Latest trends in Insurtech and their fundraising
Focus on the evolution of insurance industry and their VC investments
Hello everyone !
To continue this series on the trendiest sectors of startups, we’ll analyse Insurtech today ! 👨👩👦
Insurance issues to be resolved
Insurance, we’re not going to lie to ourselves, it’s not very easy to access. The classic procedure is opaque, unclear and therefore time consuming to excess. In fact, taking out insurance is complicated for two reasons :
- Vocabulary hyper specific and not very intuitive, where I propose you a small reminder :
- To protect himself from any possible damage that could happen to him, the insured makes payments to the insurance company : this payment is called the contribution (or premium);
- If the eventual damage happens (Claim), the insurer must make a payment to the insured : this payment is called the benefit (or compensation). - 4km legal contracts that no one wants to read.
Insurtech have precisely tackled these problems by simplifying the insurance process for the insured with simple vocabulary and contract summaries.
Also, although there are many models of Insurtech, the following are generally found :
1. Broker : The startup plays the role of intermediary between customers and insurance. Thus, the startup allows the insurance company to get more customers by simplifying the underwriting process (for example via a 100% digital process) while the insurer allows the startup to obtain a reliable and secure insurance product to attract customers. It’s Win-win. 🤝
2. Service provider : Here the startup will perform a service provision for the client while the insurance company will provide the necessary funds to perform this service provision.
3. Insurer : This is the case where a startup has succeeded in obtaining the status of Insurer, in particular after having obtained an approval from the ACPR in France. This is very difficult from a legal and financial point of view, so it is a case of startups that have already raised enough funds to have a solid cover mattress. The first French startup to obtain this status is none other than Alan (NEXT40), a B2B health Insurtech !
The Market
The size of the global Insurtech market was estimated at $2.72 billion in 2020 and is expected to grow at a CAGR of 48.8% from 2021 to 2028. This growth is driven by the growing need to digitize insurance services to acquire new customers.
🇺🇸 North America dominates the insurance market with a 37.0% share in 2020, not only because the US population is 5x larger than France, but also because Americans take out much more insurance than the French, especially health insurance.
VC’s Interest
CB Insight tells us that Insurtech financing ends 2020 at a record level : With an important last quarter in terms of raising, annual Insurtech financing reached a record level of $7.1 billion on 377 transactions in 2020, a 12% increase in financing and a 20% increase in transactions compared to 2019.
In terms of investment trends :
- D2C housing Insurtech have raised a lot this year, including the US startup Hippo which made the biggest round of financing in the last quarter of 2020 : a $350 million series F, cool. Speaking of cool things, Parisian startup Luko (a member of FT120), which also offers D2C home insurance, has made a lot of noise by having just raised $60 million in Series B to go international.
- Life&Health Insurtech are slowly coming of age after the property and casualty insurance trend (fire, accidents and miscellaneous risks). As an indication, L&H Insurtech accounted for 50% of the fundraising of a large amount (those of 100 million dollars and more). Indeed, while the first wave of IPOs in the insurance sector focused on P&C, L&H insurers are preparing to make their debut on the public markets !
More generally, Insurtech can be divided into three main categories :
(i) innovation on insurance products to offer new value propositions, (ii) improvement of distribution processes to minimize friction between insurers and policyholders, and (iii) services to insurers and brokers to achieve better internal management of insurance companies.
So, in your opinion, are these Insurtech worth it ?
That’s what we’re going to find out 🕵️
1) New Insurance Products
New ways to insure began to emerge. For example, with on-demand insurance, it is now possible to insure for a product and pay for the insurance only for a certain predetermined period of time. For example, it is possible to insure your smartphone against theft only when you go outside (which is cheaper than insuring it all day long). This allows you to have real flexibility as a customer in your underwriting process, in addition to saving money ! 👌
Secondly, according to SIA Partners (article in French), collaborative insurance is a fairly old movement since it was initiated by microcredit institutions in the early 2000s in England. However, the online participatory finance movement is beginning to grow. The principle of collaborative insurance is simple : bring together individuals to pool their risks and insure each other. According to this principle, many products could be insured in this way such as animals, health, smartphones… etc. Moreover, the Blockchain appears to be the most compatible technology with this model to bring even more security and transparency to P2P transactions. 🔗
Finally, parametric insurance, which is a type of insurance linked to an “objective” parameter. For example, it can be a thermal index (temperature, rainfall, humidity rate, etc.) or a duration (delay on a train). Thus, as soon as a certain threshold on the index scale is exceeded, compensation is automatically triggered. 🤖
Let’s analyze together the startups that have shaken these sectors thanks to Data, AI or IoT !
