Investing in insurtech

Investing in insurtech

It’s an exciting time for insurance innovation, but challenges remain

By John Deex

The COVID pandemic has pressed the fast-forward button on digital transformation, but it can still be difficult for insurtechs to get off the ground in an insurance market that’s dominated by a few major players.

Trying to counter this are organisations whose prime focus is helping insurtechs succeed.

Insurtech Gateway Australia, an insurtech incubator launched in 2019, is currently working with three companies, and Chief Executive Simon O’Dell says a fourth will soon be added.

Mr O’Dell says there’s huge opportunity for insurtechs right now, but limited access to risk capital can still hold the sector back.

The three companies already announced as Gateway partners are:

• Koba, which uses a UK technology platform to create flexible, pay-per-kilometre car insurance;

• AuditCover, which offers a fully digital insurance solution, underwritten by Lloyd’s, to enable accountants to quickly and easily manage tax audit insurance for clients; and

• Geolocarta, which has created a marketplace connecting an Australia-wide network of geospatial data professionals to corporate consumers.

Mr O’Dell says Geolocarta is a good example of how Insurtech Gateway Australia can help new entrants.

The property characteristic data offered through the Geolocarta platform is produced by qualified geospatial measurement and analysis professionals. It can plug directly into insurers’ existing workflows.

“For the user experience, there is no longer a need for the consumer to provide, check or even see the data that informs their quote,” he tells Insurance News.

“Rather, after entering their address, the consumer only needs to see the coverage offered and the premium.

“This technology breakthrough will be particularly valuable to meet the changing duty of disclosure laws.”

Mr O’Dell says Geolocarta will also give insurers the ability to discover new predictive data, and new relationships between attributes and risk.

“With constant pressure on the commoditisation of insurance products, this breakthrough should offer some relief to insurers seeking to differentiate through proprietary underwriting and pricing.”

Mr O’Dell says the business already had a dedicated user base and well thought-out technical framework, but much was unknown.

“We have helped Geolocarta develop a venture building framework, a route to market, a co-design partnership with Swiss Re, and an engaged sales funnel,” Mr O’Dell says.

“For other portfolio companies operating as a regulated entity, we offer regulatory permissions and a comprehensive compliance program that aligns with regulatory reform.”

Mr O’Dell says that the development of data means that it’s a “super exciting time” for insurance and technology specialists.

“Indicators suggest that we’re in the midst of an era that is seeing a rapid closing of the gap between reality and the reality reference layer.

“This is not just being realised in property characteristics for property insurance. New proprietary data is producing a marked improvement in the understanding of profiles across financial risk, safety risk, compliance risk, reputational risk, professional risk and more.

Enabling growth: Greg Mullins, left, and Simon O’Dell

“Technology start-ups from other verticals unearthing such data are shifting laterally to insurtech to unlock the value in their data.”

He says business models being deployed “to realise value exchange” include software as a service, and managing agents.

“Launching from the Gateway platform, managing agents are able to nimbly deploy pilots, monitoring growth and risk metrics, to test their market entry thesis.

“We’re finding this accurate data produces improvements across both risk metrics, frequency and severity, and offers enough value for the consumer across terms and pricing, to collectively produce a compelling insurance business. Zero-low cost distribution is also key.”

The major challenge remains risk capital.

Mr O’Dell says Insurtech Gateway “has all that an insurtech needs, less risk capital. We offer regulatory permissions, compliance programs, investment capital, venture building services, technology platforms, mentors and advisers, and even reinsurer quota-share partners”.

“But not risk capital. For this, we rely on our insurer partners.”

He says the heavy burden of regulatory reform is holding many insurers back.

“Unfortunately, it seems most insurers aren’t willing to explore innovation while attending to regulatory reform.

“Insurtech Gateway offers a de-risked vehicle for insurers to maintain their innovation goals.

“The insurers who identify this period as an opportunity are benefiting greatly from our collaborations through underwriting opportunities, innovation insights and priority access to our growing global portfolios.”

Insurtech Gateway Australia is supported by insurance industry-focused investor Envest, which also invests directly in insurtech businesses including underwriting agency Blue Zebra, claims managers Claim Central and Hello Claims, and drones pay-as-you-fly specialist Precision Autonomy.

Envest Managing Director Greg Mullins says the financial return profile of insurtech investments can be “very compelling”.

“With the shift of Envest to a distribution business, our top priority is to deploy strategic value-add services to our portfolio partners to provide a competitive edge,” he says.

“Insurtech offers our portfolio partners meaningful advantages in the marketplace, which ultimately gives a better outcome for all stakeholders and most importantly our clients.”

Mr Mullins says the full impact of the coronavirus pandemic on digital transformation has yet to play out.

“A great example of the impact of COVID was, almost overnight we saw an explosion in demand for virtual assessing tools developed by Claim Central,” he says.

“What COVID has done has made people think about how we can do things remotely as effectively as pre-COVID. Where this becomes more cost effective is where it gets really interesting and I don’t think we’ve seen the full effects of this yet.”

But there is still a long way to go.

“When you look at Australia compared to the UK, we don’t have the same momentum in terms of good quality insurtechs coming through.

“Two main reasons are that it is a much smaller market which is dominated by a handful of major players. This puts pressure on your ability to be successful and scale, which is a challenge for investors.

“Insurtechs that have demonstrated the ability to scale in places like the UK and the US will continue to attract funding and investment interest.

“Home-grown insurtechs that deliver tangible value to both the customer, the business and the insurer will also have a much better chance of success.

“There is an encouraging growth of founders and business who know how to combine the two and Gateway is assisting investors like us in the process of identifying these.”

Record deals

Global insurtech funding reached an all-time high of $US2.55 billion across 146 deals in the first quarter, up 180% from a year ago and 22% from the fourth quarter of 2020.

That was more investment activity than achieved annually in either 2016 or 2017, the latest Willis Towers Watson (WTW) Insurtech Briefing says.

Property & casualty-focused insurtechs represented more than two thirds of deals, with Life & Health making up the balance.

“Over the past few years, we have seen a ramping up of investment into insurtech across the globe,” WTW says. “The past 12 months have provided a fantastic opportunity to make the most of a turning tide: the era of acceptance and openness.”

The first quarter saw a record number of “mega-rounds” of more than $US100 million, which was an all-time record, with eight companies driving roughly 44% of this quarter’s funding.

“While historically mega-rounds are typical of late-stage companies, this quarter, the majority of companies were raising Series C growth rounds, potentially an indication of expanding funding requirements earlier on in the cycle, of froth in the markets, or both.”

WTW says investment is likely to continue to grow, partly because the term insurtech is becoming more widely applied.