The U.S. insurance technology market is hot and has been for years now. Back in early 2020, to pick an example, TechCrunch reported on a wave of funding events among domestic insurtech marketplaces. Those companies have since gone on to raise hundreds of millions of dollars more.
And after a long period of incubation, we’ve seen neoinsurance players from the U.S. like Root and Metromile go public. Hippo is working to join the cohort.
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So from the perspective of venture capital activity, startup growth and exits, insurtech is proving itself in the States. Even if growth remains the name of the game in insurance tech and profits are often scarce.
What about other markets? The recent Wefox round caught The Exchange’s eye. A $650 million insurtech round would have commanded our attention regardless of its location. But to see a European insurance technology startup raise that amount of cash made us wonder if there’s as much money present for the EU market’s insurtech startups as we’ve seen here in the U.S.
After all, with business-focused neoinsurance provider Embroker raising a big round this week in the United States, to pick an example, it seems that attacking the massive and antiquated insurance market is good startup sport. Why wouldn’t that concept apply to Europe?
To find out more, we got in touch with a number of VCs from Europe to hear their perspectives on what’s happening on the ground, including folks from Accel, Astorya.vc and Insurtech Gateway. To ground us, we collated the biggest recent rounds from the EU insurance technology market. Let’s go!
A quick note on insurtech exits
Venture capitalists and startup founders get paid when they generate an exit. Lately, exits in the space have featured a number of IPOs.
The older a startup gets, the more it has to deal with public-market investors. Crossover funds and the like make their appearance before unicorns go public. And then former startups have to pitch not the venture capital market, but the public markets. It’s a different game.
That’s the impression that The Exchange got chatting with the CEO of Root, Alex Timm, this earnings cycle. He noted that public tech-focused investors don’t always grok the insurance elements of his business, while insurance investors don’t always grok the tech side of Root.
But don’t think that the startups that we’ll discuss in a moment are doomed to future public lives of being misunderstood. Metromile CEO Dan Preston said during our earnings call concerning his company that while most of the work of running a public company is similar to building a private company — long-term thinking, etc. — the analyst and investor relationships that come after an IPO can provide a regular stream of feedback that can help build a better business. And Preston said that the work of being a public CEO in touch with analysts and investors provides regular notes on where the market is regarding his company.
So despite some market chop of public insurtech companies’ share prices in the U.S., there’s fair reason to believe that there’s a reasonable exit market in the future of insurance technology unicorns. With that in mind, let’s talk about the European scene.
Not just Wefox: Insurtech as unicorn territory
It was not hard to pull together a list of recent European insurtech rounds that make a good argument that the continent is more than busy.
Earlier this month, for example, EU-Startups reported that Bought By Many — a startup focused on pet insurance — raised a €286 million Series D. Per the publication, the round, led by EQT Growth, valued the company at “over €1.6 billion.”
Going back to the start of the second quarter, French insurtech startup Alan raised a $220 million round. Per TechCrunch reporting, the health insurance and healthcare superapp company is now worth $1.67 billion after the financing event. Coatue led that round, with “Dragoneer, Exor, and existing investors Index Ventures, Ribbit Capital and Temasek also participating,” we wrote.
Zego raised a $150 million round in March of this year. The London-based, tech-enabled commercial motor insurance unicorn was valued at $1.1 billion after that infusion of cash. DST Global led that round, which also included General Catalyst.
And for flavor, last December, French home insurance startup Luko raised a $60 million Series B.
Our read of the recent large rounds into the European insurtech startup market is that it’s been rather active.
The venture perspective
Is EU insurtech as hot as the tech vertical is in the U.S.? Maybe not, but it seems to be heating up. According to Paris-based Florian Graillot of Astorya.vc, which focuses on European insurtech, “the scene has never been that hot!” Impressions aside, his firm publishes a bevy of data that indicate that things are accelerating.
Per Astorya.vc data, some 47 EU insurtech deals have occurred this year as of mid-June, worth €1.62 billion. That’s up from €600 million last year, although from a higher round count. EU-based insurtech Euro-volume is at what appears to be an all-time high already. And if we’re extrapolating correctly, deal volume in the continent should also set a record this year.
So not as hot as the U.S. market, but still pretty damn warm and getting more so — that’s our read.
Accel’s Luca Bocchio agrees, telling The Exchange via email that the EU’s “insurtech space is certainly hotting up and there’s still a lot more to come in terms of innovation.” The consumer insurtech space, he wrote, is “still at the very early stages of innovation,” having only shown “a fraction of what’s possible” in a market that is “as large as banking.”