Flitter (Paris) : Founded in 2021, Flitter is the first neoinsurance for all urban mobility : car, electric bicycle and soon two-wheelers. Their insurance is 100% digital and committed to greener mobility thanks to a carbon contribution directly integrated into premiums. This year, their team will launch the first car insurance product aimed at little Sunday drivers and wheelers to enable them to pay only when they are driving ! 🚗
➡️ Flitter does not have a fundraiser announced yet, but it’s surely coming soon. To be continued !
Safetywing (Palo Alto) : Created in 2017, the startup is setting up the first insurance for remote workers and nomads around the world across Europe, the United States and Asia. Several insurance products are available on demand in the form of a monthly subscription that can be stopped at any time. First of all, the Nomad insurance, a medical insurance in case of travel to other countries. Then, Remote Health, a comprehensive health insurance available for companies and employees at a distance from each other all over the world ! ✈️
NB : I find their website really impressive in terms of design, feel free to have a look !
➡️ The start-up raised $8 million in January 2021 (Series A) with funding from Creandum, Rocketship.vc and byFounders.
GoodCover (San Francisco) : Born in 2017, the startup has developed a tenant insurance policy that operates on a cooperative model. The price is reduced by half compared to the usual insurance in this sector. Specifically, premiums paid by members registered on GoodCover are pooled to pay claims, and the unused portion is returned to members as an annual
dividend.💰
➡️ The startup raised a $7.5 million Series A in October 2020 with the participation of Global Founders Capital and Goodwater Capital in the financing round.
Weathercheck (Kentucky) : Established in 2017, WeatherCheck is a parametric insurance policy that monitors homes for hail damage so homeowners pay insurance only if a risk is detected. This is fortunate because hailstorms in North America cause more than $10 billion in damage each year. WeatherCheck currently monitors 2.7 million structures. 🌧️
➡️ The startup made a $150,000 Seed round in March 2019 with the famous Y Combinator incubator.
2) Improvement of distribution processes
The main insurers being large companies, it is difficult for them to develop solutions quickly because of their internal processes that require multiple validations due to the high verticality of the hierarchy. Between the time the project proposal is born and the time the project is completed for the large group, a startup will have had 10x the time to complete a similar project. ⌛
But what insurance companies want most is to acquire customers to keep the machine running. And today, the best way to get traction is to digitize the entire underwriting process to make it simpler, smoother and more efficient. This is the task that Insurtech have been working on in the Brokers model. Concretely, the startups promise large groups to bring them more customers and take a commission on the premiums paid by these customers. This startup-large group relationship is framed by a contract where the insurance company sets a price limit so that the startup does not offer too low rates to customers. Indeed, there is a certain price limit so that the insurance company can remain profitable. 😊
Today, brokers are widely spread among Insurtech and cover a wide range of sectors : Housing, Auto, Health, Moving, Smartphone…the list is long ! 📑
Let’s take a look at some of the startups that have positioned themselves on these subjects :
FloodFlash (London) : Born in 2017, FloodFlash provides insurance services to fight against floods. To do this, the startup offers customized prices to its customers by analyzing the history of rainfall and flooding in the region using algorithms. An IoT sensor is then integrated into the user’s home. If the water reaches a certain height in the house (which is constantly checked by the IoT), the service is paid out automatically to the customer. The scope of this service covers property damage, inventory and business interruptions.💧
➡️ The startup completed two Seed rounds in 2017 and 2018 for a total of £2.1 million and completed another Seed round in September 2020 for an undisclosed amount with Tech Nation Fintech.
Leocare (Paris) : Born in 2017, Leocare offers contracts on several products : Home, Car, Motorcycle and Smartphone. The subscription path is well flexible, which is a great value proposition advantage. For example, if you just bought a flat screen TV, you can insure it directly in a few clicks through the home insurance offered by the Startup. Efficient ! 🖥️
➡️ The startup raised $18.1 million (Series A) in January 2021 with Ventech, Daphni and Felix Capital participating in the roundtable.
