The year 2019 has been a defining one for InsurTechs and, in many ways, has set the pace for what’s to come. No longer are legacy companies the presumed leaders of the industry, as we’ve seen multi-level shake-ups that have highlighted the real game-changers for the customer experience.

Over the past year there have been major partnerships formed; completely new InsurTechs brought to life, incubated inside the larger incumbents; and continued investments made into InsurTechs by serious external players. All of these have underscored the differences and dynamics between traditional insurers and InsurTechs, and the ways in which they play in the industry together.

In a tangled relationship between InsurTechs and legacy carriers, the customer wins.

Rick McCathron: Some InsurTechs have cozied up to the deep pockets or resources of legacy carriers, while others have become their technology providers. This has been a necessary relationship from the inception of the InsurTech space and will continue to evolve, but with a different look than it’s had in the past. While these alliances have previously seen InsurTechs dependent on the established old guard to get up and running, things have quickly shifted to an inversely dependent relationship happening. With incumbents relying on the instantly dynamic capabilities of InsurTechs to keep pace with the industry, insurtechs are emerging as true market leaders.

These mergers and acquisitions are ultimately great for consumers, since they present more options and a streamlined experience in a previously antiquated space. Take Arturo for example, one of our most formidable partners in 2019, which was incubated within American Family Insurance providing real-time detailed analytics for our underwriting purposes. HavenLife, incubated inside Mass Mutual, is another great example of an alliance that enhances the companies’ abilities to reach customers in meaningful and efficient ways.

We expect to see this trend continue and even lead to more sizeable mergers and acquisitions in the year ahead. There will no doubt be an increased shift in the relationship between disruptive InsurTech players and incumbents, leading to the creation of more billion-dollar companies. Most importantly, customers will get more value and benefit from their insurance providers in years to come.

2020 is the year category leaders will rise to the top.

Assaf Wand: Not all InsurTechs are created equal. Sizeable valuations doesn’t mean that InsurTechs will hit the cruise button in 2020, as this year will be all about companies proving their claims and abilities. The market is maturing and the proven leaders and success stories defining the InsurTech space are those who are delivering on those valuations by expanding and increasing customer base in cost effective ways, as well as building underwriting models that should produce favorable loss ratios over time. Companies like Root and Next are demonstrating the urgency of this trend. They operate in different specialized sectors – Root in auto and Next catering to small businesses – but both are using full-stack tech and taking measures to anticipate their customers’ needs and better serve them ahead of the game.

Moves like this will pay off big with consumers, as well as investors. Emerging industry leaders will also define the fundraising ecosystem during a sobering time in Silicon Valley, when growth for the sake of growth is no longer enough to validate large-scale valuations. We are already seeing VCs becoming more selective about where they put their money, with proven success stories getting the lion’s share of the capital, meaning startups will have an uphill battle to prove themselves against a clear path to profitability. I expect this will continue to be the case, leading to less inflated valuations and VC deal sizes. There has also been an increased scrutiny on the public sector in this regard, which is beginning to extend to the private sector and will likely influence insurtechs’ IPO outlooks.

Tech stacks from the ground up will become commonplace.

McCathron: The importance of tech stacks that cater to the specific business model and customer base is greater than ever. In the cases of renting or purchasing tech platforms, there is often incongruity between the speed and capabilities of these providers and the specific needs of InsurTechs, which impacts the efficiency quotient. This will force many InsurTechs to move from renting their technology to building their own – Clearcover is an example of how this tailors the experience for each company’s customers. Developing a flexible and controlled tech stack not only pinpoints capabilities to a specific business model, but can allow for the quick integration of new data sources and other technology, which can lead to faster market introduction and better underwriting results. In this industry, it can be easy to forget that insurtech is made up of two words: insurance and technology. In 2020, we will see the importance of emphasizing both in your business model.

From an incumbent’s perspective, Prudential’s recent $2.35 billion acquisition of Assurance is a fortuitous one for the industry overall. It boldly underlines the importance of full-stack tech to even the strongest incumbents’ survival in today’s market. Faced with the choice between acquiring companies who have created full-stack capabilities and creating such platforms themselves, we will often see large industry players choosing the former.

InsurTechs will rise to meet the demand

Wand: Where InsurTechs really shine – and will increasingly do so in 2020 – is their ability to offer consumers the benefits of full-scale, traditional insurance found with legacy providers, with the added convenience, speed, flexibility, value and streamlined service found only with modern carriers. It’s not a matter of this or that. More than ever in the coming year and beyond, customers will find this and that with InsurTechs leading the way.