5 essential lessons insurtechs can learn from past failures

New insurtechs can help ensure success by learning essential lessons from the failures of past companies, most of which experts suggest failed in one or more of five key areas:

1. Teams
2. Flexibility
3. Marketing
4. Partnerships
5. Technology

Sandeep Manchanda, head of insurance partnerships and M&A, EXL, believes having a strong team composition is the biggest part of the battle for an insurtech.

“Consider the investors as part of the team and ensure that the team chemistry and composition is there, the domain understanding and the technical expertise is there in the team and they get along. That is number one. In 80-20, that’s 80%,” Manchanda said.

In his view, the other 20% comes down to pacing product development to market maturity while accounting for workflow and integration, closely watching the next tech waves and leveraging trusted partnerships with existing key players.

“It can’t just be a product spitting out a model output, but pacing the development so that they don’t get ahead in their engineering… It’s closely watching the next tech wave that’s coming, seeing if the technology they’re using is still relevant. It’s not only timing the market, but also timing the technology,” he said.

Factor 1: Teams

Manchanda noted that most founding teams have fallouts that lead to business failure. But, he said they can pivot if they are really committed to working together — which they “invariably have to” be.

He also suggested insurtechs consider investors as part of the team because their support is critical.

“When the valuations fell and the money dried up, the actual startup teams that consider investors as part of the team as well got the follow on dollars, they got the support and they had met the right expectations there. So the ones that considered investors as part of their team, they won,” Manchanda noted.

Factor 2: Flexibility

In a similar vein, Melbourne O’Banion, CEO and co-founder, Bestow, said the ability of insurtechs to adapt to new circumstances is a key factor determining either failure or success.

“Flexibility is key in a shifting environment, especially as AI advances. Insurtechs have to adapt accordingly to keep up as more and more traditional insurance companies start incorporating it,” O’Banion said.

He noted that while vision is important, it’s equally crucial to “have a beginner’s mindset” and avoid focusing so much on the goal that you fail to be responsive to where the market’s going.

“The founders and entrepreneurs who navigate that and adapt and can be flexible, ultimately, to find product market fit are the ones who succeed,” O’Banion said. “The ones who have a really hard time making decisive changes and moving and shifting the business as needed to find success, that are too slow to do that, are ultimately the ones that fail.”

Factor 3: Partnerships

Manchanda pointed out that successful insurtechs have been leveraging partnerships to penetrate larger markets and communicate higher value to clients in two major ways:

• Have good hyperscale partnerships to get “good engineering work done”
• Creating trusted “partnership channels” with existing carriers/companies

Jeff Kroeger, president, Insureon, added that partnerships with carriers is critical because customer acquisition is extremely expensive and difficult to get right, making it easy for an insurtech to quickly become unprofitable.

“You only have such a runway when you’re funded privately to be unprofitable. So, if your manufacturers really aren’t behind you, you have an emerging but definitely not a mature marketplace at all for your customer base online for these products, and you can’t figure out how to acquire them anyway, you die,” Kroeger said.

Factor 4: Market

Keeping track of where carriers are going in the market is another key to success, Kroeger and Manchanda noted.

“I think insurtechs have to be very, very acutely aware of whether there is actually a customer need for whatever they’re trying to develop. That’s number one. But number two, you have to have deep knowledge of the carriers that you are going to deal with as an insurtech… You have to understand where the pain might be and how you can work best with the manufacturer,” Kroeger said.

“What is it that the carriers are ready for? How mature are they for the implementation of their product there? I think the product was, in many cases, ahead of its time and good, but the maturity of clients wasn’t there. So, that’s a little bit of a product market fit that is usually an issue,” Manchanda added.

Factor 5: Technology

Ironically, having the right technology fit and keeping up with trends can be the unexpected downfall of an insurtech if not handled correctly, according to Manchanda.

He noted that technology’s rapid advancement can leave insurtechs in the dust if they build their entire model on something that quickly becomes antiquated. For instance, he noted that many companies started using ChatGPT as their foundation, yet new open source models like DeepSeek and small language models have already come along as disruptors.

“In some ways, the insurtech has to anticipate when the next wave of tech is coming, and their runway for generating revenue fraction until the next major tech disruption comes in many ways,” Manchanda said.

EXL Service is a global data analytics and digital operations and solutions company based in New York. Founded in 1999, it now has a team of 1,500 data scientists and operates in a wide range of industries.

Insureon, founded in 1997 and acquired by HUB International in 2022, is a digital, independent marketplace for small business insurance.

Founded in 2016, Bestow started as a digital life insurance company. It has recently evolved to focus on providing digital solutions to American insurers. Bestow is headquartered in Dallas, Texas.

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Rayne Morgan is a journalist, copywriter, and editor with over 10 years' combined experience in digital content and print media. You can reach her at [email protected].