Change came in many forms this year, as a global pandemic and numerous catastrophes sent shockwaves through the world and insurance community, leaving us all with a new perspective. Across the board, 2020 fueled a swift digitalization of consumer industries as shelter-in-place guidelines urged people to stay in their homes, reshaping how we live.

This year, speed-to-market and innovation became the key to capturing customer adoption, including in insurance. In fact, InsurTechs, nimble and tech-native by nature, became the backbone of the insurance sector by driving innovation and collaboration across the sector. As a result, 2021 will be one of the biggest years of industry transformation yet.

Pace of Private Investments Will Increase

With the flurry of mergers, acquisitions, and IPOs this year, there’s never been more interest in InsurTech, and there’s every indication that we’re about to see another strong year of funding in 2021. Private investors who were once skeptical of the strong headwinds of the insurance industry, from regulatory hurdles to increasing catastrophes, will search for opportunities to fuel the next round of up-and-comers.

The investment community has recognized that InsurTech is on track to become one of the largest industries in the world and valuations have soared as a result. Investors and legacy providers are excited to join the next round, which will also spur innovation and growth as companies compete to stand out. InsurTech’s rising stars will have a blend of insurance and technology expertise and the ability to create impenetrable consumer brands that will bring significant value to their customers and shareholders.

Non-Insurer Competition

Over the next couple years, vertically unique companies will take a more serious look at insurance. We’re starting to see the auto industry lead more consumers to consider purchasing their own insurance packages, such as Tesla and GM. As vehicle systems become more technologically advanced, insurance may become a commodity bundled with new-car purchases. As the move to digitization continues, we’ll see property insurance sold directly through e-commerce sites or home insurance policies sold along with new homes tailored to the property’s specific needs, just as we’ve been doing at Hippo with [home builder and investor Lennar] since 2019.

Even companies without a connection to insurance or insurable products may start to offer insurance. Since the insurance industry leans heavily into consumer trust, we’ll see companies with loyal customer bases entering the fold, leveraging their brand loyalty and understanding of consumer expectations to wrestle market share from incumbents. Amazon is already doing this in India, which they’ll likely expand into other regions given the success in that market.

Catastrophic 2020 = Bold 2021 Innovation Bets

From extreme weather conditions to historic wildfire destruction, 2020 quickly became one of the costliest years for the industry in U.S. history.

Insurance companies took a hard look at their balance sheets with pressure to adapt quickly, leading to higher investments in technology to predict risks faster and more accurately. In 2021, I expect we’ll see more granular uses of data such as hyper-specific flood maps that can better evaluate risk and price it appropriately. We’ll see big bets on these types of technology companies, which will help drive more consumer understanding and protection.

As digital natives, InsurTech handled this year’s challenges efficiently, but legacy insurance companies struggled to respond in time. Next year, we’ll see more legacy insurance companies acquire or partner with InsurTechs to handle future changes more nimbly.

We’ll also see creative capital structures become more commonplace to protect companies from rising catastrophic exposure and risk. New capital providers will participate in first-dollar coverage, adding diversification and premiums to support catastrophic events.

A Few Surprises Ahead

If 2020 has taught us anything, it is to expect the unexpected. These rapid and unexpected changes will help InsurTechs gain a larger foothold in the industry, increasing the rate of acquisitions and partnerships. Meanwhile, the insurance industry as a whole will recalibrate to keep up with global shifts by developing ways to offer easier-to-secure insurance policies that take advantage of the latest technical advancements, and creative uses of capital to support the ever-changing catastrophic environment. If it can do that, 2021 will be an even bigger year for InsurTech than 2020.