TechCrunch explored the changing state of the insurtech market last week, diving into category wins and losses from recent quarters and what’s ahead for the sector this year.
Insurtech companies had a simply amazing fundraising year in 2021, setting records in both dollar and deal terms. But at the same time, the value of public insurtech companies fell sharply, with many recent sector IPOs managing to delete the vast majority of their market worth as the year ticked by.
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Our notes from Friday detailed the bad news. Today we’re flipping the coin. Despite the changing valuation conditions for some insurtech startups – the neoinsurance subcategory, essentially – the damage has been somewhat localized. So which insurtech startups are set to thrive? And could we see the market find space for still-private neoinsurance companies to avoid the same trap as their public predecessors?
Venture capitalists and founders that we spoke with indicated a general optimism about tackling the insurance market: It’s too big, too valuable, and too out of date to not wind up on the receiving end of a shovelful of technology, the argument goes.
But that doesn’t mean merely more neoinsurance companies like Root or Lemonade. There are other models as well. The Zebra (online insurance marketplace) shared some growth data, for example, and TechCrunch has covered AgentSync (data APIs for the insurance industry) repeatedly in the last few years during its rapid ascent from small startup to unicorn.
Let’s talk about potential winners!
If you’ll allow us to quote ourselves, our one-line prediction in part one was that among insurtech startups, “the big winners this year should be those that can prove they are tech companies and/or are enabling the digital transition of insurance incumbents.”
Let’s unpack what “enabling the digital transition of insurance incumbents” means, with help from Florian Graillot at Astorya.vc.
“I strongly believe insurance cannot be the only industry worldwide not to embrace digital [and] mobile,” he told TechCrunch. Because of this, he explained, “a lot of insurtech solutions enabling incumbents are gaining momentum, everywhere alongside the value chain.”
The need for insurance to go digital also explains the success of several neoinsurers, at least when it comes to acquiring users.
Noting that neoinsurers can be both brokers or full-stack insurance providers, Graillot pointed out that “several of them are clearly gaining momentum beyond fundraising.” He gave several examples from across Europe and the U.K.: Bought By Many, Getsafe and Luko, which all boast hundreds of thousands of customers.
Whether strong customer bases will be enough for private neoinsurers to thrive when their public counterparts are tanking remains to be seen, but there’s a case to be made for it — and NEXT Insurance CEO Guy Goldstein is making it:
“We don’t think that the current market condition has any effect on the value of what insurtechs can deliver, and how they can support those they serve remains robust. There is no doubt that the market sees the value insurtechs bring to the broader insurance industry as they mature.”
German neoinsurance provider wefox also shared data about its performance, telling TechCrunch that its “combination of selling own products and third-party products” helps the company “operate at superior loss ratios on our own book compared to digital insurance peers,” leading to “faster growth at lower CAC and lower loss ratios than anyone in the industry.” That’s a hell of a claim, and one that, if it bears out when we get more data, would indicate that wefox is not in danger of suffering from the sort of issues that some U.S. neoinsurance providers have encountered.
On the growth front, wefox said that for more than the past half-decade, it has “doubled revenues,” adding that it reached €310 million in 2021 gross revenues, up more than “150% year on year while halving operating loss margin.” Could it be that the first wave of neoinsurance providers to go public were not the strongest in financial terms?
Enabling incumbents doesn’t necessarily mean more of the same. For instance, Graillot predicts that insurtech “will come closer to the insurance core engine” by addressing “underwriting, pricing, product development, actuaries, etc.”
Another way for insurtech startups to veer on the tech side of things – and the multiples that go with it – will be to piggyback e-commerce. Selling insurance alongside another purchase is called embedded insurance, and Graillot expects this vertical to gain momentum in 2022.
“Beyond the buzzword, we’ll see more and more players delivering it at scale,” he said.
One of the reasons why insurtech will change is that new risks are emerging, and startups are turning these into opportunities. According to Stephen Brittain at Insurtech Gateway, “something very exciting has happened over the past six months in early insurtech” — the emergence of founders tackling “very real and complex risk problems” such as “the vulnerability of the world’s food markets, the delivery riders in the gig economy, or the early digital currency and web3 platforms.”
Graillot also concurred that targeting new risks is one of the ways in which insurtech will gain momentum this year. He cited climate risk, such as weather damage, but also cyber insurance, freelancer insurance and more. The common thread? These are risks that incumbents have struggled to address – due to, among other things, a lack of historical data and risk assessment modeling, according to Graillot.
Brittain gave us an indication of what has changed, and what could help these insurtech companies to be valued as tech companies.
“These founder teams bring science, insights and tech build power to close what first appear to be impossible protection gaps, but also recognize the role of the insurance market to complete their models [in order to] enable them to scale into big risk-bearing solutions.”
