5 Reasons Insurtechs Fail – And How to Avoid Their Mistakes

Ever wonder why insurtechs fail?

I’ve studied this space carefully, spoken to founders, and seen promising startups crash before they ever reached scale. 

Some of the brightest minds enter insurance thinking they will „disrupt“ the industry overnight. They bring in tech buzzwords, big funding rounds, and bold visions – only to realise that insurance is a different beast.

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

1. Falling in Love with the Solution

Time and time again, I see insurtechs build first, ask questions later – a classic case of tech-first, problem-second.

A shiny new technology appears, and suddenly, every pitch deck is filled with AI-powered underwriting, blockchain-enabled smart contracts, and GenAI-driven claims processing. Investors love hearing about “disruption,” so what better way to impress them than by stuffing a slide full of buzzwords?

The cool factor takes over, but very few stop to ask the most important question: What actual problem are they solving?

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

Tech is just a tool, no more than that. It should serve the business, not the other way around. The most successful insurtechs don’t push technology for the sake of it, they start with a real business pain point, deeply understand it, and then develop the right solution.

The difference between innovation and gimmick? One solves a problem. The other just sounds impressive in a funding round.

2. Insufficient Understanding of the Insurance Value Chain

Let’s be honest – insurance is boring.

It’s not as exciting as fintech, where money moves instantly, or healthtech, where you can create life-saving breakthroughs. Insurance operates in the background, quietly managing risks and long-term financial stability.

However, it is also highly technical. If you don’t understand underwriting, claims, pricing, and compliance, you will struggle to build something that works.

I’ve seen brilliant minds, packed with enthusiasm and strong technology knowledge, crash and burn simply because they underestimated the complexity of insurance. They assumed they could build a sleek, automated solution, only to realise that pricing risk is a bit more complex than they thought and that claims management involves more than just fast payments.

Many insurtech teams are filled with exceptional engineers and data scientists but lack fundamental insurance knowledge. They build tech in a vacuum, disconnected from the realities of the business. 

Ultimately, this disconnect leads to friction with insurers, unrealistic expectations, and solutions that simply don’t integrate into the existing business landscape.

Tech can enhance insurance, but it cannot throw away the industry’s fundamentals. Those who don’t understand this end up with a fancy product that no insurer, broker, or underwriter wants to use.

3. Arrogance – “We’re Here to Fix This Outdated Industry”

I’ve seen my fair share of insurtechs enter the market with the same bold claim:

„We’re here to fix this outdated industry.“

They see insurance as slow, bureaucratic, and ripe for disruption – and they’re not entirely wrong. But here’s the reality check: insurance isn’t broken. It’s complex. And for good reason.

Insurance is an ecosystem business. It is a carefully coordinated system where insurers, reinsurers, brokers, service providers, and regulators all play a role in managing risk. No single player – not even a well-funded insurtech – can upend this structure overnight.

Startups that try to replace the incumbents rather than work with them often fail. Why? Because insurance is not an industry you disrupt in isolation. Unlike retail, where digital-first challengers can push legacy players aside, insurance is built on partnerships, capital backing, and trust that takes decades to establish.

The real winners play with the incumbents, not against them. They bring value to the ecosystem, accelerate time to market, streamline claims processing, or innovate distribution models.

4. Scalability – Focus, Focus, Focus

A small company cannot boil the ocean.

Yet, I’ve seen insurtechs try to do it all at once: launching multiple products, fragmented distribution channels, and aggressive geographical expansion right from the start.

It sounds ambitious. But in reality? It’s a recipe for many half-baked solutions and no real traction.

When a company stretches itself too thin, it dilutes its focus. Sales teams struggle to gain momentum, marketing efforts become scattered, and product development turns into a game of patching up unfinished features rather than perfecting a core offering.

The most successful insurtechs take the opposite approach. They start by nailing one thing:

• One use case and a single, clear problem to solve.
• One distribution strategy. Whether it’s working with brokers, embedded partnerships, or direct-to-consumer.
• One key market – they master a region before thinking about expansion.

Only after they’ve gained solid traction do they scale systematically, expanding their product suite, reaching new markets, and exploring additional distribution channels.

Growth is not about doing more—it’s about doing the right things at the right time.

5. Digital at Any Cost – A Flawed Assumption

I love digital. Automation, AI-driven processes, seamless claims handling—it’s all great. But let’s not forget what insurance is really about: a safety net in a difficult moment.

A customer who just had an accident will not download an app in the middle of nowhere while staring at their wrecked car on the side of the road. They won’t wait for a chatbot to “analyse their case” while stranded with a crying child in the back seat.

Sometimes, people just need a human – someone who can listen, guide them, and give them practical advice in the moment. Sure, digitise as much as possible, but do not hide that phone number as Frodo did with the infamous ring.

Yet, some insurtechs push for full automation, assuming that customers want digital-only experiences. But customers value choice. Some prefer a fully digital self-service experience for straightforward tasks. Others want a hybrid approach—fast digital processing backed by human support when it matters most.

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

The Insurtechs That Succeed

The insurtechs that succeed are not the ones chasing the latest tech trends. They’re the ones that build real value in the industry.

They solve a real insurance problem, rather than forcing technology where it is not needed. They have deep industry knowledge, understanding the nuances of underwriting, claims, and distribution. Instead of trying to disrupt the entire system, they work within the ecosystem, collaborate with insurers, reinsurers, and brokers to drive meaningful change.

They stay laser-focused on execution, avoiding the temptation to spread themselves too thin with too many products or markets. And they use digital wisely, without forcing automation where human interaction is essential.

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

Mirela Dimofte

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