As one of the fastest growing segments in FinTech, investors and analysts are trying to figure out which InsurTech product will lead to the most success. But as one may imagine, the answer isn’t a simple one.
McKinsey & Co. recently revealed that over $10 billion has been invested in InsurTech since 2012, with more than 2,500 InsurTech companies currently around the world. And that number is only expected to rise in the coming years. In fact, analyst have predicted that the InsurTech market is expected to become a $1.1 billion industry by 2023.
The three core options in the market are broker, MGA and carrier. While brokers can sell insurance products provided by multiple carrier partners, MGAs (managing general agents) are specialized brokers given underwriting authority from an insurer, and carriers are complete insurance companies.
And each of these options has its own distinct pros and cons. Brokers, for example, have an easier time setting up shop, needing less capital and having a variety of options when it comes to price transparency and distribution. However, they also have less control over product offerings, receive smaller percentages of profits, and have less underwriting freedom.
Meanwhile carriers can create, customize, and adapt, but are also responsible for losses and must deal with more licensing, regulatory, and capital liability. MGAs have more power when it comes to underwriting than a broker, but they also take on more risk and are still bound to the carrier.
So which one works best for a business? It depends. A broker model is a good fit for companies in an established product category. For businesses that need control over the product development process, MGAs or carriers make more sense. And if you're reinventing the underwriting model or customer, the carrier model may be a better option.
While it is unknown which InsurTech model will be the most profitable or innovative moving forward, investors are still handing over money to InsurTech companies. Huckleberry, which offers a digital insurance platform for small and medium-sized businesses (SMBs), recently raised $18 million in a Series A funding round led by Tribe Capital. And Next Insurance announced it raised $250 million in a Series C funding round, bringing its total funding to $381 million in just over three years, with a valuation of over $1 billion.
