On 4th September I facilitated a discussion with a group of investors at the London Internet of Insurance conference. The goal of the session was to really get into the investor’s mind as to why they invest in InsurTechs.
Following the success of FinTech we have seen a lot happening in InsurTech, with companies seeking to deliver unique innovations to ensure that like in FinTech, the sector meets the evolving needs of the customer with seamless and frictionless digital experiences.
Some of these InsurTechs are providing a competitive threat to incumbents, becoming themselves challengers in their own right. While very few have made significant inroads into the sector, the solutions they want to offer dissatisfied customers are fast expanding.
We have heard it many times. Insurance is ripe for innovation!
Many insurers understand the need to simplify and untangle highly convoluted processes and at the same time renew outdated business models. InsurTech companies are aiming to make this happen, combining trackers and advanced analytics with new data sources to deliver more relevant profiles, pricing and interactions, while adapting to changing customer behaviour. With over $13Bn invested in the sector to date, we can see that there is an appetite for change as 2018 is expected to be the second biggest year for InsurTech investment, after 2015.
So, let’s come back to the panel discussion. In hosting this investor-led discussion, we were interested to find out the opinion of professionals in the world of investing to suss out their views on what the future of InsurTech over the next few years might be. We were fortunate enough to talk to five investment companies that work in the sector.
Reece Chowdry, Founder & CEO of RLC Ventures, focuses on pre-seed and seed stage startups ranging from £50k to £500k with investments in FinTech, PropTech, Social Impact, AI & InsurTech. Reece also invested in on-Demand InsurTech startup Wrisk.
With a background at Deliveroo, Carmelo Spano, sits at the intersection of startup and angel investing at Start-up Funding Club. His investment ticket ranges between £50K to £1m. The Startup Funding Club has now 150 companies in the portfolio. Renowned investment includes InsurTech Tapoly led by my dearest friend Janthana Kaenprakhamroy and one of our SBC IoT startups, DoorDeck.
Chris Baker, Non-Exec Director of Angel CoFund, manages a £100m investment fund backed by the British Business Bank to invest in promising UK businesses co-funded with Angel investors. Typical ticket ranges between £100k to £1m. Interesting investments include Eagle Genomics and Contego.
Juliette Souliman, Early Stage VC investor with Octopus Ventures, sits on the FinTech, InsurTech and Blockchain investment fund with ticket ranging between £350k to £25m. InsurTech investments includes DeadHappy and BroughtByMany.
Maxime Mandin, Investment Director at Blackfin Capital, a finance sector focused investor which closed a £180m dedicated FinTech investment. His ticket size is between £1m and £150m. Renowned InsurTech investment includes Friss.
So here is their take on InsurTech innovation:
How are investors approaching the InsurTech market today? What challenges are they facing?
Chris Baker’s view on this question is that one of the major challenges for investors is that they often lack knowledge of the tech being implemented by the startups, and yet fear to admit it. They find the technical jargon in the pitches difficult to understand or decipher and therefore it takes more time to make investment decisions.
Maxime agreed and stated that: “better understanding of the challenge faced within the insurer’s back office will drive many future opportunities for InsurTechs, particularly because renovation is key right now.”
Maxime suggested that investors, in general, must take a more expert approach to assimilate insurers’ needs by taking time to listen, interpret and translate corporate insurers and startups lingo. To drive strategic value, investors and corporates will gradually be looking for startups that can scale rather than solutions aimed at smaller and more specific problems.
As an investor how are you enabling your startups to disrupt heavily regulated markets? How do you help them stay over product offering?
With a UK regulator open to change and responsive to startups requests, Juliette confirmed that while the market we are operating in is changing quickly, there are many opportunities for new InsurTech companies to enter that market flexibly with new ideas, as long as the customer remains at the core of any such propositions. Agile approaches are recognised by all market participants as key to leapfrog current fast-moving trends.
Carmelo expanded on this by suggesting that UK startups are in an enviable position because the “UK remains the greatest market in terms of regulatory openness” and “they need to be considered by the regulator as partners”.
In addition to IoT (Internet of Things), how do you see emerging technologies changing the insurance sector? Where do you think the hottest opportunities will come from?
Insurance innovation is still in its infancy according to Reece. This means that there is a long way to go and major untapped opportunities across new product development, distribution and operational enhancement. He went on to say that if you asked the average person in the street what their experience with insurance is, they would still respond with ‘paperwork, contracts, long claim cycles, “so there is a clear opportunity to take the industry by its horns”. However, to succeed and scale there must be a strong partnership model in place between the insurer, the innovator and the investor. “Everyone needs to engage in a responsive way to move along this exciting but still uncertain journey” added Reece.
In Chris’ opinion, it is clear that digitisation will continue to become more widespread in all facets of business. We can see this happening every day. Chris considers that technology such as image processing, 3D printing, cyber security and surveillance will have a considerable impact upon insurers via InsurTech innovation. Digitalisation is relevant for InsurTechs as it makes the collection of data more accurate within smaller devices – helping the tech to expand beyond data collection in the car to reach health, home and so on.
Juliette confirmed that for her, the IoT, is just one source of data among many other sources as it connects to sensors and wearables. Data is collected by servers, software, cloud systems and phone apps and then shared as individual insight. Insurers will need to begin to “rethink customer engagement and deliver new experiences based on very targeted customer insight.” A key trend as far as Juliette is concerned is certainly a move towards hyper-personalisation.
“The speed of digitalisation can leave markets open to fraud and cybercrime. We are all online. Our activities and data are out there continuously at the mercy of hackers.” This is where Maxime re-affirmed that Artificial Intelligence and Machine Learning will remain key features of our lives.
“The fraud risk is rife, and hackers can get hold of our data if they wish to do so”. Maxime believes that technology will open up new areas of insurance that will respond to new ways of life as well as new needs. “On Demand and P2P (Peer to Peer) are two good examples that extend towards new sharing economy models.” Such models require different types of pricing and risk assessments that allow businesses to adapt quickly to new versions of the new norm.
What are the specificities affecting each European InsurTech market? Do you see trends and patterns we are to pay attention to?
Maxime highlighted the fact that the first wave of innovation was distribution-focused. “On the continent we saw digital brokers emerge such as Clark, WeFox and Knip.” This was very much confirmed during our first year of startup recruitment with 60 percent of startups delivering some form of engagement focused propositions.
The second wave addressed issues across the value chain including operational needs, such as digitising claims or services.
The third wave of innovation is focused on “building the stack”. Maxime expects tech-savvy companies to emerge from continental Europe as it has greater data, developer, finance and AI based capability. We concluded that there were already a few cases of such development already happening in Germany (Wefox), France (Shift Technology) and Brussels (Qover).
Chris confirmed that some of the major barriers to change throughout Europe include internal politics, culture and mindset. He also highlighted that it is crucial to know how innovation will be disseminated within countries: “Do the big European players have the channels through which to share knowledge?”
Although the UK, France and Germany are big players in the insurance sector, internationally based corporations may be better equipped financially to invest in new startups. “However, it is important to distinguish between the easy money that is offered from America and the smart money that is available closer to home” says Maxime.
What’s your take on the future of InsurTech?
One thing is for sure, and that’s that whatever happens, it is here to stay, and we’ll continue to see new insights emerge into what is driving change within the insurance sector.