5 reasons why insurtechs fail – and how to avoid their mistakes

Have you ever wondered why insurtechs fail?

I have studied this area carefully, spoken to insurtech founders and seen how promising start-ups fail before they ever reach a certain size.

Some of the brightest minds come into the insurance industry thinking they will “disrupt” the industry overnight. They bring with them tech buzzwords, big funding rounds and bold visions – only to realize that insurance works differently.

Here are five reasons why most insurtechs fail to achieve sustainable results. The list is by no means exhaustive, but rather shows what I have seen most often in the industry.

1. falling in love with the solution

Time and again, I see insurtechs that develop first and ask questions later – a classic case of “technology first, problem second”.

A shiny new technology emerges, and suddenly every pitch deck is full of AI-powered underwriting processes, blockchain-based smart contracts and GenAI-driven claims handling. Investors love to hear about “disruption”, so what better way than to fill a slide with buzzwords?

The coolness factor prevails, but very few ask the most important question: What real problem are they solving?

Insurance isn’t about throwing the latest technology at the wall to see what sticks. Customers don’t buy insurance because they want a fancy AI algorithm; they buy it because they need protection and a solution when something goes wrong.

Technology is just a tool, nothing more and nothing less. It should serve the business, not the other way around. The most successful insurtechs don’t use technology for its own sake, they start with a real business problem that they need to understand very well and then develop the right solution.

The difference between innovation and gimmickry? One solves a problem. The other only sounds impressive in a financing round.

2. insufficient understanding of the value chain in the insurance industry

Let’s face it – insurance is boring.
It’s not as exciting as fintech, where money is moved in seconds, or healthtech, where ground-breaking, life-saving innovations are created. Insurance works in the background, quietly providing risk management and long-term financial stability.

Nevertheless, the industry is extremely technical. If you don’t understand underwriting, claims management, pricing and compliance, it’s difficult to develop something that actually works.

I’ve seen brilliant minds, full of enthusiasm and technological know-how, fail because they underestimated the complexity of the insurance industry. They thought they could build an elegant, automated solution – only to realize that risk assessment is more complicated than they thought and that claims management involves far more than just quick payments.

Many insurtech teams are made up of excellent engineers and data scientists, but lack basic insurance knowledge. They develop technology in a vacuum, completely detached from the realities of the industry.

Ultimately, this discrepancy leads to conflicts with insurers, unrealistic expectations and solutions that simply cannot be integrated into the existing business model.

Technology can improve the insurance industry, but it can’t throw the fundamental principles of the industry overboard. If you don’t understand that, you’ll end up with a sophisticated product that neither insurers, brokers nor underwriters want to use.

3. arrogance – “We are here to revolutionize this outdated industry“

I’ve seen many insurtechs enter the market with the same bold claim:
“We’re here to fix this outdated industry.“

They see the insurance industry as slow, bureaucratic and ripe for disruption – and they’re not entirely wrong. But here comes the reality: Insurance is not broken. It is complex. And for good reason.

Insurance is an ecosystem business. It is a finely tuned system in which insurers, reinsurers, brokers, service providers and regulators work together to manage risk. No single player – not even a well-funded insurtech – can turn this structure on its head overnight.

Startups that try to displace established companies instead of working with them often fail. Why? Because the insurance industry is not an industry that can be disrupted in isolation. Unlike retail, where digital challengers can displace traditional providers, insurance is based on partnerships, capital support and trust built up over decades.

The real winners work with the established companies, not against them. They bring added value to the ecosystem, shorten the time to market, optimize claims processing or develop innovative sales models.

4. scalability – focus, focus, focus

A small company cannot boil the whole ocean.

Nevertheless, I keep seeing insurtechs trying to do everything at once: multiple products, fragmented distribution channels, aggressive geographical expansion from the outset.

That sounds ambitious. But in reality? A recipe for half-hearted solutions and a lack of traction.

Those who position themselves too broadly dilute their focus. Sales teams struggle to gain momentum, marketing measures become uncoordinated and product development consists more of patchwork than perfecting a central offering.

The most successful insurtechs do it the other way around. They initially focus on a single thing:

• A clear use case and a clear problem to be solved.
• A sales channel – be it via brokers, embedded partnerships or direct sales.
• A core market – they dominate a region before thinking about expansion.

Only when they have established a solid market presence do they scale systematically – by expanding their product portfolio, tapping into new markets and testing additional sales channels.

Growth does not mean doing more, but doing the right things at the right time.

5 Digital at any price – a misconception

I love digital solutions. Automation, AI-supported processes, smooth claims processing – great. But let’s not forget what insurance is actually about: a safety net in difficult moments.

A customer who has just had an accident is not going to download an app in the middle of nowhere while staring in bewilderment at his wrecked car. He won ‘t wait patiently for a chatbot to “analyze his case” while a crying child sits in the back seat.

Sometimes people just need a real point of contact – someone who will listen, guide them through the process and really help them in the moment. Yes, digitize as much as possible, but don’t hide the phone number like it’s Frodo’s ring.

Nevertheless, some insurtechs are pushing for complete automation because they believe that customers only want digital experiences. But customers want freedom of choice.

• Some prefer a completely digital self-service solution for simple requests.
• Others want a hybrid approach – fast digital processes supported by personal help when it matters.

A great digital experience doesn’t mean removing people from the equation.
It means seamlessly integrating technology and human support so that customers get exactly what they need, when they need it and in the way that suits them best.

The success factors of insurtechs

The successful insurtechs are not the ones chasing the latest technology trends. They are the ones that create real added value in the industry.

They solve a real insurance problem instead of using technology where it is not needed. They have deep industry knowledge and understand the intricacies of claims settlement and distribution. Rather than trying to disrupt the entire system, they work within the ecosystem, collaborating with insurers, reinsurers and brokers to effect meaningful change.

They remain focused on implementation and avoid the temptation to get bogged down with too many products or markets. And they use digitalization wisely, without forcing automation where human interaction is essential.

Technology is powerful, but ultimately insurance is a people business. One day, AGI may transform human connection as we know it. Until then, focus on a problem worth solving.

Mirela Dimofte

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