6 VCs explain why embedded insurance isn’t the only hot opportunity in insurtech
If you thought insuring insurance was the only popular thing in insurtech these days, we have a surprise for you: While it’s true that startups that help sell insurance, along with other products and services, are making a profit. But there are plenty of other opportunities in the space, multiple investors told TechCrunch+.
You see, insurtech startups often have to take into account myriad rules and regulations when they want to innovate and embed insurance into products, which can make it difficult to pull off. And given the current emphasis on achieving cost efficiencies to extend runway in the wider startup ecosystem, it appears that investors are open to insurance startups that can build a sustainable business model, albeit embedded in Insurance included.
“Insurtech startups do don’t do that “Offers that offer embedded insurance, and provide other innovative solutions, will also attract VC funding this year, especially if they can show cost-efficient and sustainable growth,” said Nina Meyer, a principal at Earlybird.
And according to David Wechsler, a principal at OMERS Ventures, “venture funding doesn’t require an embedded strategy.”
Mayer said there is particular interest in products that go beyond embedded insurance. “We are generally open to startups innovating any part of the value chain, as long as the problem and the market are large enough.”
This focus on cost efficiency rather than growth at all costs is driven by the same factors affecting startups more broadly. “It has been a turbulent few months for all tech sectors, including Insurtech,” said Stephen Brittain, director and co-founder of Insurtech Gateway.
Another reason why fundraising is tough for insurtech founders in 2023. “Many companies that dabbled in insurtech (aka “tourist investors”) have left,” Wechsler said. This makes it more challenging to close subsequent tours.
On the flip side, he predicts that corporates with venture capital that are “committed to the insurance sector are likely to see increased participation.”
This seems to be even more true of venture funds with a strong insurtech thesis. “We are still bullish on InsureTech and we remain bullish on 2023,” said Helen Falchior, a partner at Portage Ventures.
But investors are cautioning not to put all their eggs in one basket. “Beyond embedded insurance, we are also particularly excited by solutions dealing with claims prevention or underwriting in verticals such as climate or cyber,” Mayer said.
Artificial intelligence will take longer to demonstrate its full potential for the insurance sector, but its current applications are already being actively tracked by venture capital funds.
Talking about generative AI and insurance, Florian Grillot, Founding Partner of Astoria.VC, pointed out that there is a lot of enthusiasm seen around that topic. He thinks early use cases may be focused on customer service, but is certain more will follow.
“There is a lot to look forward to from these generative AI solutions, not only to ease engagement with customers, but also to understand customer risks, collect documents in the claims process, or perhaps report to a regulator. We’re clearly in the early days in any industry!”
Read on to find out what insurtech investors think about where the sector is headed in 2023, why they think IoT and parametric insurance is a hot opportunity, how it will fare if Apple launches its own insurance product will change the game.
We talked with:
- Florian Grillot, Founding Partner, Astoria.VC
- Hélène Falchier, Partner, Portage
- Stephen Brittain and Robert Lumley, Director and Co-Founder, Insurtech Gateway
- Nina Mayer, Principal, Earlybird
- David Wechsler, Principal, OMERS Ventures
Florian Grillot, Founding Partner, Astoria.VC
Embedded insurance is growing in popularity as more companies find ways to bundle insurance products with their offerings. How important will having an embedded insurance product be for insurtech startups to attract funding this year?
It is true that we have seen many insurtech startups rebranding themselves towards that position. I would even say it became a buzzword. But there are a few players that actually provide a way for third parties to add insurance solutions to their customer journeys (that’s how I would define embedded insurance).
I believe the time has passed when claiming such status was sufficient to raise funds. Investors have matured and the market knows that B2C and embedded insurtech are two very different companies. Hence, you cannot switch from one to the other overnight.
But there is a huge opportunity for startups that have the right balance between technology/product and insurance, as more and more platforms, e-commerce and marketplaces are looking for additional revenue to build on their existing customer base. This is what such insurtech startups can offer them! Having invested in four embedded insurance startups in property & casualty, bancassurance, life and SME insurance, we have been pushing for such indirect distribution for a long time.
How has your outlook for the insurtech industry changed since we last spoke in the third quarter of 2022?
Since inception of AstoryVC, we have been investing in tech-based startups and have done a number of B2B/enterprise software deals in the insurance sector. That hasn’t changed. And the current market is reinforcing our investment thesis.
Well, this makes a lot of sense when you remember that insurtech is three to four years behind fintech in terms of investment, and insurers generally lag behind banks in digital adoption rankings.
In terms of maturity, we haven’t changed our seed focus, as this is where the market is most active (about half of the deals announced last year) [Europe’s insurtech sector] €3 million, see here), and anyway, insurtech is still a very young industry.
Apple is reportedly launching health insurance in 2024, for which it may leverage data from its other offerings. What effect will this have on the interest for data-driven approaches in the insurtech sector?
First, let me share: I’m very excited about that perspective, because we’ve been under a lot of pressure towards third parties entering the insurance industry for a long time. The logic behind this is that if insurance claims it is all about the data, then the platforms usually have more data on their (vertical) market! Who owns health data? Apple Watch, not the insurer. Therefore, it makes perfect sense that such a company would consider entering that space.
Obviously, there are many challenges to deal with, but at least they have the data and the trust of customers to share this data with them. Let’s see how they are delivering. And their huge customer base can be a competitive edge. See how they’re doing in the payments space with Apple Pay!
Every time a big name enters insurance, there is always a mix of skepticism from incumbents and a reminder that change is needed. In the short term, I don’t expect any impact, but if the first adoption figures are good, reinsurers will probably start similar projects. It’s worth reminding that there is already such a project, which is live on the market: Vitality.
Do you expect B2B companies to follow Apple in this and take advantage of wearable data as well?
At least they should, as I believe they have three strengths to support such an initiative:
- He has a lot of customers;
- They have a lot of data on their customers;
- They have regular contact points with these customers.
We are actually seeing more and more third parties launching insurance products. I’m thinking of Tesla in the car insurance market. For example, in France, we have BlaBlaCar, a ride sharing platform, and Orniker, an online driving school, who have launched their own insurance solutions at scale. To make the link with the first question, we expect this move to accelerate as InsureTech continues to develop “embedded insurance” solutions, which is the technical infrastructure needed to plug insurance solutions into third-party platforms. Is. For example, it is gaining momentum in the SME sector!
As parametric insurance becomes a reality, which areas of insurance do you see extracting the most value from IoT applications?
Parametric insurance is a very exciting space: we’ve been discussing it for a few years now, but there are still only a few players delivering it at scale. Nevertheless, it addresses a real need in the market for what we call “new exposure”. Not every insurer is offering such products: the risk was non-existent a few years ago, and it is growing rapidly. Therefore, there is a real challenge in finding relevant data sets and making sense of them through algorithms. This opens the door for more insurance/insurance partnerships rather than competition.
When do you think ChatGPT will start to have a tangible impact on insurance?
This is a very good question. We see a lot of excitement around that topic. The first use cases may be around customer experience, and I also believe that recent major efforts to leverage ChatGPT in insurance are what we’ve been expecting from “chatbots” for a long time.
But a lot can be expected from these generative AI solutions, not only to facilitate engagement with customers, but also to understand customer risks, collect documents in the claims process, or perhaps report to a regulator. We are clearly in the early days in any industry!