Introducing Sure’s 2024 State of Digital Insurance Report

JMP Securities has once again named Sure to its coveted list of Insurtech 50. Released this month, the report highlights 50 companies JMP Securities has identified to be the long-term winners in the InsurTech revolution.

“Innovation distinguishes between a leader and a follower.”
- Steve Jobs

According to the report, "By most measures the insurance market is a dinosaur. Even as other financial services sectors have embraced technology to modernize – thereby improving client satisfaction, operational efficiency, etc. – the insurance sector by and large has resisted change. Some forward-thinking CEOs have seen the writing on the wall and have embraced the modernization of their businesses, but the industry is still populated with inefficient operators that have not changed much in fifty years. Several years back some technology-savvy industry outsiders recognized the opportunity for disruption and modernization in the insurance industry and the InsurTech revolution was born."

Key findings from the report include:
  • What’s at stake here? A very large prize.
    By most measures, the global insurance market is huge, with an estimated $5.2 trillion in annual premiums, and growing.
  • The insurance market is ripe for innovation/modernization.
    Even as other financial services sectors have embraced technology to modernize – thereby improving client satisfaction, operational efficiency, etc. – the insurance sector by and large has resisted change.
  • Some markets are riper for innovation than others.
    The insurance market consists of many sub-segments that have very different operational and regulatory dynamics. Broadly speaking, lines of business that are more commodity-like (e.g., personal lines, small commercial) are riper for innovation than those that are more specialized (e.g., commercial excess & surplus lines). This is not a hard and fast rule, but one that we believe holds true broadly.
  • COVID-19 is likely to impact the market in several ways, some temporary and others permanent.
    When thinking about the impacts on InsurTech, we focus on a few that are likely to be more noticeable. A longer-lasting impact is likely to be an acceleration of the adoption of digitization. While this likely would have evolved naturally over time, stay-at-home orders forced both consumers and businesses to embrace digitization quickly.
  • Disruption has evolved into partnership with incumbents.
    While even as recently as a couple years ago the word “disruption” was commonly used by InsurTech companies to describe what they planned to do in the insurance industry, it has morphed into words like “partnership” in a relatively short period of time.
  • The InsurTech landscape has become overcrowded; how does one identify the winners?
    At last count, there are roughly 1,500 InsurTech companies in operation globally, having attracted $30+ billion of investment. But how do you pick the winners from the losers? We believe one
    of the most important questions to ask is whether or not a company is providing a solution to a problem.
  • The market is maturing to the point where the winners are beginning to separate from the pack, with others likely to face consolidation or failure.
    In recent periods, we have begun to see the InsurTech wave transform, with growth in early-stage investment slowing and some of the earlier companies emerging as leaders, raising larger later-round stages of capital, and separating themselves from the pack.
  • Several legacy/incumbent insurers are embracing the need for change, but many still have their heads in the sand and are likely to face adverse selection.
    In recent years, many of the more forward-thinking insurers/management teams have realized that the need for modernization in the industry has reached a fever pitch.
  • As MGAs mature, we believe we will see an increasing number convert to full stack to control their own destiny.
    In past years we have seen many InsurTechs try to avoid being a full-stack company, preferring to partner with (re)insurers, either by producing directly to an insurer or using a fronting company as a conduit to the reinsurance market. In recent quarters, this trend has begun to change . . . with an eye toward controlling more of their destiny as business models scale.
  • We believe we will see more InsurTechs entering commercial lines in the years to come.
    The earlier years of InsurTech were largely focused on personal lines, which is seen in the mix of those companies with unicorn status today. However, existing personal lines-focused companies are expanding their appetite into commercial lines.
  • Strong Millennial/Gen Z appeal today could spell trouble for incumbents down the road.
    Many of the most successful InsurTech companies resonate well with the Millennial and Gen Z generations. Whether it is the desire to interact digitally with less friction and lower costs, the products they currently need (generally asset-light consumers at this point in their life) or their distrust of many established financial brands (many of them grew up during the 2007-2009 Great Recession), we find that many InsurTech companies have greater success with these younger generations than they do with older generations given the greater focus on technology and self-service.
  • Artificial intelligence and the widespread availability of data could disprove the insurance mantra that too much growth kills companies.
    When operated in a human environment with feedback loops that take months, if not years, to complete, it is understandable how strong growth could result in significant financial pain for less tech-savvy industry incumbents.
  • Lower cost structure should result in faster growth.
    Particularly in consumer and small business-focused endeavors, the ability for most InsurTech companies to operate with a much lower operational expense structure than legacy carriers should allow them to direct more dollars toward marketing/advertising.
  • Many InsurTech companies are driving business growth through new/non-traditional channels.
    Traditionally, insurance business is driven through agents and brokers, with a much smaller portion derived directly from the consumer, typically via a call center or website. Many InsurTech companies are having success driving business growth from areas outside these channels, including a direct-to-consumer approach, but very much in the flow of the related transaction process.
  • Regulatory sandboxes allow start-ups to test business cases before fully approaching the market.
    This is a great way for start-ups to see how their concept will perform in the market without going all-in from the get go, allowing necessary adjustments to be made prior to a full launch, which should lead to greater long-term success. In
  • As InsurTechs gain critical mass, M&A activity is likely to accelerate.
    We have seen evidence of this over the past year, with Prudential buying Assurance for $2.4b and Aon buying CoverWallet for $300m.
  • Traditional insurance valuation metrics will not apply.
    Traditional insurance valuation metrics, such as price/earnings and price/book, will not be relevant in many cases, or at least not until many years have passed and the businesses reach maturity.

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