Insurance Industry Leaders Warn Not to Do This When Facing Inflation and Recession

If the U.S. or global economy falls into a recession, it won’t be the first time – nor will it be the last. Despite the urge to take your foot off the gas, insurance industry leaders warn that halting investment in modern insurance technology would be a mistake. This is true both for private equity and venture capitalists, and companies that need to invest to modernize their dated infrastructure.

Uncertain economic times and insurtech

Whether a recession is on the horizon, and how deep it might be, is still up for debate. Considering a long list of mixed economic indicators (i.e., the slowing, but still high inflation rate, strong consumer-spending, low unemployment rates, massive layoffs, and uncertainty in future capital investment, insurance leaders wonder what it all means for their own businesses. 

Should insurance carriers save money by avoiding large investments in modernizing their technology?

Should private investors and venture capitalists sit on the sidelines, watching to see how things play out, while the need for insurtech innovations increases?

Should insurance agencies, struggling to find and retain talent, keep asking staff to do things the way they’ve always done, and hope for the best? 

According to industry experts, the answer is an emphatic “no.” Instead, they maintain, it’s vital for the insurance industry to keep progressing toward a fully modern and digital future state. Those who don’t, they caution, risk getting left behind and unable to catch up. 

How economic uncertainty is impacting VC investment in insurtech startups

It’s 2023 and the world’s abuzz with headlines about the falling levels of startup investment and drying up venture capital money. While it’s true that VC investments are down from a couple of years of record highs, the reality from boots-on-the-ground insurance industry sources is investors still have quite the appetite for insurance innovation. 

According to Dan Israel, managing director of Iowa-based Global Insurance Accelerator (GIA), the insurance industry is still ripe for investment. 

“The companies that will continue to succeed, even as startups seeking investors, are the ones that can find a way to get to revenue faster and strengthen their businesses’ foundations,” Israel said. 

GIA acts as a metaphorical greenhouse for early stage insurtech startups. With financial backing and mentorship from some of the industry’s most established carriers (Grinnell Mutual, Farm Bureau Financial Services, and Allstate, just to name a few), Israel said GIA teaches founders the business fundamentals they’ll need to succeed in an established and complex industry like insurance. For GIA, this means pushing startups to solve real problems and create a sustainable, and profitable business model, which is more important in today’s environment than ever.  

Regarding whether investment can and should continue as the economy faces newfound uncertainty, Israel said, “It’s always going to be something. If it’s not inflation, it’s COVID, or a recession, or a change in government policies. Smart investors, successful investors, are the ones who keep taking shots and foster innovation. Because the industry does need to innovate in the way it operates to reduce risk and reduce costs exactly because the economy is uncertain.” 

How economic uncertainty is impacting insurers’ investment in technology

The technological plight of legacy insurers 

Some carriers see how investments in insurtech can help them thrive in a turbulent economy. Grinnell Mutual is a property-casualty insurance carrier founded in 1909 and headquartered in Grinnell, Iowa. In 2015, they were a GIA founding investor member, demonstrating their ongoing commitment to investing in insurtech innovation.

The company’s longevity gives leadership a unique perspective on the importance of continuing to invest in tech solutions that improve customer interactions, operational efficiency, and the underlying functionality of the business. 

“Current economic and investment conditions have meant that insurance companies like Grinnell Mutual need to carefully evaluate spending in all areas of the organization,” said Dave Wingert, executive vice president and chief operating officer. “The investments we want to make in insurtech, along with our overall technology solutions, are subject to particular scrutiny in this economic environment.”

“However,” Wingert said, “we generally feel it’s important to continue investing in those areas that will provide significant value, rather than arbitrarily delaying projects until economic conditions improve. Our goal is to be prudent without being short-sighted.” 

Technological investment from digital-first insurtechs

On the other end of the spectrum, Pie Insurance was founded in 2017 to make the experience of buying workers’ compensation insurance easier for small business owners, and has expanded into other lines since.  

Speaking about the impact of the current economy on its own investment in technology–even as a self-identified insurtech–Pie’s co-founder and CEO John Swigart emphasized Pie’s responsible approach with a focus on the same business fundamentals that Israel instills in his GIA startup founders. 

“We’ve seen some insurtechs struggle in recent years due to, in part, an over investment in technology to fuel fast growth and user-experience improvements, while ultimately neglecting insurance fundamentals and bottom-line metrics,” said Swigart. “Technology is part of the foundation that we’re built on so regardless of the state of the economy, it’s not something we’ll ever turn off or halt our investment in. Instead we remain focused on using it to grow in a healthy and sustainable way.” 

This approach, to make smart investments in technology that will drive core business goals rather than cut off the flow of cash into insurtech, is the common thread for investors and insurance companies alike.

How investing in insurtech can benefit carriers and agencies especially during a rough economy 

It’s often tempting to look at new technology investments as low-hanging fruit for budget cuts. But, as industry leaders like Israel, Wingert, and Swigart caution, this approach could have unintended consequences that stunt long-term growth. 

“Technology can enable people to do their jobs better by streamlining and automating manual tasks that no one wants to be doing anyway,” AgentSync co-founder and CEO Niji Sabharwal said. “With everyone taking a hard look at budgets and trying to prepare for leaner times, it’s imperative not to ignore how a short-term cost, like adopting a solution that makes everyone more productive, can yield long-term gains.” 

Sabharwal’s perspective aligns with newly released research from The Jacobson Group, which found in its 2023 Insurance Talent Trends that many insurance and financial companies failed to meet their hiring goals over the past few years. The report said, as repetitive tasks get automated, the industry can leverage its current talent in higher-level ways. Simply put: Moving forward, a small pool of highly qualified insurance talent will have their pick of companies and likely won’t choose businesses that plunge them back into repetitive busy work.

For this reason, if no other, the smartest minds in insurance say 2023 is not the year to stop investing in insurtech.