The impact of coronavirus (COVID-19) on the insurance industry. What does this mean for the insurtech startups?
The coronavirus pandemic, which started in Whuan seafood market in China, has claimed at least 25,000 lives worldwide. As we look at the cost to human lives, we sometimes forget about the economic damage both to big and small companies alike. The effects of the coronavirus pandemic will be felt in the global economy. No startup has experienced anything like this – so the crisis will serve as a stress test for them. This will be problematic for underfunded startups, as funding will decline in the next months. So the pandemic will weed out those companies that do not have a sustainable business model.
The insurtech scene has yet to digest such a drastic impact as the coronavirus crisis – as do most companies worldwide. Never in their young history were insurtechs confronted with a crisis causing global economic disruption. But how will they be affected? Please find below some info as to how we assess the current market situation
What does this mean for the insurtechs? Some of them, especially insurtech startups in a very early stage, might fail because they won’t have access to venture capital. For the others, coronavirus might be a catalyst that will accelerate digital transformation in the insurance industry. Insurtechs, with their strong technical infrastructure and their digital solutions, are in a leading position here, and it is an opportunity for them to outpace their more analog competitors. They don’t rely on physical distribution structures or paper-based processes.
Insurers and particularly agents and brokers that have not adapted to digital structures will have difficulties, especially the small and medium-sized companies. The crisis will set them back further than before.
On the other hand, the traditional big players will not go bankrupt overnight; and it will take time for Insurtech to gain significant market share. The largest global insurance companies each have annual revenues well over $100 billion, more than twice Facebook’s 2018 revenues, and it will be years before insurtechs are anywhere near that level.
“But we believe they can compete with traditional insurance companies,” said Christian Wiens, CEO and founder of German startup Getsafe. “Established companies don’t just need a technological change, they need a change of mentality. In five years’ time, the broker business will no longer be able to find new blood, in ten years’ time, medium-sized insurers will face existential difficulties, and in 20 years’ time, no one will have paper policies in their cupboard. The coronavirus pandemic could massively accelerate this digital change,” Wiens added.