Exclusive: When the wave is high… just ride it – Fintech Global in The Insurtech Magazine

Insurers need to innovate their way out of this crisis, writes Fintech Global, and startups are ready to meet the challenge. Pausing projects now won’t help anyone

While the coronavirus is a huge challenge for all businesses, it could also prove to be an opportunity for insurtech startups. The insurance industry has famously been very slow to embrace new technologies. However, the coronavirus crisis is forcing them to take a long, hard look at their own limitations, their legacy systems and infrastructure. Some believe it might be the nudge insurers need to look for new solutions – and for startups to provide them.

Of course, that does not mean that the insurance industry has been void of innovation. Sector giants like Generali and AXA have launched several initiatives over the years to work more closely with technology startups in the sector. Nevertheless, the current coronavirus crisis could encourage more of them to seek out new solutions.

“The pandemic has already been a huge wake-up call for many large companies that have been slow to modernise,” observes Stephen Brittain, co-founder of Insurtech Gateway, the insurtech incubator and one of the European sector’s most active investors. It’s easy to see why insurers could be motivated to get out of their comfort zones. With countries across the world forced into lockdown to contain the contagion, shops have closed, travel agents and airlines have gone into administration, other businesses have been forced to lay off massive numbers of employees or promote remote working, schools and universities have sent their students home and economies in general have been severely disrupted. Affected individuals and businesses have overwhelmingly turned to their insurers for help.

The Association of British Insurers expects that travel insurers alone will pay out a record £275million in claims this year because of disruption caused by COVID-19. While many insurers are arguing that their policies do not cover the outbreak of a global pandemic, lawmakers everywhere are urging them to consider the losses to businesses and communities and pay out.

All of this combined means that insurers may be more prone to change: the COVID-19 outbreak might have created a prime moment for innovative insurtech startups to seize upon. “When everything changes rapidly, the lean and agile startups really start to shine. Passionate founders are pushing their fledgling companies to overcome the odds and will come out of the other side stronger,” believes Brittain. He argues that a ‘startup community with incredible access to technology’ is out there and ‘looking for problems to solve’. “This is going to be a huge accelerant for insurtech,” he predicts.

A startup environment

Since 2015, the European insurtech community has raised more than $4.2billion in more than 300 transactions, according to FinTech Global’s data. In the US, insurtech companies attracted more than $7.8billion of investment across 418 transactions between 2015 and 2019. During that period, the average deal size increased from $13.7million to $38.2million. There was no shortage of confidence in the sector before the pandemic and, since startups are, by definition, smaller businesses, they can quickly adapt to new circumstances and help solve insurers’ problems – especially now.

“Where insurance companies need to adapt, insurtechs are well-positioned to allow insurance carriers to do it rapidly,” Samuel Falmagne, CEO and co-founder of insurtech pricing company Akur8 says. As an example, Akur8 has been able to develop a fully virtual model for running pilots and onboarding clients to the platform, which allows its prospects and clients to maintain their plans. The problem lies not in the ability or availability of startups to help push the reset button, but rather in insurers’ willingness to commit to projects now. Insurers could be tempted to put them on hold or even cancel plans.

“This is a major risk for insurtechs as many of them will not survive if the industry is pausing all the projects,” says Falmagne. “Insurance companies have the chance to have a highly dynamic insurtech ecosystem that can support them in facing the crisis, but many insurtechs are not yet as financially robust as their clients. As insurtechs we also need their support.” Startups often don’t have long cash horizons and may only be able to keep the lights on for another few months. With a global pandemic wreaking havoc on the global economy, they’ve found themselves in a particularly tenuous situation. “They’re having to make some pretty serious decisions about what they do, and how they survive,” says Brittain.

Some ventures, particularly the ones operating in the travel and gig economy insurance segments, have seen their revenue forecasts plummet by as much as 95 per cent in the past two weeks alone. There are some positives to being small, however. To retain staff and keep them motivated, startups have the opportunity to give staff equity instead of salaries during the months when they cannot afford to pay them, which is seldom an option for more established players. “I have never heard a corporate talk like this,” Brittain says, adding that startup staff are more likely to take this option as they believe in the business. “And I think that’s a wonderful thing.” Yet, if these companies can survive the crisis, there may be several opportunities out there for them. For instance, Brittain believes insurtech companies could benefit from looking beyond just how risky something is and offer solutions to prevent claim events instead of simply ‘paying out when the thing goes wrong’.

“I’m super excited about this because the timing couldn’t be better, with the insights and data improving our ability to see where things are happening so that we can prevent them,” he says. Earlier this month, the agency brokerage Rosenblatt Securities looked into how different segments of the fintech industry would be affected by the coronavirus. It noted that many startups might soon find it more difficult to raise money on decent terms, go public or achieve high valuations. Yet, the researchers noted that the insurtech industry might weather the storm better than other sectors, not least because the crisis might motivate more people to buy additional cover. Moreover, risks such as cybersecurity, climate change and social disruption have not seen investment decline and, Rosenblatt Securities predicts, they will continue to rise.

Brittain also remains optimistic for the insurtech segment, even if the going is rough right now. “Learning some agility, working from home, re-evaluating themselves when they go back to work. I mean, it can only be good for the development of the sector,” he says.“

Last week was a week of panic and trying to get stability,” Brittain continues. His team spent the period trying to figure out how to secure funding and support founders. “Panic after panic. And then this week I’ve had 150 WhatsApp messages with jokes in them. Next week I’m going to get business plans in my inbox. “That’s the nature of where we are now. It’s just things are moving so much faster. “How do I feel? Optimistic. I feel I’m just watching a very powerful force going through a period of change.”

This article was published in The Insurtech Magazine: Issue #4, Page 32.