If you only tracked American insurance technology companies that went public recently, you might think insurtech is in its flop era.
Thankfully, that isn’t true.
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We saw earlier this week how the falling valuations of public insurtech companies have coincided with a decline in VC interest in the category.
The funding climate for late-stage startups in the sector has consequently been tough, but there’s plenty of optimism around the newest generation of startups.
However, it’s worthwhile to note that the U.S. heavily skews the data in the global insurtech market. Of the $2.4 billion invested in insurtech startups across the world, half, or $1.2 billion, went to American companies, per data from Dealroom. Regional results, therefore, deserve more of our attention.
So this morning, we’re looking at how insurtech has been doing in the EU. We’ll also check on the performance of several European insurtech startups, per data collected by Stanislas Lot, an investor at Daphni. To work!
Where does Europe stand?
The U.S. insurtech market is the single largest in the world for venture investment, which isn’t surprising since it is the world’s largest venture market. Still, Europe doesn’t stack up too poorly, coming in at third place, following a bucket of countries grouped as “Rest of Asia,” per Dealroom.
So far in 2023, Europe’s insurtech startups have raised $341 million, 33% less than a year earlier. That decline is actually steeper than what we’ve seen around the world (a 23% fall), in the United States (22% lower) and Southeast Asia (down 5%). Notably, only the “Rest of Asia” bucket saw any growth (58%).
Still, insurtech startups in Europe saw better H1 2023 results than Latin America, where venture totals were down by a steep 85%. That’s a collapse of nearly extinction levels.
Venture capital fundraising is, however, not a perfect indicator of success. Rising venture activity in a sector can indicate that the companies therein are performing well, but as investment goes up or down alongside macroeconomic conditions that may or may not directly correlate to startup performance, it makes for an imperfect proxy.
All about those slices
We like pizzas here at TC+, so we’ll take every opportunity to slice any and all data further.
Breaking down investment by stages, for instance, reveals that the share of seed deals — funding rounds below €3 million — has remained fairly stable. For insurtech expert Florian Graillot and his venture firm, Astorya.vc, this “indicates that the market is actively supporting and nurturing the future of insurance innovation by providing early-stage funding to promising startups.”
Seed deals may prove key to the future of insurtech, but performance data is super relevant if you want to paint a full picture of the state of the sector.
So even though venture capital investment is in decline in Europe, some companies appear to be doing quite well.
“The good thing about a regulated industry is that you have to provide accurate metrics,” wrote Stanislas Lot, a partner at Paris-based VC firm Daphni, in an analysis of the sector. He browsed filings from some of Europe’s main insurtech players, including Wefox, which announced a new funding round at a $4.5 billion valuation a few weeks ago.
Originally from Germany, “Wefox is probably the only example of insurtech that has already proven a clear success outside of its first market,” Lot wrote.
After reaching $2 billion in premiums, it’s pretty clear that the company is now aiming for profitability on the insurance side. “On the distribution side, we’re already profitable,” Wefox CEO Julian Teicke told our colleague Romain Dillet last May.
Looking further at Germany, Lot observed that “outside of Wefox, German players are collectively doing correctly, even if they remain quite small compared to their European counterparts. Growth is clearly below expectations for most of the cases, but some signal[s] show that companies are now focusing more on cash efficiency. In comparison with actors in France or in the U.K., companies remain pretty small.”
Unfortunately, objective data about the U.K. is sparse, as the country’s filing regulations are less stringent than the rest of the continent. But we do have some details about what’s going on in France. We’ll look at Luko’s sale in the coming days, so today let’s instead study two companies you may be less familiar with: Mila and Seyna.
Mila offers unpaid rent insurance to landlords, and Seyna helps brokers increase their revenue. Both are relatively small companies but they do boast of “quite impressive loss ratios,” Lot highlighted.
A “loss ratio” is the rate at which an insurance company pays out claims and adjustment expenses, divided by the money it collects from customers in the form of premiums. The lower an insurance company’s loss ratio is, the more profitable its insurance products are.
Loss ratios are the root cause of why growth can be an odd duck at insurtech startups that are writing policies. At startups, more growth is generally good. However, in insurance, it can be easy to grow premium volume by underpricing insurance upfront and later paying out more than you took in, which creates a poor book of business and large losses. You want to grow if you are writing and selling insurance, but growth rates can be contra to profit margins, so there comes the need to strike a balance.
Generally speaking, loss ratios at an insurtech startup will start high and improve over time as its models improve and it gains experience. In Mila and Seyna’s case, their loss ratios appear healthy at a very early stage, which is what makes their performance outstanding.
As for the rest of Europe, we can spot good performers outside the major markets as well. To name just one, Greek insurtech startup Hellas Direct also has strong loss ratios — “really better than market average,” Lot noted.
Taking a step back, Lot made more general comments on insurtech in Europe, noting that the growth of individual companies has “slowed down a bit in comparison with previous years.” His hypothesis is that companies may be “focusing on LTV/CAC or sinistrality more than on [a] pure growth approach.”
Of course, the data doesn’t come with an explanation attached, but Lot’s hypothesis does seem to make sense. It also aligns with what we are hearing from startups and founders more broadly: Growth at all costs is no longer worth it.
In insurtech and elsewhere, then, more focus on profitability is more likely to yield companies that survive, or avoid collapsing after an IPO. This won’t save those who did or immediately win back investors’ love for the sector, but we can be sure that there are good vibes to be found and the sector is definitely not a write-off.