Adapt or die: how to survive in the insurtech jungle

Running a startup can be like a game of snakes and ladders, with a number of insurtechs shutting down this year. 

There are ladders leading to growth and success, but equally there are pitfalls at every corner. It can be a case of trial and error, with what works for one insurtech not necessarily working for another. 

In June, insurtech Trõv said that it would be closing its on-demand single coverage UK app at the start of October as it eyed other ventures. Then in August it announced it would relaunch in the UK with the first of a series of new partnerships.

Recent months have seen two high profile insurtechs shut up shop.

June saw Ageas retiring insurtech Back Me Up in the UK market as it felt it did not stand as a commercial proposition in its own right. Meanwhile, March saw startup Kinsu vow to bounce back after it was forced to shut due to a lack of funding.

But while some struggle there is evidence the appetite to work with insurtechs is increasing. Willis Towers Watson cited that the number of insurtech deals in the UK increased by 50% in the first quarter this year.

The sector is also banding together – Insurtech UK launched as an official trade body last June with the intention of giving the sector a voice to discuss key issues such as dual pricing and data use. The Lord Mayor of the City of London, Peter Estlin believes there are 1,600 insurtechs in the UK alone.

Insurance Times dug deeper into why insurtechs can struggle to survive and the problems they collectively incur as a sector.

Capital adequacy

Nimeshh Patel, Wrisk’s new chief executive told Insurance Times there are a number of reasons why getting enough capital is the first obstacle. Wrisk raised over £10m in crowd funding, but he said it is harder for insurtechs to attract investment from within the UK. 

Many insurtechs have subsequently looked overseas for investment, such as Zego and Cytora.

“It has been really difficult for this sector as a whole to raise capital; the bigger investments have been made outside of here [the UK]. For insurtechs to thrive they have to build the necessary proof of point to see more investment in the UK,” he said.

Scaling

“We are here to build confidence as we try to scale our business, but there are pitfalls to this,” he added.

The first is that it is not easy to scale on a B2C basis. However, he said Zego is an example of success in this area because they have B2B2C relationships.

Patel referenced Kinsu as he spoke of the difficulties of scaling a business. “It wasn’t that Kinsu did not have a good product, or have an innovative view, but it takes a huge amount of capital to scale a B2C insurance business because insurance is a grudge purchase – it’s not something that you can offer for free”.

Therefore, he said that another of the biggest pitfalls is getting distribution. Some insurtechs have partnered with fintechs like Monzo as a way to ’blitz-scale’.

He said that in the US the appetite for risk is different, with a culture that is less risk-adverse compared to the UK. He gave the example of Metromile, Lemonade or Root, which have all had adequate funding. Hippo raised £82m ($100m) in funding in July.

He cited Trõv pivoting away from a B2C model in the UK to a B2B2C in pursuit of a more attractive economic model.

“It’s a sizable difference compared to the UK. I think B2C success is higher for insurtechs that are based in markets where significantly more capital is available. That doesn’t mean insurtechs in the UK cannot achieve, but part of their investment might come from outside the country,” he said.

Race to scale

Policy Expert analysed over four million business registrations at Companies House based on those registered as active during May 2018 and May 2019. The provider found that over two thirds (68%) of UK insurance firms active today were incorporated in the 21st century, outnumbering older incumbents by more than two to one. 

Adam Powell, chief operating officer at Policy Expert, said the problem was that despite a wave of innovation in recent years, the insurance industry is still largely dominated these large companies that have been trading for decades.

“New insurtech businesses are in a race to scale – they have to apply their technology, and acquire and maintain customers in order to drive growth if they’re to successfully challenge industry incumbents,” he said.

“However, the race to scale is a marathon, not a sprint. Many insurtechs fail before they reach that tipping point,” he added.

“There are a whole host of reasons why insurtechs fail, from technology and distribution models not being agile enough, to not being able to balance significant required investment. In order for insurtechs to survive and thrive, they have got their business fundamentals right, before the grow to scale.”

‘Putting lipstick on the pig’

Graham Elliott, chief executive at Azur, said: “The insurance industry needs the modernisation that insurtechs are trying to bring, but at the moment there is a danger of ’putting lipstick on the pig’.”

He explained that modernising the user experience and creating a slick front end is fine, but warned if there was no change to the back end, where the core legacy issues are rooted, there is only so far the industry can take innovation.

“Insurtechs are going to struggle to substantially disrupt the big carriers and brokers, but they can thrive if they work together to bring modernisation in a sustainable and scalable way” he added.

Under pressure

But from the perspective of an insurtech, Urban Jungle’s chief executive and co-founder Jimmy Williams told Insurance Times: “Startups are really hard and entrepreneurs are under a lot of pressure, so the fact that we are seeing a couple of failures shouldn’t be surprising as the normal rate of failure is 80-90%.”

Williams explained that the model is different in how you spend money up front and recoup it later.

He discussed the two different types of insurtechs – those that do their own distribution and those that sell their products to incumbents. For the former, financial liability is important for insurtechs writing policies, therefore partnering with incumbents is vital. Moreover, selling products can take up to two years.

“I think it is hard in any industry anywhere in the world to get funding. The environment in the UK is better than anywhere else in Europe but not as good as the US,” he said.

Williams said that the biggest challenge while setting up Urban Jungle was finding the right capacity, and the conflict this caused with the “hyper growth” of technology companies. This is because the risk that comes alongside growing at such a fast rate is higher.

On being successful he added: “It’s a Catch-22 [situation]. One of the things that helps is having rates of external finance. It gives insurers comfort to put behind what the insurtech is doing.”