Insurtech investing with Grier Tumas Dienstag, Katka Smolarova, and Leda Zaharieva

Most insurtechs have recently seen valuations reduce significantly in the public markets and the funding environment tighten. Nonetheless, the insurtech space continues to account for a significant share of total investment in the insurance ecosystem. McKinsey spoke to Katka Smolarova, Grier Tumas Dienstag, and Leda Zaharieva about the opportunity this environment creates and what investors should look for in the future.

McKinsey: Can you give us some insight into the recent trajectory for insurtech investment and valuations?

Grier Tumas Dienstag: On one hand, the environment for investing has been challenging, and we’ve seen fewer deals in 2022, coming off the highs of 2021. Also, interest rates have increased steadily, and because of economic uncertainty, profitability has been at a premium after a period of growth. On the other hand, relative to other segments, insurance has benefited from some positive developments, specifically around rate, secular trends such as cyber risk, the shift to renewables, mobility innovation, and digital distribution.

Katka Smolarova: Different types of insurtechs have been more profitable than others. In terms of emerging carriers and distributors, some B2C start-ups have established themselves as household consumer brands and are looking to disrupt how insurance is bought and priced. In the past, these insurtechs focused on growth rather than unit economics and had a challenged path to profitability. Over the past 18 months, however, investors have questioned the sustainability of these companies’ business models. Now, these start-ups have largely focused on infusing more traditional insurance expertise into their business strategies to demonstrate a path to profitability to investors.

In terms of ecosystem players, these insurtechs had been profitable by forging relationships with a few large carriers, but they’re also focused on gaining scale and improving profitability independently. Now, the uncertain economic environment has caused insurers to be less likely to experiment with newer providers, and the go-to-market strategy has become more challenging. As such, many insurtechs are looking to M&A to expand into adjacent and new business areas to maintain growth expectations.

McKinsey: How do you expect the environment to evolve?

Katka Smolarova: There are four long-term forces that will drive the need for further investment and innovation in the insurtech space.

First is product innovation and convergence. Insurers have been updating their value propositions to reward customers for avoiding risks, such as safe driving; reach customers seamlessly and at the right time by embedding insurance into purchase journeys with ancillary services or partners, such as car insurance and property insurance; and combine product offerings for previously divergent products, such as insurance and wealth.

Second is a focus on the multichannel, seamless customer experience. As consumers and businesses shift toward digital, insurers are integrating remote and agent-supported channels into complex claims, purchasing, and service journeys.

Third is automation. As insurers focus on cost and push to simplify experiences across the value chain, more companies will set digitization targets to reduce paper-based processes and their reliance on rekeying information and will transition legacy systems to the cloud.

Fourth is leveraging data for better risk pricing and claims settlements. There is a growing number of data bureaus that collect, curate, and provide the analytics engine for insurers of all sizes. This data could help insurance companies build autonomous underwriting capabilities.

Leda Zaharieva: These four factors give us confidence in a longer-term trajectory for insurtechs. Having a clear path to profitability and scale will be key for insurtechs in the coming years. Leaders will look for go-to-market acceleration, M&A opportunities, and cost reductions.

McKinsey: What opportunities does this bring insurtechs and investors looking to acquire companies in the space?

Grier Tumas Dienstag: We see several areas of opportunity for investment and value creation. In each, picking a leader in the space and partnering with a management team that has a vision for profitable growth will be important, especially considering the challenges that the next couple of years may bring.

Investors can help insurtechs to monetize data and analytics, automate more complex manual processes, build next-generation workflows that automate employee experiences, and standardize pricing within the current customer base. They can also invest in end-to-end technology platforms to secure stable cash flows. Some of these players are public, and opportunity may exist in private ownership. For example, providing analytics as a service and expanding relationships with insurers can maximize offerings by opening cross-sell potential. Alternatively, insurtechs can invest in becoming a full cloud-based end-to-end suite for midsize or smaller carriers by consolidating software providers. They can also use offshoring and automation to reduce the cost of delivering professional services.

Leda Zaharieva: Adding to that, investors can also aim to build an end-to-end claims technology ecosystem, reducing the cost to serve. This effort could introduce products to new markets; integrate solutions with adjacent parts of the claims value chain, such as repair networks; use new channels of customer engagement to communicate proactively with customers during the claims journey and free up claims adjustor capacity; and offer analytics as a service to clients in fraud management and claims prevention cases.

Moreover, insurers have opportunities to strengthen claims management through predictive analytics, aerial imaging, and automation. We see opportunities in leveraging aerial imaging, Internet of Things, and network optimization for property claims; using at-scale automation and AI to drive structural efficiencies to lower cost of processing and improve claims outcomes; using predictive analytics to improve workers’ comp and disability outcomes; and creating new revenue sharing models and expanding into value-added services using analytics, such as loss-prevention services and outcome-based medical networks.

Katka Smolarova: Investments in these areas align with the fundamental trends in the insurance and insurtech spaces. Therefore, they are likely to outlast a potential blip in the market. However, investors should look carefully at the business model and traction to ensure long-term sustainability before committing to a specific company.


Katka Smolarova is a partner in McKinsey’s Boston office, where Grier Tumas Dienstag is a partner. Leda Zaharieva is a partner in the London office.