Despite its difficulties, 2020 was a boom year for insurtech. Investment in the sector reached a record $7.1 billion (£5.2) globally, with deal volumes up by a fifth, and this year has begun strongly, with big deals including London-based insurtech Zego gaining $150 million in its third funding round, valuing the business at $1.1 billion.
Whether it can last, how insurtech businesses can benefit from investor appetite and who will be the winners and losers were among the questions considered for the latest session of Intelligent Insurer’s Re/insurance Lounge, the online, on-demand platform for interviews and panel discussions with leading players in the market.
The panellists brought a range of different perspectives:
- Andrew Johnston, editor of Willis Towers Watson’s January 2021 Quarterly Insurtech Briefing and global head of insurtech at Willis Re, which works with insurtech businesses as both partners and providers;
- Stuart Winchester, the chief executive officer and founder of Marble, which raised about $2.5 million in seed funding in February to support the first insurance loyalty platform;
- Daniel Treiber, the chief financial officer of direct-to-consumer digital insurance company Getsafe, which raised $30 million in its second funding round, mainly from Swiss Re’s iptiQ digital insurance arm; and
- Matthew Jones, managing director of Anthemis, the most active venture capital investor in insurtech to date, with stakes in over 100 companies.
“If you only have the tech bit, you’re going to get stuck very quickly in the insurance industry.”
Matthew Jones, Anthemis
Some way to run
On one hand, there was little doubt from the panellists that the boom in insurtech investment interest continues. According to Winchester, there’s still significant pent-up demand—partly due to wider successes in fintech.
“Fintech as the umbrella has broken a lot of ice for insurtech. Particularly, the neo banks are brands that have done a lot of the yeoman’s work in terms of setting the table for what insurtech can do in the same place,” he said.
Johnston agreed that the outlook is positive. “There is absolutely no doubt in my mind that we’re going to see another big year for investment in insurtech,” he said.
That doesn’t mean it will be an easy ride for those looking to attract money, however, he argued. The investment landscape is now much more “laser-focused” on business outcomes. In particular, businesses can struggle to secure funding as they grow.
“I don’t think it’s difficult for an early-stage insurtech with an intellectually compelling story to attract early-stage capital from across the gamut, but as businesses mature or as they meet investment capital that has more insurance DNA it becomes increasingly hard,” Johnston said.
The result is that while there’s a significant appetite for backing startups, there’s been a dearth of capital for series B and C fundraising—“not least because that’s also where the most risk is”, added Johnston, with capital demands increasing but the business yet unproven.
It’s that need for continued finance as the business grows that is a reason why the fundraising is never finished, according to Treiber.
“At our stage, you’re fundraising all the time. You’re having update calls; you’re having networking events—you want to connect with investors on a personal level, so you don’t have to start at square one when you need them next time,” he said.
“That takes a lot of time and often feels like a lot of effort without any outcome, but you’d be surprised.”
At the same time, he argued, businesses shouldn’t lose the focus on their success metrics and key performance indicators, not funders.
“You shouldn’t twist your ankle to make yourself really compatible with any investor,” he said. That should act as a filter for where to concentrate their time with potential funders.
“Get users on the platform. Get real data, not survey data, not consumer sentiment data.”
Stuart Winchester, Marble
Show, don’t tell
There are other ways those looking to attract funding can help themselves, according to Jones. One is to remember the first part of insurtech: the insurance.
It’s particularly when it comes to later-stage funding that the underwriting comes to the fore, Jones said.
“Anthemis tries to replicate the due diligence of any reinsurer or carrier when it comes to evaluating this. Partly for this reason, we look for a mix of insurance and technology experience and expertise from boards of insurtechs.
“If you’ve only got the insurance bit, you’re probably not a tech business, and if you only have the tech bit, you’re going to get stuck very quickly in the insurance industry with all its nuances,” he explained.
As well as their expertise, insurtechs need to demonstrate the case for their business—and why it’s timely.
“You have to articulate why you, and why now,” Jones said. “Why is it you think this is the right thing to be working on, and why now?”
Perhaps the best way to convince investors is to show them what you can do, according to Winchester. In February, he raised $2.5 million to support the Marble loyalty platform, which offers members up to 5 percent of the value of their insurance premium in rewards.
Getting something to market was the key to finally unlocking funding, he found.
“The fundraising story for us went from meetings, meetings and meetings with interest but everyone hanging around the hoop, to launching to consumers and closing 35 days later.
“We had a term sheet in hand within 10 days,” Winchester said. The key is to get going, he maintained.
“Get something into the wild. Get users on the platform. Get real data, not survey data, not consumer sentiment data. That was fuel on the fire.”
To view the full Re/insurance Lounge session click here
Image courtesy of Shutterstock / Brian A Jackson