Insurtech: Promise Kept or Betrayed?

II.The Wall of the Combined Ratio

The unforgiving arbiter

The trade caught up with the disruptors through a number no interface can dress up, the combined ratio. This ratio relates the sum of claims and expenses to the premiums collected, and any level above 100 means the insurer is losing money on its underwriting, however elegant its app. Yet the insurtech pioneers ran combined ratios well above that line for years: they won customers brilliantly and insured them at a loss. Technology had solved distribution without solving underwriting, which is the trade itself. One could win over the policyholder in a few clicks and nonetheless be wrong about the price of the risk they were transferring.

The data moat

The difficulty was structural: the incumbents had a data moat. Pricing a risk requires a loss history long and deep enough to estimate the frequency and severity of losses, and the large insurers hold decades of data where the newcomers started from a blank page. To grow fast, the insurtechs underwrote portfolios they knew poorly, and the law of large numbers, which protects the patient insurer, turns against the hasty one. The trade they claimed to reinvent rested precisely on the resource they did not possess, the accumulated experience of risk⁸.

The acquisition-cost trap

To this data moat was added an economic trap specific to the direct-sales model. By forgoing agents, the insurtechs had to buy their visibility through digital advertising, whose cost of acquiring a customer rose sharply as competition intensified. Yet personal-lines insurance is marked by fragile loyalty and high churn, so that a customer expensive to acquire may leave before being made profitable. The model assumed that the lifetime value of a customer would exceed their acquisition cost, an equation that did not hold as long as loss experience remained poorly controlled. Root experienced this most brutally in auto insurance, a hypercompetitive segment where its ratios long forbade any durable profitability, forcing it into a retreat and a relapse into loss after a brief profitable year⁷.

III.The Great Correction

The turn of 2022

The euphoria broke sharply. The rise in interest rates and the general correction of technology valuations ended, as early as 2022, investors' tolerance for prolonged losses in the name of future growth. The revenue multiples of listed insurtechs collapsed, and private funding dried up in their wake. Global quarterly funding fell back into a range of one to one and a half billion dollars from early 2023, far from the 5.3 billion peak of late 2021, and the third quarter of 2025 totaled only around one billion, down 17% year on year³. Hippo's market capitalization contracted by more than 95% from its listing valuation, and the giant funding rounds, which exceeded thirty in 2021, fell to a handful⁴.

The disillusionment

Beyond the figures, it was a narrative that was collapsing. The story of an inevitable disruption, which saw young start-ups replacing century-old insurers, gave way to a soberer observation, that of companies struggling to reach profitability in a trade they had underestimated. The number of insurtech unicorns, which had peaked around fifty-eight worldwide, shrank as several players went public at reduced valuations, were acquired or lost their status in down rounds⁴. The promise was being redefined. Insurtech had run into what insurance actually is, without reinventing it.

The graveyard of listings

The public market acted as an implacable judge. Several insurtechs had chosen the fast route of listing through merger with a special-purpose acquisition company, those vehicles that allowed a market debut without the filter of a classical offering. When enthusiasm subsided, these structures left shareholders heavily in deficit, and the mistrust spread to the whole sector, closing the window of new listings for a time. The market sanction preceded and amplified the private-funding sanction, because venture investors calibrate their valuations on the multiples of comparable listed companies. The fall of the latter therefore mechanically depreciated the former, propagating the public-market correction toward the private market and accelerating the selection between viable models and the rest.

IV.The Pivot, from Disruption to Infrastructure

Selling tools rather than disrupting

The correction changed the model. The shrewdest survivors stopped trying to replace insurers and set about serving them. Insurtech's center of gravity shifted from disruption to infrastructure, that is, from direct-to-consumer sales to the supply of technological building blocks to established players, and toward the underwriting-agency models, the managing general agents, which place risk without bearing it on their balance sheet⁹. The acquisition by Munich Re of NEXT Insurance for 2.6 billion dollars, a valuation in clear retreat from past ambitions, and the listing of Accelerant, a platform connecting specialist underwriting agencies with investors, for 3.4 billion dollars, illustrate this shift toward an insurtech of infrastructure rather than of conquest.

The appeal of the underwriting-agency model lies in its very economics, which inverts the difficulty of the direct-sales model. The agency places the risk, collects a commission and leaves the bearing of capital to a third-party risk carrier, generally a reinsurer or an established insurer. It thus captures the technological and distributive part of the value chain, the one where its tools excel, without immobilizing capital or bearing the volatility of loss experience, the one where the pioneers had failed. This decoupling between intelligent distribution and the bearing of risk allows growth that is less capital-hungry and profitability that is faster, provided underwriting quality is there. It enshrines a division of labor in which insurtech supplies the brain and the insurer the balance sheet.

