The evolving role of Insurtech: from disruption to collaboration

NTT DATA’s “Insurtech Global Outlook Report 2025” underscores a critical shift in the insurance industry, revealing that competitive advantage now lies in strategic collaboration rather than direct competition. This finding highlights a significant evolution from the early days of Insurtech, which were defined by a bold but ultimately unsustainable “disruptor” model.

Initially, companies like Lemonade promised to completely reinvent traditional insurance with superior user experience (UI/UX) and AI-first underwriting. Between 2015 and 2019, Lemonade raised over $644 million, a sum that reflected a widespread belief among investors that technology could be the primary driver for future success and that full-stack Insurtech companies could directly compete with, and even replace, established carriers. This influx of funding created competitive pressure that forced traditional insurers to accelerate their own digital transformation efforts.

The financial results of many of these disruptor-focused Insurtech companies, however, proved to be poor, as seen in Lemonade’s share price, which dropped by over 70% a year after its IPO in July 2020. These struggles can be attributed to three main challenges. For one, the insurance industry’s customer acquisition costs (CAC) are notoriously high; full-stack Insurtech companies had to build brand recognition from the ground up, competing with the massive marketing budgets and decades-long reputations of incumbents. This heavy marketing spend, combined with often unprofitable underwriting, led to massive cash burn. Furthermore, insurance is fundamentally a business of risk management, and while full-stack Insurtech companies relied on AI models for underwriting, their lack of historical data and institutional knowledge made them vulnerable. They were often too young to accumulate a robust enough dataset to accurately predict and weather unforeseen risks, a core competency that traditional insurers have built over decades. Finally, being a full-stack insurer is a capital-intensive endeavor, requiring companies to hold substantial reserves to pay out claims. Many Insurtech companies scaled during an era of low interest rates and abundant venture capital, but when the macroeconomic environment shifted and capital became more expensive, their financially unviable business models were exposed, making it difficult to fund operational losses and growth.

This reality has led to a major strategic pivot since 2020, with the relationship between traditional insurers and Insurtech companies becoming deeply collaborative. Insurtech companies have transitioned from being “disruptors” to becoming “enablers,” providing the technology and agility that insurers need to modernize.

This new partnership model is driving innovation across the industry in several ways. For example, Insurtech companies are providing APIs that allow insurers to embed their products into the offerings of other businesses, such as retailers and car manufacturers, thereby creating new distribution channels that insurers previously could not access. Moreover, Insurtech companies are helping insurers replace their legacy systems with cloud-native platforms, which enables a faster time-to-market for new products, reduced operational costs, and enhanced data analytics. This collaboration has even enabled the development of innovative business models like usage-based insurance and on-demand coverage, tailored to the modern consumer.

This collaborative approach has already revolutionized the industry, with over 60% of top insurers reportedly entering into partnerships or investing in Insurtech firms. Looking ahead, the future of this relationship will likely see a greater focus on collaborations in cutting-edge fields. While Generative AI is already being implemented in workflows to improve efficiency, Quantum Computing remains a long-term area of investment for its potential to process vast datasets and significantly enhance risk evaluation.