6 VCs explain why integrated insurance isn’t the only hot opportunity in insurtech
If you think Integrated insurance is the only hot thing in insurtech these days, we have a surprise for you: If it’s true that startups that help sell insurance along with other products and services are riding the tailwinds, there are plenty of other opportunities in the space, several investors told TechCrunch+.
You see, insurtech startups often have to consider the myriad of rules and regulations in place when looking to innovate and embed insurance into products, which can make it difficult to achieve. And given the current focus on profitability to expand leads in the broader startup ecosystem, it seems investors are open to insurtech startups that can build a sustainable business model, whether or not it includes l integrated insurance.
“Insurtech startups that not offering integrated insurance, and instead providing other innovative solutions will always attract venture capital funding this year, especially if they can show profitable and sustainable growth,” said Nina Mayer, Principal at Earlybird.
And according to David Wechsler, director at OMERS Ventures, “having an integrated strategy is not necessary for venture capital financing”.
Meyer added that there is particular interest in products that go beyond integrated insurance. “We’re generally open to startups innovating in any part of the value chain as long as the problem and the market are big enough.”
This focus on profitability rather than growth at all costs is driven by the same factors that affect startups more broadly. “The past few months have been eventful for all sectors of technology, including insurtech,” said Stephen Brittain, director and co-founder of Insurtech Gateway.
There’s another reason fundraising is more difficult for insurtech founders in 2023. Wechsler said, “Many companies that got into insurtech (AKA “tourism investors”) have left the business. ‘space. This makes it much more difficult to close subsequent rounds.
On the other hand, he predicts that companies with venture capital arms that are “committed to the insurance business are likely to step up their involvement.”
This also seems true more broadly for venture capital funds with a strong insurtech thesis. “We are still bullish on insurtech and we have been active in 2023,” said Hélène Falchier, partner at Portage Ventures.
But investors are careful not to put all their eggs in one basket. “Beyond integrated insurance, we are also particularly excited about loss prevention or underwriting solutions in verticals such as climate or cyber,” Mayer said.
Artificial intelligence will probably take longer to demonstrate its full potential for the insurance industry, but its current applications are already being actively pursued by venture capital funds.
Speaking of generative AI and insurance, Astorya.vc founding partner Florian Graillot said he saw a lot of excitement around this topic. He thinks the first use cases may be centered around customer service, but he’s sure more will follow.
“There is a lot more to expect from these generative AI solutions, not only to facilitate engagement with customers, but also to gain insight into customer risks, collect documents in the claims process or perhaps provide reports to the regulator We are clearly in the early days, whatever the sector of activity!
Read on to find out what insurtech investors think the industry is heading for in 2023, why they think IoT and parametric insurance are a golden opportunity, how Apple will be a game-changer if it ends up launching its insurance product and more.
We spoke with:
- Florian Graillot, founding partner, Astorya.vc
- Hélène Falchier, Partner, Portage
- Stephen Brittain and Robert Lumley, Principals and Co-Founders, Insurtech Gateway
- Nina Mayer, Director, Earlybird
- David Wechsler, Director, OMERS Ventures
Florian Graillot, founding partner, Astorya.vc
Bundled insurance is growing in popularity as more companies find ways to bundle insurance products with their offerings. How important will it be for insurtech startups to have an integrated insurance product to attract funding this year?
It is true that we have seen many insurtech startups rebrand themselves towards this positioning. I would even say that it has become a buzzword. But few players really offer a way for third parties to seamlessly add insurance solutions to their customer journeys (this is how I would define integrated insurance).
I believe that the time is over when claiming such a positioning was enough to raise funds. Investors have matured and the market knows that B2C and integrated insurtech are two very different companies. Therefore, you cannot switch from one to the other overnight.
But for startups that have the right balance of technology/product and insurance, there is a huge opportunity as more and more platforms, e-commerce and marketplaces seek additional revenue from their existing customer base. This is what these insurtech startups can offer them! We have long insisted on such indirect distribution, having invested in four integrated insurance startups in P&C, bancassurance, life and SME insurance.
How has your approach to the insurtech industry changed since we last spoke in Q3 2022?
Since the inception of astoryaVC, we have been investing in technology-based startups and have closed numerous B2B/enterprise software deals in the insurance space. That hasn’t changed. And the current market rather reinforces our investment thesis.
By the way, this makes a lot of sense if you remember that insurtech is three to four years behind fintech in terms of investments, and insurers are generally behind banks in rankings of digital adoption.
In terms of maturity, we have not changed our seed target, as this is where the market is most active (nearly half of deals announced last year in (the European insurtech sector ) were less than 3 million euros, see here), and anyway, insurtech is still a very young industry.
Apple would launch health insurance in 2024, for which it could leverage data from its other offerings. What impact would this have on the interest in data-driven approaches in the insurtech sector?
First, let me share: I’m very excited about this prospect, as we’ve long been very pushy about third parties entering the insurance industry. The reason behind this is that while insurance claims it’s all about data, platforms usually have more data in their (vertical) market! Who owns health data? The Apple Watch, not insurers. Therefore, it makes perfect sense for such a company to consider entering this space.
Obviously there are many challenges, but at least they have the data and the customer trust to share that data with them. Let’s see how they deliver. And their huge customer base could be a competitive advantage. Find out how they’re doing in the payments space with Apple Pay!
Whenever a big name gets into insurance, there’s always a mix of skepticism from incumbents and a reminder that change is needed. In the short term, I do not expect any impact, but if the first adoption figures are good, re/insurers will probably launch similar projects. Remember that there is already such a project, directly on the market: Vitality.
Do you expect B2B companies to follow Apple in this area and leverage data on wearable devices as well?
At least they should, because I think they have three assets to support such initiatives:
- they have many customers;
- they have a lot of data about their customers;
- they have regular points of contact with these customers.
We actually see more and more third parties launching insurance products. I’m thinking of Tesla in the car insurance market. In France, for example, we have Blablacar, a carpooling platform, and Ornikar, an online driving school, which have launched their own large-scale insurance solutions. To tie in with the first question, we expect this evolution to accelerate as insurtech develops “integrated insurance” solutions, which are the technology infrastructure needed to connect insurance solutions to third-party platforms. For example, it is gaining momentum in the SME space!
As parametric insurance becomes a reality, what areas of insurance are you getting the most value from IoT applications?
Parametric insurance is a very exciting field: we’ve been talking about it for a few years now, but there are still only a few players offering it at scale. Nevertheless, this responds to a real market need around what we call “new risks”. Not all insurers offer such products: the risk did not exist a few years ago, and it is growing rapidly. Therefore, it is very difficult to spot the relevant datasets and get an idea of them using algorithms. This opens the door to more insurtech/insurance partnership rather than competition.
When do you think ChatGPT will start to have a tangible effect on insurance?
That’s a very good question. We see a lot of enthusiasm around this topic. The first use cases may be in the customer experience, and I even think major attempts to leverage ChatGPT in insurance are what we’ve been waiting for for “chatbots” for a long time.
But there is a lot more to expect from these generative AI solutions, not only to facilitate engagement with customers, but also to gain insight into customer risks, collect documents in the claims process or perhaps provide reports to the regulator. We are clearly in the early days, whatever the sector of activity!