Insurtech: Why We’re Investing in an Underserved Market
Co-authored by Josh and Lolita Taub
Insurance is a big, fragmented market. The U.S. insurance industry had $1.2 trillion in total net premiums written in 2017, with 48 percent of that coming from Property/Casualty (P/C) insurance. In the U.S., the largest company in terms of market share (State Farm) only wrote 9.7% of the total P/C premiums in 2018. With an opportunity of this size, it’s no wonder that startups and investors have begun jumping into the insurtech space in the last few years.
So far, we’ve seen lots of founders and funders in the space pursuing better products, whether we are talking about the tech product or customizing the insurance product (Josh has previously written about on-demand insurance here and here). What we don’t see much of — outside of microinsurance in developing countries — is a focus on customers traditionally underserved by insurance, whether it be because traditional products don’t meet their unique needs, accessibility of insurance (including legacies of redlining, but also languages spoken), not fitting traditional underwriting criteria of “good risks” (e.g, poor credit), affordability or billing challenges, or other potential issues. We believe tech startups have the potential to significantly improve the insurance experience for these underserved customers and capture a multi-billion dollar market.
We believe tech startups have the potential to significantly improve the insurance experience for these underserved customers and capture a multi-billion dollar market.
Let’s start by briefly reviewing the problems underserved customers have faced:
- Accessibility and affordability: While these days insurers no longer use characteristics like race, ethnicity, or income directly in pricing & underwriting decisions, the use of zip code or other granular characteristics ends up having disparate impact on minority populations. Some examples of how this manifests: underwriting rules against insuring old homes or low-valued homes without data to back up that these are higher risk, agents not placing their offices near minority neighborhoods, minority customers not getting as many discounts based on employment or education, etc.
- Unequal treatment of claims: Claims adjusters are often trained to take a more aggressive negotiation stance to settle claims with certain claimants, such as non-standard auto claimants or diverse injured workers in Workers Compensation. Imagine an immigrant factory worker without a strong grasp of English, a lack of familiarity with insurance and litigation, and a fear of losing a job they desperately need. If that worker gets injured on the job, they are often in a position to be “bullied” by the insurer and their employer into accepting a lower claim settlement.
- Poor service (or worse): For example, linguistic profiling is a practice of identifying someone’s characteristics (e.g., race, education) based on their speech, voice, or writing. As might be expected, there’s some evidence that this has occurred on phone calls with insurance agents or call centers.
- “Isolated” incidents: Even if insurers intend for no unfair discrimination to occur, it might still be happening at a local/individual level with a few “bad apple” individual agents, claims adjusters, underwriters, home inspectors, etc.
As investors, our vision is that these underserved customers are treated fairly and with dignity, and have their unique situations and challenges addressed. Our mission is to find founders that see the opportunity in addressing the challenges for these customers. We value founders that display empathy with the customer, are results-focused, and seek honest feedback.
Our investment thesis: We believe that addressing underserved markets in the U.S. Property/Casualty space represents a growing multi-billion dollar insurance market opportunity, especially as the U.S. becomes a minority/majority country. We believe that there is some insurance education needed in these populations as they have been historically underserved, but that education will open the door for new customers to expand the insurance market as a whole. We believe that new technologies and the increased prevalence of smartphones will enable much of this change to occur.
How we reached our investment thesis: we’ve seen some of the previously mentioned issues impact our family directly, and we want to improve the lives of our family and others that have faced similar challenges. Josh has worked in the insurance industry as an actuary for nearly 2 decades, and has been able to witness how discrimation can occur based on anecdotes instead of hard data. We also still see a lack of diversity in the insurance industry itself, and that makes it hard for the industry to be able to service these underserved customers. At the same time, we’ve seen high adoption of new technologies like smartphones among minority populations, which provides a new method of access to these customers.
How we will fund our angel investments: from a portion of our “day-job” incomes, and any speaking/writing income we make goes fully towards investing.
Our approach: we believe in collaborating with other insurance investors, operators, and ecosystem members so we can add value beyond just writing a check. Our experience and networks span insurance, technology, and venture capital, and we want to support founders with our experience and with helpful introductions. We review companies referred to us by our network, but also encourage founders to reach out to us directly.
How to work with us:
- As founders looking for funding: Apply here
- As insurance professionals who want to invest for the first time or collaborate with us: send an email to email@example.com that briefly describes your background and interest
- Existing insurance investors: Send an email to firstname.lastname@example.org and we’ll see how we can best collaborate
Here is our investment criteria:
- Seed or pre-seed, preferably post-revenue
- U.S. Property/Casualty
- Typical check size up to $30k
Who we will not fund: companies outside of the U.S.