovate compared to sectors like the financial or fitness industry.

“The insurance market is highly regulated and complicated with large players struggling to embrace innovation and customer centricity as they are struggling to evolve their legacy IT systems, processes and distribution networks,” David Vanek, CEO and founder of insurtech Anorak, tells this site.

“In terms of the developments we’ve seen across other financial services – such as [individual savings accounts], investment platforms and mobile banking – insurance just isn’t embracing the level of transparency customers expect today.”

The confidence crisis insurers are facing, however, means that the desire to innovate is set to grow.

“This gives insurtechs the opportunity to leverage their flexibility and speed to provide solutions where insurance companies fall short,” Alexia Arts, investment manager at MMC Ventures, tells Verdict.

That being said, it’s not that insurers have been ignorant to the need for innovation. Incumbents have launched several initiatives over the years to innovate internally or to establish partnerships with startups. Insurers like AXA XL Insurance and Swiss Re have launched their own incubators and accelerators over the years.

And startups are often happy to join forces with the big players in the industry, as pointed out in a recent GlobalData thematic research report.

“It is very difficult for a startup to disrupt and challenge established players in this market, but there continue to be outliers around the world,” the analysts noted.

Brave new world

This bullishness stands in stark contrast with the mood back in the spring of 2020. One year ago, emerging tech startups lost some of their natural swagger as the threat of Covid-19 loomed dark across the world.

Tech leaders were suddenly forced to introduce remote working practices and find new ways to mingle with prospective clients and investors as conferences were cancelled or postponed to adhere to local social restrictions.

Mostly, though, they worried about money. Early-stage startups especially feared that the market uncertainty would discourage investors to open their wallets, meaning their potentially revolutionising solutions would never get a chance to get off the launchpad. Some even saw backers pull out at the last minute before the close of a raise.

“2020 was a relatively quiet year on the investment in pitching,” Brittain notes about his own experience. “I mean, it’s not significant, but there’s been a dip in terms of businesses out in the marketplace looking for money.”

That may sound odd when juxtaposed with the fact that, despite the early trepidation, 2020 proved to be a record year for tech investment and a breakout one for insurtech. Depending on who you ask, startups in the sector secured between $6.2bn and $7.1bn last year.

GlobalData’s Technology Intelligence Centre recorded 270 venture financing, private equity, debt offering and equity offering deals in the insurance industry worth a total of $10.31bn in 2020.

The biggest rounds of the year were raised by UK-based Ki Insurance and US-based Bright Health Insurance, who both topped up their coffers with $500m each.

Other notable funding rounds include Hippo Insurance, which raised a $150m Series E round in July and a $350m convertible note in November 2020.

Nevertheless, while there was a 12% increase in total funding from 2019, it was predominantly confined to massive rounds raised by later-stage companies, according to CB Insight’s research.

2020 also proved a pivotal year thanks to companies like Lemonade and Root Insurance enjoying successful initial public offerings over the 12-month period.

“Covid-19 was undoubtedly a catalyst for change in the industry,” Mark Allan, CEO of Ki Insurance, tells Verdict.

The trend has continued into 2021. In April Verdict reported that Californian insurtech Next Insurance had raised $250m, pushing its valuation past the $4bn mark. In March, UK-based insurtech Zego joined the unicorn club on the back of a $150m round.

However, Brittain argues that while those big rounds may have grabbed a lot of headlines, he believes that the scope of the industry is even greater.

“It’s like football,” he says. “People only talk about Manchester United, Liverpool and Chelsea. But what’s going on in the rest of the field?”

Nevertheless, not everyone is convinced the Covid-19 power boost will lead to any rapid massive change of the insurance industry.

“The insurance market has a long way to go,” concludes Vanek. “Putting the customer’s interest at the centre of any decision is not yet a given for most traditional players. It is, however, a way to redefine how insurance should play in people’s lives.”