The COVID-19 outbreak initially dealt a serious blow to the capital markets and sent shock waves through the asset side of (re)insurers’ balance sheets. The broader impact on the insurance industry is still to be determined, but health and travel insurance claims are expected to surge and life insurers will also be affected as policy holders look for ways to access funds. Insurtechs – which rely on insurers both as a source of investment and as consumers of their products and services – are likewise not immune from the impact of COVID-19.

As the COVID-19 situation plays out across Asia, our insurtech briefing explores some of the key challenges that insurtechs face, the opportunities that are likely to present themselves and the options available to insurtechs in these unprecedented times.

One of the key challenges for insurtechs will be navigating changes to insurers’ capital expenditure as insurers shift their focus from innovation to cash conservation. Insurers are a key source of investment, but this is also coupled with the required access, collaboration and mentorship which are critical for insurtechs offering back/middle office solutions. In this climate, insurance companies may be less likely to consider signing new contracts, be constrained in diverting resources to longer term projects and more likely to slow their rate of capital expenditure. For insurtechs working to a tight budget and timeline, a reduction in investments from insurers, banks, venture capitalists and other investors may leave insurtechs (especially those that are still a long way from revenue generation) particularly exposed.

On the other hand, there are also incredible short-term and long-term opportunities for insurtechs during this time as COVID-19 has accelerated the adoption of digital solutions across business lines and has demonstrated the viability of online platforms which may result in a permanent shift towards digital business models. Incumbent insurers tend to rely on outdated legacy systems and in the shorter term do not have the time to completely remodel their systems to cope with the forced departure from traditional methods, so they will look to the more digitally advanced insurtechs for solutions. In the longer term, whilst incumbent insurers try to catch up in digitising their systems, insurtechs are in a prime position to take advantage of the remodelled insurance landscape.

While the drop in investment values and the decrease in insurance companies’ demand for insurtech products and services given the insurance companies’ shift to cash conservation may pose problems in the immediate term for insurtechs with the weakest balance sheets, insurtechs are also well placed to take advantage of the opportunities that the COVID-19 outbreak has given rise to and the digitalisation it is catalysing.