Insurtech State of the art: 4 years later
4 years ago, I published Dealing with the Burger Dilemma, it was the opportunity to share my vision of the market and to develop our thesis. Since this event, things have evolved a lot. We have backed Leocare, insurtechs have raised tons of cash, B2C insurtechs IPOs has been disasters, inflation and interest rates have risen, and some champions have emerged. While the general momentum among insurtech has slow down, we do believe that the potential has not changed.
First mover: a frontal conflict with incumbents
First neo-insurers attacked the most obvious markets: Home and Car insurance represent roughly €40Bn premium in France only and are by far the most important markets. Some companies such as Alan, Leocare or Luko have grown super fast.
Different approches have been tried to cover existing products from pure distribution play of embedded insurance (Evy, Neat,…) to risk carriers focusing on underwriting and core insurance system play to create and operate products (Acheel, Seyna, …). The B2B market is a bit less mature, even if players are emerging (Orus, Quartz, Olino, …)
While the insurtech market was on fire in 2020 and 2021, the disappointing performances of Lemonade, Hyppo or Metrolien post IPO scared a part of the investors. In this context, some French players such as Leocare, Alan or Descartes are notoriously doing super well.
The previous waves of insurtechs are addressing established or compulsory insurance products. We do believe that the next wave will be different!
From frontal conflict with incumbent to emerging market segments
As the main market is addressed by important players, most recent insurtechs are now addressing emerging markets. The dynamic is a bit different since the goal is not any more to take a bit of the market share of the main insurer, but it’s now to create the category leader on a new markets.
A few highlight on a few highly innovative products that impressed us:
Voluntary carbon credit insurance market:
Carbon market is booming and insurance on carbon credits will follow. Carbon offsetting is not perfect but this is a no brainer if we want to really fight climate change. Trust has been the main friction on this market with multiple frauds. Insurance has the potential to bring the level of trust that the market needs to really scale by improving transparency resulting in improving the quality of the offsetting projets. It will and allow corporate to commit the right level of money to respect their net zero pledge.
What we like:
- Super fast growing market
- Blue Ocean with basically no offers from the incumbents
- Strong impact on climate change
Challenges:
- Still super early and super small
- High dependency on regulation
- Strong need for evangelisation
Champions:
https://www.kita.earth/
https://carboninsurance.co/
Cyber insurance for SMEs:
Cyber threats are booming. While traditional insurers create taylor made contracts to protect large corporates, SMEs are far more complicated to adress. A new generation of cyber insurance is proposing automated assessment tools, cyber tools to protect and cyber insurance contract to address this SME market. US players such as Coalition have proven that the model was efficient with a product which has the ability to really improve the sinistrality. EU market is smaller but definitely promising.
What we like:
- There are very few market where you can actually have a very strong impact on sinistrality with a product. US models have given great proofpoint.
- Pressure from regulation, banks or corporates on their suppliers could boost adoption is the future
- Cyber theats are skyrocketing showing that this is a no brainer on the long term
- Opportunity to be the cyber copilot of all the SMEs, entering through insurance and developping on cyber tools
Challenges:
- The market is still very small
- High risk in case of important failure
- Incumbent already have a strong relationships with all the incumbent
- Could be hard to find insurer to back risks where we have very few data on
Champions:
Stoik, Dattak, Baobab, Eye, Cogitanda, Bastion
Web3 insurances:
This is actually more than a category since there are many super interesting usecases. There are different ideas:
- Using the liquidity of the crypto ecosystem
- Decentralised assessment of claims
- Coverage of web3 financial products
Champions:
Ensuro: A decentralized risk carrier in the blockchain using liquidity in the crypto space to back MGA. They provide yield from real life into the crypto space.
Nexus Mutual: In this model, the community members themselves provide liquidity, buy cover, assess claims, and vote on governance questions. They managed to automate or decentralize all the element of the value chain.
Evertas: Risk carrier for crypto assets.
Etherisc: Nonprofit that operates as an insurance/smart contract platform. They offer a framework to define insurance policies using smart contracts, as well as a decentralized insurance protocol.
What we like:
- No competition from incumbent
- Important need from the ecosystem
- Important liquidity available and need from sustainable yields
Challenges:
- Low level of data for underwriting
- High instability of the ecosystem
- Low trust from the traditional world
The main challenge to come: Underwriting in a context of fast climate change
Climate change is a fact, a French minister is even now talking about how to adapt the country to a scenario of +4°C. This has tremendous consequences on underwriting as climate disruption will be far more violent that global warming. We are entering a new paradigm were risk will be estimated with a lower level of past data and a more important level of modelisation. Incumbent that would react too quickly would put their company at risk.
If you are working on it, we definitely want to be in touch!