Papernest (Paris) : Created in 2015, the startup allows you to cancel all existing contracts and/or offer new ones in case of a move: energy contracts, internet but also and above all your insurance contracts ! And their service is 100% free. Amazing. ✅
➡️ Papernest completed a €10 million Series A in October 2017 with the participation of Partech, Kima Ventures and Idinvest Partners.
Coverd (Paris) : The startup has invented a new generation mobile insurance. For only 9 euros per month, you are insured against broken screen, oxidation, broken backside, battery and theft (optional). Accessories are even sent with the subscription to protect your smartphone !📱
➡️ The start-up raised a €1.2 million Seed round with financing from Newfund Capital in March 2020.
3) Assistance to insurers
The actuary’s job generally consists of playing on the prices of insurance products to reduce the insurance risks as much as possible and obtain the best possible profitability by optimizing the S/P ratio.
- S/P Ratio : This ratio corresponds to the number of Claims (S) in relation to the number of Premiums (P).
- If the S/P ratio is greater than 100%, the insurance company is making losses.
-If the S/P ration is less than 100%, the insurance makes a profit.
To sum up, the lower the S/P ratio, the more money the insurance company makes.
However, although actuaries are starting to develop their own actuarial innovation center (Machine learning & AI), as we have seen, large groups are not the most agile and therefore not the fastest to innovate. Some startups have therefore specialized in this field in order to help actuaries determine a top S/P ratio and the best price ! 💸
Finally, Fraud prevention is a very important topic for actuaries, as they have to take this fraud rate into account when calculating the right price for their insurance products. This is a complicated task because the fraud rate is based on an approximate variable that cannot be determined with certainty. Startups have offered to help actuaries detect the number of frauds in a more relevant way and thus reduce the risk they generate. Thank you AI !
Funfact : It reminds me of a documentary where I saw a dentist close to retirement who had cut off 2 fingers in order to collect from his insurance company…true story 😅
Let’s take a look at the startups that have developed along these lines of innovation :
Akur8 (Paris) : Founded in 2018, Akur8 enables insurance companies to increase their profits and gain market share thanks to pricing models created and updated in a few hours instead of months. Akur8 has developed unique state-of-the-art algorithms dedicated to insurance underwriting by combining Machine Learning and Actuarial. Model building with Akur8 is 10 times faster than with traditional solutions, with better results and improved loss rates.🔝
➡️ The startup raised €8 million (Series A) in March 2020 with BlackFin Capital and Mtech Capital participating in the roundtable.
Kirontech (Cambridge) : Created in 2015, Kirontech has developed software for insurers and reinsurers to combat fraud and abuse in the health insurance field. As nearly $1 trillion is lost each year due to inefficiency and fraud, the solution has a major impact not only on the industry but also economically and socially worldwide. 🏥
➡️ Kirontech completed a $3.5 million Series A in March 2017 with Leap Venture.
IPOs, acquisitions and major fundraising 📈
Several Insurtech have gone public in 2020 such as Duck Creek, Root but also … ⬇️
Lemonade (New York) : Founded in 2015, Lemonade is a licensed insurance company for tenants and homeowners. It also insures pets. The target countries are the United States, Germany and the Netherlands. Lemonade donates unused premiums to non-profit organizations selected by its community. After exporting to Germany in 2019 and the Netherlands in April 2020, the company has also positioned itself on French soil !
⬆️ After having raised a total of $320 million since its creation (nice), Lemonade completed an IPO on July 2, 2020 after only 5 years of existence. We can see on the graph above the evolution of the share price which had a slight stagnation between August and November 2020. However, it took off afterwards, with almost x2 between July 2020 and February 2021 !
However, we must put this information into perspective. According to CB Insight, Insurtech entered the market with a valuation extremely higher than their book value. For example, the entry valuation of Lemonade was estimated at more than 40 times its book value… It remains to be seen what will be the public optimism for long-term investment in Insurtech ! 💳
Useful Resources 🗒️
- 💡 The Jean-Charles Samuelian-Werve’s Newsletter (Alan’s CEO) which deals with many topics on entrepreneurship; I also recommend his book Healthy Business if you are interested in new management methods.
- 🗺 ️ Mapping by Klein Blue Partners which lists many Insurtech in France, thanks to them !
This article is finished ! Thank you for your reading, I hope you enjoyed it !
To continue the adventure, the next episode will focus on a sector that is accelerating strongly both in terms of innovation & market growth, and moreover it is for the right cause : that of Pet-tech ! 🐈