Behind the numbers
Can these big rounds be explained by the nature of the insurtech market and its hunger for capital? At least partially.
Stephen Brittain, a director and founder at Insurtech Gateway, told The Exchange this week that the road ahead for insurtech startups is still expensive, answering our question regarding capital requirements and outsized rounds by saying that huge deals are a requirement if your business is working on providing insurance — companies like Lemonade in the U.S., to pick an example.
He added, tongue-in-cheek, that smaller amounts of capital are required to scale a neoinsurance business if you are willing to acquire lots of cheap and unprofitable customers.
The tension between growing a book of insurance business and growing a profitable book of insurance business will forever remain part of the insurtech conversation.
“There’s a big tension between the growth mindset and risk management mindset. If the risk is simple and understood, then speed of execution is all that matters. But more complex spaces, like cyber risk, for example, [are] so poorly understood [that] the smart money is helping define this risk before building out distribution,” he said, which necessarily entails large raises and investment.
Looking to the future, The Exchange asked Graillot if recent valuation declines among some public U.S. insurtech unicorns could be impacting the deal activity he’s seeing today. The investor responded that we had it backward.
“I’d say the IPO perspective is even driving these massive rounds (though there’s still a question mark on whether the EU IPO market could be compared to the U.S. one),” he wrote.
It will be interesting to see if the EU-based insurtech unicorns that we’re familiar with wind up listing in the United States. That’s a story we’ll track over the next few years.
Expense, space
No matter which side of the Atlantic, large rounds are often a necessity for full-stack insurtech businesses, which need to comply with requirements.
This is what explains, for instance, why a pre-launch company like generalist online insurer Acheel raised €29 million ($34.5 million) last March: It needs the proceeds for “for launching the business, and [finalizing] the [license] approval, as the equity capital will constitute a risk hedger for getting the OK for selling insurance in France,” Nordic9 reported.
“A large portion of the funds raised is not to support [operating expenses] as we understand it in other sectors,” Brittain explained. “They are used to create a risk pool to enable an insurtech to underwrite their own products.”
However, the market still doesn’t seem to have a clear preference between full-stack players with their own licenses and companies that only act as distributors — and whose capital needs are tied to marketing spend rather than to regulatory requirements. The latter is known in the sector as MGAs, or managing general agents, which act as brokers and keep a part of the premium in exchange for their services.
Breaking things down for us, Graillot noted that among the top five most funded startups, there is “a B2C MGA (Bought By Many), a full-stack since inception (Alan), and an MGA turned full-stack (Zego). And even down in that ranking there’s a mix of MGA (Clark, Luko, Getsafe) and full-stack (Ottonova or Element).” The explanation is simple: “I believe the market is so big in Europe ([€1.3 trillion] of [gross written premium] per year) that there is room for multiple huge players with different setups.”
Beyond diverse business models, this huge total addressable market also leaves the door open to diverse founder backgrounds. Bocchio had led Luko’s Series A round at Accel and didn’t make domain expertise a requirement: “We admired how ambitious “[CEO] Raphaël [Vullierme] and [CTO] Benoît [Bourdel] were and their appetite to take on and transform a massive industry with some big barriers to entry. Despite not having experience within the insurance space, they had a clear vision on how they wanted to transform the industry, had built strong foundations for the business and had innovative proprietary technology.”
Expecting AI impact
Our sources agreed that technology also has a role to play. Graillot pointed to Shift Technology, which, as our very own Ingrid Lunden reported, raised $220 million at unicorn valuation “to fight insurance fraud with AI.” Accel participated in the round, and Bocchio sees it as a sign that “we’re starting to see an increase in momentum across different parts of the value chain [of the B2B insurance space.]”
Both he and Graillot agreed that the impact of AI is not felt as strongly yet in the B2C segment, but there might be more to come. “We’re really only just seeing the very beginning of what can be achieved when AI is [utilized] across the processes within the insurance policy lifecycle, from underwriting to claim management,” Bocchio said.
Brittain also hinted at upcoming changes, encouraging us to “ask [him] the same question next year.”
“We are fully expecting the next generation of AI-driven business to unlock real-time risk analysis, pricing and claims resolution in the next few years,” he predicted.
That should mean more big rounds, and — dare we predict — some EU insurtech IPOs in the coming quarters.