How consolidators will capture the Insurtech value chain

As firms begin to jostle for more of the insurance value chain, who will be the winners and losers as the marketplace consolidates?

Fintechs have been disrupting the banking sector for over 20 years now (PayPal launched in 1998). Insurtechs have been seriously disrupting the insurance industry only more recently. But the story is fundamentally the same: new technology provides opportunities to service an industry’s needs with lower costs, more sophisticated data collection, and improved scalability.

In most cases, part of the allure is a better customer experience, whether that’s a retail customer or counterpart in a B2B relationship. Digitally native technology permits a friendlier UX on top of more powerful back-end capabilities, all at a lower cost.

Retail technology tends to lead B2B and set expectations. The way that business customers now interact with their brokers and Managing General Agents (MGAs) is at least partly a function of our increased familiarity with tech-led retail interactions, such as renewing our car insurance on our mobile phones while commuting or adding a travel insurance policy from the sofa. This ease of interaction has reset expectations for both our business and personal interactions with insurance companies.

And it’s about time. Because the insurance market – and particularly the UK insurance market – has long been ripe for disruption precisely because it has been so relationship driven (whether that’s a Lloyds broker or a human-staffed claims call centre) and the technology that supports it has aged badly and not been replaced.

Investment cases

Whereas retail insurance is more prone to disruption across the entire value chain, the commercial space is far more focused on disintermediation and breaking up of small chunks of the value chain, many of which the end consumer never sees. While they are looking to serve a new generation of asset-light full-spectrum insurance firms, they are also looking to provide services to the incumbents with the promise of doing that piece of the chain faster, better, and cheaper than their existing legacy technology will allow.

It’s an exciting field, and it seems wide open. But as some firms gain dominance, there are going to be winners and losers. And we anticipate that consolidation is going to be a key feature of this market as emerging winners look to move out of their niche and capture more of the value chain, eventually creating a composite full-service insurance beast taking the best-in-class proposition from every category and stitching it together.

Looking forward

At Sovereign, we love backing great teams and augmenting their abilities with world-class technology to turbocharge organic growth across multiple sectors. It’s a strategy that was extremely effective in our partnership with Arachas, a leading Irish insurance broker we grew to become the #1 in Ireland, and a pattern we hope to repeat in other territories. Making the right acquisitions can be challenging for any management team, and it helps to have a supportive, experienced investor on the journey.