ROUNDTABLE: INSURTECH
HOW ROBUST IS INVESTOR INTEREST IN THE INSURTECH SECTOR?
“Talking about AI alone is not enough now.”
Ari Chatterjee
Ari Chatterjee: Our experience in raising substantial sums of money from VCs is there’s a clear segregation between the different segments of the market an insurtech is targeting. Distribution was the lowest-hanging fruit for many years. Insurtech 1.0 would do something like pet insurance, homeowners or auto.
The challenge was that it was driven on customer satisfaction and how quickly you can grow. But many proved to be extremely unprofitable as you need more capital to grow. The cash burn rates were extremely high at some of the best known ones. Some of them are almost out of business.
So VC investors are definitely sceptical of that model. They are now more interested in exactly how you’re underwriting, and they are more sophisticated. Talking about AI alone is not enough now, they want to see how much data you have, where it comes from. >>>
“Using crypto for underwriting probably has further to go.”
Ari Chatterjee
<<< SaaS businesses were the darling of investors for a while but competition in that market has grown quite substantially. It has taken a bit of a back-burner at least for the larger VCs. They are now seeking what we might call Insurtech 2.0. That revolves around things such as applying AI to underwriting, how to price risks better and also the fluidity of capital.
Some are considering a hybrid model: managing general agent versus traditional versus insurance-linked securities. Using crypto for underwriting probably has further to go to prove there’s volume there, but it has traction.
I predict in the next five years we will see more companies with AI geared towards risk evaluation. Some of the newer startups will take over some of the original players to become dominant insurtechs in the world.
“Re/insurers started embracing new ways of engaging with insurtech.”
Sandra DeSilva
Sandra DeSilva: I agree. The Insurtech 1.0 generation and the insurance industry were like two ships passing in the night and finding it hard to enable the technology to the business transformation needs.
One positive outcome since then is re/insurers started embracing new ways of engaging with insurtech and are open to embracing a new culture.
Heather Kitson: The investor bar has been raised now, particularly in the current climate. Investors in the insurtech space are looking for more than simply great conceptual ideas. They’re looking for people who understand insurance and technology and can build scalable and sustainable companies.
Against the background of several recent high profile failures, investors are no longer focused on looking for unicorns.
“Investors are no longer focused on looking for unicorns.”
Heather Kitson
DeSilva: They’re looking for something tangible that either fixes real-life problems or is a disruptor and provides marketplace opportunities. Data-driven solution for better insights, analytics, using AI for efficient underwriting or use of smart contracts are a few examples.
Josephine Noddings: They’re looking not only at conducting their insurance in new ways but also trying to understand what risks lie in some of the newer technologies. What risks are associated with things such as smart contracts? How can they ensure their liabilities are managed appropriately?
“VCs are looking for real problems to be solved.”
Adam Adamson
Kitson: There is also innovative technology underpinning new products to the market such as non-damage business interruption cover on a parametric basis. It will be interesting to see what the take up of these new products will be and how risk managers fit them into their programmes and budget to adjust to building coverage to address the real-world risks of today including a potential COVID-19 resurgence.
Adam Adamson: The cyber industry went through that process where underwriters were getting up to speed, and there are probably a lot of underwriters in that space solving other problems.
Definitely VCs are looking for real problems to be solved, but also creating revenues.
“There is so much more comfort around the cloud now.”
Devon Sherman
Devon Sherman: I wanted to echo that the bar for investment has been raised. And investors are increasingly looking for startups to demonstrate strong, growing customer traction. One of the things that have really helped insurtech startups get customers and funding is that insurance companies are much more educated on the potential of technology now than they were five or seven years ago.
From a Cactus perspective, there is so much more comfort around the cloud now, which makes our business resonate a lot more now than it would before this education took hold.
“I wonder if we will see more interest in non-correlated investment opportunities.”
Mitchell Klink
James Ferris: I echo what people have said in terms of what investors are looking for. If there is a technology play that brings in new capital or opens up new markets then it will get investor interest, regardless of the current equity/investor conditions.
Mitchell Klink: With inflation and market volatility, I wonder if we will see more interest in non-correlated investment opportunities—anything adjacent to insurance should all of a sudden be worth considering.
“I find the herd mentality of investors a little comical.”
Darren Wolfberg
Darren Wolfberg: I find the herd mentality of investors a little comical; they always want to invest at the top and not at the bottom. We are seeing a big re-evaluation but those companies able to come out of this are going to be very strong, very well capitalised, and that’s when the investors are going to want to put in. That is a herd mentality.
Right now the herd has moved from one side completely back to the other side but they’ll dip their toes back in the water.
Image courtesy of Shutterstock / Michael Overkamp