Embedded distribution

The second axis of this mutation is embedded distribution, which consists in offering coverage at the precise moment the need arises, inside another purchase journey. Rather than drawing the customer toward an insurance brand, one inserts the insurance into a pre-existing transaction, credit, the purchase of a pet or general retail. This logic has given rise to partnerships where the insurer fades behind the platform that distributes its product, and where technology blends in quietly instead of selling. Here again, insurtech earns its keep by smoothing the insurance chain. The share of the sector's deals backed by artificial intelligence has meanwhile jumped to around two thirds, confirming that capital is reorienting toward tools rather than brands¹⁰.

V.The Promise Kept, but Elsewhere

Where technology genuinely delivered

It would be unfair to conclude a pure and simple failure, for technology kept part of its promises, but on the front it truly mastered, that of operational efficiency. The automated handling of claims and underwriting genuinely reduced delays and costs, and enabled tangible margin gains. Lemonade, whose bots handle most routine requests in minutes, saw its gross margin rise from around 29% in 2023 to 39% by mid-2025, and its loss ratio improve from around 79% in 2024 to 67% the following mid-year, thanks to better-tooled pricing and underwriting⁶. It proved itself at the front end, where it cuts friction, far more than in the actuarial work.

More revealing still, these gains did not remain the preserve of the insurtechs. The established insurers in turn adopted the automation of claims, data-enriched pricing models and digital journeys, often by acquiring the start-ups that had developed them or by forming partnerships with them. The diffusion of innovation thus went from the disruptors toward the incumbents, and not the reverse, which constitutes the sharpest rebuttal of the disruption thesis. The value created by insurtech was indeed real, but it was captured for a large part by those it claimed to oust, turning a promise of replacement into a program of modernization for the whole industry.

Profitability at the price of conforming to the trade

The recovery of the pioneers is itself instructive, for it was obtained not by moving away from classical insurance but by drawing closer to it. Hippo returned to a net profit of 58 million dollars in 2025, against a loss of 41 million the previous year, but its combined ratio, though much improved, remained at 113, a sign that its underwriting was still in deficit and that the profit owed partly to asset disposals⁵. Root slipped back into a slight loss after a profitable year, and Lemonade, despite a continuous reduction of its losses, was still in the red at the end of 2025⁶. The path to profitability everywhere consisted in adopting the underwriting discipline, pricing prudence and cost management of traditional insurers, that is, in becoming a little more what insurtech claimed to surpass.

VI.Neither Kept nor Betrayed, but Transformed

A balance-sheet problem, not a software one

Above all, the insurtech promise was transformed. The promise of disruption, in the sense of a replacement of insurers by software companies, was indeed betrayed, because it rested on a diagnostic error. Insurance is a balance-sheet and risk-bearing problem, which technology could at best lighten and never solve. The capital to immobilize, the solvency to respect and above all the underwriting to master form an irreducible core that no interface dissolves. It is this core that disciplined the disruptors and brought them back toward the trade.

The real promise, to serve risk rather than replace it

But another promise, more modest and more durable, was kept. Technology reduced the cost and friction of insurance wherever the job was not carrying the risk itself, in distribution, claims handling and customer experience, and it supplied the established players with the tools of their own modernization. The frontier where insurtech creates value turned out to be the one where it serves the insurance function instead of claiming to supplant it. This lesson goes beyond insurtech, for it foreshadows the probable fate of artificial intelligence in insurance, the subject of other articles in this series, namely a powerful tool for efficiency and pricing, and not a substitute for the risk-bearing trade¹¹. Technology will not disrupt insurance in the sense once meant. What remains to be measured is how far it can compress the mechanizable part of the business, including pricing as close as possible to the policyholder's behavior, whose promises and excesses the next article in this series will explore.

This frontier of behavioral pricing is precisely the one where the lesson of insurtech will be tested. If technology cannot abolish the bearing of risk, it can on the other hand refine the knowledge of that risk down to the scale of the individual, by exploiting data on driving, health or usage. The promise is then of fairer pricing, rewarding virtuous behavior; the possible drift is that of an insurance which, by dint of individualizing risk, comes to destroy the pooling that founds it. Insurtech will have shown that technology does not replace the insurer; it remains to be seen whether, by making it too clear-sighted, it does not threaten the very idea of insurance.