Best's Review


At Large
‘Thoughtful Investment’ Imperative

Investing in insurtech begins with understanding the factors that cause a startup to fail or succeed.
  • Bill Pieroni
  • January 2020
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Over the last decade, more than $15 billion—growing at over a 60% compound annual growth rate—has been spent on insurtech investments worldwide. All eyes are on the insurtech space, and hopes are high for many at startups and established firms alike. However, as with any movement, there will inevitably be peaks and troughs. This, combined with the fact that fully 85% of these startups fail, suggests caution moving forward. While there are great potential gains in insurtech, buyers must be thoughtful.

The basis of thoughtful investment in insurtech lies in understanding the factors which have historically influenced the success or failure of these ventures over time. ACORD examined more than 1,200 insurtech initiatives over the past decade to identify these common threads.

Factors for Failure: Perhaps the most obvious pitfall is when either the solution itself, or the attendant business model, is not aligned with the insurance industry market and our needs. The solution and model must be flexible, adaptable, scalable, and above all, compatible with existing technology and processes. Our industry is well known for its accumulated legacy—infrastructure and culture both often render us reluctant to replace current capabilities, regardless of potential benefits.

In fact, the nature of insurance stakeholders as customers presents several difficulties relative to other industries. Vendors in the insurance space need to spend a significant amount of time and money to acquire each customer. We are conservative, slow to deploy new solutions, and a diverse group. Insurance stakeholders have unique needs and circumstances, requiring tailored approaches. Moreover, we tend to be intolerant of any perceived gap between anticipated and actual captured value—no matter how much value a solution delivers, if it doesn't live up to its hype, it is seen as a failure.

Similarly, the insurance environment presents significant challenges compared to other industries. The global macroeconomic climate, and the hypermaturity of most of the world's largest insurance markets, combine to constrain available resources. Also, the highly regulated nature of insurance creates complexities which are often unforeseen by those without deep industry experience. It may come as a nasty shock to learn that one's brilliant innovation must be made to satisfy different compliance requirements in 53 jurisdictions in the U.S. alone.

Finally, many insurtechs fail because of organizational weakness. They may lack sufficient capacity, competency, leadership, measures and incentives to survive and thrive in the insurance space.

Factors for Success: Successful insurtech ventures have avoided these pitfalls, particularly by ensuring compatibility with legacy capabilities, and by aligning anticipated and captured value. Additionally, viable insurtech solutions are deployable in a relatively homogenous manner, across diverse stakeholders with varying requirements. However, it is not enough to simply identify the common reasons for failure and “do the opposite.” Historically, successful insurtechs have demonstrated other particular characteristics.

First, their solutions are readily testable, and lend themselves to piloting—the potential customer can confirm their value before fully committing. Similarly, successful solutions have a convincingly demonstrated effect. In an industry as complex as ours, outcomes are affected by many variables. To secure buy-in from key decision-makers, it is necessary to demonstrate a clear cause-and-effect relationship between the solution's deployment and positive results.

Finally, successful insurtechs are able to take advantage of the high, and still growing, degree of interconnectivity in the insurance ecosystem. These solutions are oriented toward industry “co-opetition”—their value increases because of network effects. Crucially, they are also able to secure authoritative adopters. These act as anchors, driving adoption through their trading partners to the industry at large.

Ultimately Deriving Value: Understanding the factors that have contributed to insurtech success or failure over time is the first step in thoughtful investment. Organizations with a well-disciplined process and culture of introducing new capabilities, managing their adoption and integrating them effectively, will then be able to derive full value from these investments and realize their potential.

Best’s Review contributor Bill Pieroni is the president and CEO of ACORD. He can be reached at

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