Chancellor unveils £1.25bn startup package – but will it be enough to uphold insurtechs?

Last week the chancellor of the exchequer, Rishi Sunak, announced a new £1.25bn coronavirus package to protect firms driving innovation and development in the UK.

Trade body Insurtech UK has welcomed the announcement.

Niall Barton, chair of Insurtech UK, said: “As one of the co-signatories of the industry letter to the chancellor calling for more government relief for startups, Insurtech UK welcomes the new funding package for the UK startup community.

“Key to its success will be its speed of deployment. Fast moving startups need quick access to cash and the Future Fund must reflect this to support them in these unprecedented times. The same is true of the additional R&D (research and development) grants and loan support (via Innovate UK). Clarity on the mechanics and availability of this scheme will be important.”

Insurtech UK will continue in its constructive discussions with government and industry to ensure effective delivery, highlight potential pinch points and consider possible solutions where required.

It follows the trade body raising its concerns back in March about Entrepreneurs Relief being slashed by 90% in the spring Budget.

Last month, the chancellor implemented a business interruption loan scheme as a safety net for businesses suffering as a result of the coronavirus pandemi, but not all businesses are eligible – insurtechs among them. This is because the very nature of being a startup means that the business will be loss-making.

And due to the current pandemic, the risk of investors pulling their funding arrangements leaving insurtechs in the lurch is high. But could the new startup funding package change this?

Great economic strengths

The government’s package, Future Fund, will include a £500m loan for high-growth companies impacted by the crisis, made up of funding from government and the private sector.

This comprises of £250m from the government combined with equally matched funding from private investors. In addition to this, SMEs focusing on research and development will also benefit from £750m of grants and loans.

Sunak said: “Britain is a global leader when it comes to innovation. Our start-ups and businesses driving research and development are one of our great economic strengths and will help power our growth out of the coronavirus crisis.

“This new, world-leading fund will mean they can access the capital they need at this difficult time, ensuring dynamic, fast-growing firms across all sectors will be able to continue to create new ideas and spread prosperity.”

The chancellor said that the targeted funding would help ensure firms in some of the most dynamic sectors of the UK economy, ranging from tech to life sciences, are protected through the crisis so they can continue to develop innovative new products and help power UK growth.

Meanwhile Oliver Dowden, secretary of state for digital, culture, media and sport, said: “We are the tech and creative capital of Europe, and it’s crucial to maintain our place. This funding will protect high-growth businesses and enable the unicorns of tomorrow to thrive so that tech is in pole position to drive our post-Covid recovery.”

The chancellor’s move was largely welcomed by startups and SMEs, and Will Shu, chief executive and founder at Deliveroo, said that startups will be vital to the UK economy in the months and years ahead.

Deep value

Speaking to Insurance Times about the impact of Covid-19 on insurtechs, Stephen Brittain, co-founder of independent incubator Insurtech Gateway, said: “There are clearly a wide range of insurtech businesses in different states of emergency and opportunity right now as a result of the Covid-19 impact on society and business. For those whose value is directly connected to a booming consumer economy, they are in trouble alongside the parts of the economies that they support.

“For those developing deep tech to make the insurance market more agile and relevant to today’s market, they are keeping their heads down until they deliver strong metrics,” he sid. ”As investors and supporters of innovation, it’s important that we know the difference and respond accordingly.”

He gave insurtech By Miles as an example – an on-demand insurance product for motorists that charges by the mile.

“Suddenly this service looks very attractive as the renewals arrive and the cars are static on the curb side. We need to think about the deep value of innovative startups to provide alternative solutions to new needs,” Brittain added.

Wake up call 

Meanwhile. insurtech GetSafe said that the greatest challenge for early-stay insurtechs will be to access capital.

Christian Wiens, chief executive and founder at GetSafe, told Insurance Times: “Modernity and innovation alone are not enough to survive the crisis. The effects of the coronavirus pandemic will be felt in the global economy. No startup has experienced anything like this – so the crisis will serve as a stress test for them.”

For example, for underfinanced startups, the situation is uncertain because financing is expected to collapse in the coming months.

“Investors are very cautious right now, particularly CVCs,” Wien said. ”Financial markets have crashed, and public valuations are at an all-time low, and public valuations affect private valuations. Conditions may be stabilising a bit as investors see governments stepping in to create a safety net, but there is still a lot of worry and uncertainty.

”Some insurtechs may fail because they will not have access to risk capital. This is likely to affect early stage insurtechs in particular.”

He added: “For insurtechs, the crisis serves as an opportunity to outpace their more analog competitors. In a few years, we will no longer be talking about insurtechs and traditional insurers, but only about technology-driven insurance companies. Those who sleep through this wake-up call will fail.”

But Wiens predicts that the pandemic could also fuel the growth of established insurtechs. 

”While traditional insurance companies have to almost stop operations in times like these, digital insurers are hardly affected,” he said. ”They don’t rely on brokers or agents and they are built on a strong and modern technological infrastructure that allows them to continue their daily business even when all employees work in isolation from home.

”Over the next ten years, the millennial generation in Europe will buy almost one billion new insurance policies. That’s a huge potential. Now, insurtechs even have the opportunity to change customer behaviour for good. It is up to them to convince older generations of the benefits of digital insurance.”

This, he said, is because insurtechs have already succeeded in attracting young people as either customers or employees, and millennials prefer solutions that aren’t paper-based, where they can see and change their coverage instantly.

Despite this, Wiens said insurtechs still only have a tiny fraction of the market share. For now.

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