Serving the underserved
One of the exciting things about technology is its democratization power. When it comes to insurance, this can mean several things – but offering insurance to all kinds of workers is definitely on the list.
According to Forecast Labs‘ managing director Arjun Kapur, “the fast rise of the gig economy has also exposed how traditional sectors such as health and medical insurance are not designed to support a transient employee base that can work for multiple employers in the same day, let alone the same week or month. […] In 2022, we expect that to change,” he said, pointing out that Comcast Ventures backed a company in this space (Avibra).
Fear of losing benefits tied to their employment status is a concern that many Americans share. There’s another important topic that is gaining visibility in the U.S, and that insurtech could help address, Kapur said: fairer access to auto insurance.
“The social conversations around disparity in income across race and demographics in the U.S. has also shed light on the adverse impacts on minorities for auto insurance premiums,” Kapur said. “Those are based largely on ZIP codes and credit scores and don’t give credit for rent and utility payment on time. The more recent trend in the auto insurance segment (a $250 billion+ market) that is seeing fast adoption is one where less emphasis is put on traditional underwriting models and more on driving behaviors to set insurance premiums and rates.”
Beyond the U.S, there are many opportunities for insurtech companies to make insurance more affordable and accessible. For instance, that’s what recently funded startup Casava plans to do in Nigeria, as do several other startups across Africa, where M&As are also happening.
Tailwinds for insurtech are perhaps even clearer in Latin America. As we reported, there are regulatory factors at play in Brazil, but it’s not just that. For instance, Javier Santiso‘s fund Mundi Ventures recently participated in the $125 million Series C round raised by Chilean insurtech startup and newly minted unicorn Betterfly.
A few models working today
To underscore the point that there are potentially winning categories in the market, a few examples from the present.
The Zebra is an interesting company. We first became familiar with the company in early 2020, when we noted that it and a host of competitors were raising rapid-fire sums. Gabi, Insurify, PolicyGenius and The Zebra were among the names we had on our radar.
In October 2020, The Zebra told TechCrunch that it had reached profitability and a $100 million run rate. And yet, the company most recently told TechCrunch in response to questions for this article that it “surpassed $100M in annual revenue for the first time in 2021” after growing “nearly 40% YoY from 2020 to 2021.” And the company is continuing to invest in growth – we know this because we’ve seen its television advertisements recently.
Our takeaway from The Zebra’s numbers is that even slices of the insurance market can create opportunities for startups – the number of startups that have managed to attract capital for the marketplace effort, for example, belies how large the insurance TAM is today.
And AgentSync’s rapid revenue scaling in the insurance data API market indicates that the idea of digitizing the insurance market, at least domestically, is enormous. Easy? We doubt it, but possible all the same. The company scaled from just under $2 million in ARR in August 2020 to north of $10 million in ARR by the end of 2021, based on TechCrunch calculations and company-shared metrics that we pieced together.
We wouldn’t be shocked to see more capital in the insurance marketplace space. PolicyGenius hasn’t raised since its $100 million round in January 2020. Gabi’s the same, since its January 2020 Series B worth $27 million. The Zebra most recently raised $150 million last April, earning unicorn status. We also wouldn’t be surprised to see more API-focused insurance data companies find market demand — and therefore investor interest.
An analogy to the fintech space may be useful here. Plaid is doing quite a lot when it comes to connecting consumer accounts to banks and third-party services. It’s even breaking into new categories through acquisitions. Other fintechs are building APIs for banking services, trading and more. It’s not hard to extrapolate from the more mature fintech API market to insurance: huge TAMs, a foundation in finance. The two markets aren’t too dissimilar. Why wouldn’t the fintech API investing playbook bear out in the insurance space?
One more thing
The point about fundraising is not merely our conjecture based on similar markets and the hot 2021 funding cycle for insurtech startups. There’s market inertia to consider as well.
Santiso told TechCrunch that “massive dry power in PE growth tech funds,” along with “record levels of fundraising in 2020, 2021,” has left the market with lots of middle- and late-stage capital. Why does that matter? It means that “for early-stages VCs (Series A, B), the road ahead is very interesting, [because] a lot of liquidity is out there to chase for large tickets.”
Graillot connected the amount of capital waiting for deployment to a relative paucity, in his view, of “players leading the [insurtech] wave,” perhaps indicating that there “might still be massive rounds [ahead] announced in the neoinsurance space.” Those with the best chance of securing that capital, he continued, may be those with the most established “path to profitable unit economics.”
The public-market rejection of neoinsurance IPOs to date is a disappointment for the larger insurtech space, but it appears to be non-lethal despite being so very public. Investors and founders alike have managed to find and scale other opportunities in the insurance market that could prove more durable to sentiment shifts among public-market investors.
But the scale of capital invested implies a huge number of impending winners; will that pan out given IPO and SPAC results? That’s the next question for the myriad venture firms and startups trying to drag the insurance industry into the present.