Getting InsurTechs to the point where they can test the product-market fit of their proposition is too prolonged and costly, according to InsurTech Gateway head of deal flow Charlie Evans.
The insurance space has typically taken a long time to evolve, even more so than the banking industry. It is weighed down by a lot of legacy systems, and the growth and adoption of InsurTech has been a little slower than other areas of FinTech. However, this is all changing quite rapidly. Last year, total investment into InsurTech companies increased by around 92 per cent going from €1.6bn in 2017 up to $3.1bn, according to data by FinTech Global.
Although the high level of capital flooding into the market might suggest it’s an idyllic sector ripe for the picking, there are still a lot of challenges facing the InsurTech sector, with Evans describing it as a ‘minefield.’ Struggles to be regulated quickly, identifying the best insurance partner, the levels of resources needed for testing and market fit, complex compliance requirements, a need of frequent fundraises and a lack of purchasing power with service providers, are just some of these obstacles facing InsurTechs he explained.
InsurTech Gateway head of deal flow Charlie Evans said, “Simply, it takes far too long, and is far too expensive, for startups to get to a position where they are able to test the product-market fit of their proposition. It’s the same old barriers to innovation InsurTech startups have been facing for years.”
In contrast to the volume of equity being invested, the number of InsurTech deals has been steadily decreasing since 2016, data from FinTech Global shows. Naturally, this fall in deal numbers has been counteracted by InsurTechs raising later and larger funding stages. The €3.1bn to be invested in 2018 was backed by several high-value deals, such as Armour’s $500m round and Prima’s $115m Series A. Armour raised the funds from Aquiline Capital Partners to support the creation of a new reinsurance group, while Prima secured the equity from backers including Goldman Sachs and Blackstone to foster the exploration of new technology types.
Another InsurTech to raise a substantial amount of funding last year was online health insurer Oscar Health, which picked up $540m across two separate rounds. The company valuation was not made clear for these rounds, but in 2016, Oscar Health secured $400m in private equity funding at a company valuation of $2.7bn.
Evans said, “There’s been lots of talk about 2019 being a year where InsurTechs will face a correction in valuation. I agree that 2019 is likely to be the year we see many of the space’s first-wave / pioneers facing dampened valuations, down-rounds and even failing to raise. However, this should absolutely not be seen as reflective of the health of InsurTech generally, or a dampening of excitement amongst investors.
“Rather, it should be seen as reflective of a growing consensus amongst investors that valuations of early-stage InsurTechs need to be anchored in tangible proof points based on customer traction, business robustness and insurance risk metrics. These proof points can only be developed through live piloting, something the vast majority of investors are unable to assist with.”
The best way to overcome these challenges and unlock the value of early-stage InsurTechs is to provide live pilot capabilities – something which InsurTech Gateway is doing. The firm was founded in 2017 and is an InsurTech fund with a dedicated incubator, which provides investment, regulatory authorisation, underwriting capacity and a platform to ensure speedy execution.
He added, “The Gateway has partnered with best-in-class insurers, reinsurers, underwriters and experts from both inside and outside of the industry to provide live piloting capability. With this capability, investors and startups can work together to develop the all-important proof points the startups require.”
Last year, the firm made a handful of investments with the most recent being a contribution to the £1.9m funding round of FloodFlash. The UK-based startup offers flood insurance to all consumers, even those which are deemed as high-risk, and utilises an IoT device which is triggered when water reaches a pre-defined height. The capital was raised to support the nationwide launch of its platform. InsurTech Gateway also supplied funds to the £1m round of By Miles last year. The company charges a car owner a fixed annual fee to cover the vehicle while it is parked, they are then also billed monthly based on the number of miles they have driven.
As new technology like AI, IoT, and blockchain continue to evolve, and new technology is created, the InsurTech space will be become abundant with new solutions. Evan highlighted companies like FloodFlash and Jumpstart, an earthquake insurance platform, which are using IoT and sensor technology to evolve insurance and create parametric policies and adapting how consumers perceive risk. Other use cases of technology which are helping to revolutionise insurance is Humn.ai, a company leveraging real-time risk scoring and dynamic pricing for the auto insurance sector.
New technologies are not the only thing keeping InsurTech Gateway’s eye, with there being a number of spaces which are appetising, one particularly being pay-as-you-live insurance products. The on-demand insurance space has begun to take shape with InsurTechs like ByMiles entering the market, but also insurance giants like Aviva and Axa deploying their own types of subscription-styled insurance products.
“We’re always on the lookout for usage and event-based products, and startups creating innovative products driving new economies. We want to explore ideas that are different, exciting, off-the-wall, and above all else, fun! If it’s bonkers…or…brilliant, then we want to hear about it,” he concluded.
Charlie Evans will be speaking at the Global InsurTech Summit on 5 March, where he will offer more on his thoughts on the current InsurTech space and investing into it.
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