Insurance industry leaders warn against doing so when faced with inflation and recession

This post is part of a series sponsored by AgentSync.

04 26 Insurance Industry Leaders Smaart Company Accounting, Tax, & Insurance Services Smaart Company Accounting, Tax, & Insurance Services

If the US or global economy falls into a recession, it wouldn’t be the first time — and it wouldn’t be the last. Despite the desire to get off the gas, insurance industry leaders warn that it would be a mistake to stop investing in modern insurance technology. This applies to both private equity and venture capitalists and companies that need investment to upgrade their aging infrastructure.

Uncertain economic times and insurance technology

Whether a recession is looming, and how deep it will go, is still up for debate. Given a long list of mixed economic indicators (for example, slowing, but still high inflation, strong consumer spending, low unemployment rates, mass layoffs, and uncertainty in future capital investment), insurance leaders wonder what it all means for their own business. .

Should insurance companies save money by avoiding large investments in upgrading their technology?

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

Should insurance agencies, struggling to find and retain talent, continue to require employees to do things the way they always have, and hope for the best?

According to industry experts, the answer is definitely no. Instead, they assert that it is imperative that the insurance industry continues to advance towards a future state that is fully modern and digital. Those who do not, they warn, risk being left behind and unable to catch up.

How economic uncertainty affects venture capital investment in technology startups

It’s 2023 and the world is abuzz with headlines about falling investment levels in startups and venture capital money drying up. While it is true that venture capital investments have fallen from a few years of record highs, the reality from the insurance industry’s sources on the ground is that investors still have a great appetite for innovation in insurance.

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 looking for investors, are the ones that can find a way to get faster returns and strengthen their business foundations,” Israel said.

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

Regarding whether investment can and should continue while the economy faces new uncertainties, Israel said, “It will always be something. If it’s not about inflation, it’s coronavirus, recession, or a change in government policies.” “It’s the smart investors, the successful investors, who keep taking chances and fostering innovation. Because the industry needs to innovate in the way it operates to reduce risk and reduce costs precisely because the economy is so uncertain.”

How economic uncertainty affects insurers’ investment in technology

The technological ordeal of legacy insurance companies

Some carriers see how investments in insurance technology can help them thrive in a turbulent economy. Grinnell Mutual is a property casualty insurance company that was founded in 1909 and is headquartered in Grinnell, Iowa. In 2015, they were founding members of GIA, demonstrating their continued commitment to investing in technological innovation.

The company’s longevity gives leadership a unique perspective on the importance of continuing to invest in technology solutions that improve customer engagement, operational efficiency, and core business functions.

“Current economic and investment conditions mean that insurers like Grinnell Mutual need to carefully assess spending across all areas of the organization,” said Dave Wingert, executive vice president and chief operating officer. “The investments we want to make in technology, along with our end-to-end technology solutions, are under particular scrutiny in this economic environment.”

However, Wengert said, “We generally feel it is 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 shortsighted.”

Technology investment from the first digital insurance companies

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

Speaking about the impact of the current economy on his own investments in tech — even as a self-insurer — John Swiggart, co-founder and CEO of Pie, emphasized Pie’s responsible approach while focusing on the same business fundamentals Israel instilled in his startup’s GIA founders.

“We’ve seen some struggles for insurers in recent years, in part because they’ve invested heavily in technology to support rapid growth and user experience improvements, while ultimately neglecting insurance fundamentals and bottom line metrics,” said Swiggart. “Technology is part of the foundation on which we build, and no matter what the state of the economy is, it is not something we are going to pause or halt our investment in. Instead, we remain focused on using it to grow in a healthy and sustainable way.”

This approach, to making smart investments in technology that will drive core business goals rather than cutting off the flow of money to inland insurance, is a common thread among investors and insurers alike.

How an investment in Insurtech can benefit carriers and agencies especially during a difficult economy

It is often tempting to view investments in new technology as the low-hanging fruit of budget cuts. But, as industry leaders like Israel, Weingert, and Swiggart warn, this approach could have unintended consequences that stunt growth in the long term.

“Technology can enable people to do their jobs better by simplifying and automating manual tasks that no one wants to do anyway,” said AgentSync co-founder and CEO Negi Sabharwal. “With everyone taking a closer look at budgets and trying to prepare for smaller times, it’s essential not to ignore how a short-term cost, such as adopting a solution that makes everyone more productive, can pay off in the long run.”

Sabharwal’s perspective aligns with newly released research from The Jacobson Group, which in Insurance Talent Trends 2023 found that many insurers and financial firms have failed to meet their recruitment targets over the past few years. The report stated that with the automation of repetitive tasks, the industry can leverage its existing talent in high-profile ways. Simply put: From now on, a small group of highly qualified insurance talents will choose from companies and likely not choose companies that bring them back into the recurring workload.

This is why, if nothing else, the smartest minds in insurance say 2023 isn’t the year to stop investing in insurance technology.

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