’There’s a need for more action to be taken to encourage investment in technology and insurtech markets,’ says co-chair
The Labour government’s first Autumn Budget since coming into power this summer, held on 30 October 2024, offered a tantalising ray of hope for insurtechs seeking investment.
For example, chancellor of the exchequer Rachel Reeves confirmed in her speech that the Enterprise Investment Scheme (EIS) – which provides tax relief to investors backing small and risky businesses, such as startup insurtechs – has been extended for a further 10 years. The scheme was initially introduced in 1994.
Reeves also voiced her support for research and development (R&D) tax credits for small and medium-sized businesses.
Louise Birritteri, chief executive at Pikl Insurance and co-chair at insurtech trade association Insurtech UK, told Insurance Times that while the investment market for insurtechs is still “very challenging”, the market is now “in a place where we are starting to see the green shoots of recovery” – especially following 2024’s Autumn Budget announcement.
She continued: ”There’s a need for more action to be taken to encourage investment in technology and insurtech markets.
“I truly believe we are at the start of our journey of growth in the same way that the fintech markets were over a decade ago. The UK has the perspective to be a global leader. I would say we are on the road to recovery.”
Although the Autumn Budget marked the start of greater positivity around insurtech investment, what has been the lay of the land so far this year?
‘Dearth in investment’
Typically, an insurtech receives funding through sources such as investors, grants, incubator firms – like Insurtech Gateway – or accelerator programmes, like Lloyd’s Lab.
However, September 2024 figures published by FinTech Global depicted a decided dip in investment interest in the UK insurtech landscape during H1 2024, with only 13 deals confirmed for this reporting period.
These had a combined total deal value of $142m (£107m), with each individual deal averaging a value of $10.9m (£8.2m) – this is a marked decrease on the $50.5m (£38m) average deal value recorded by FinTech Global for the same period in 2023.
Birritteri believes that today’s “challenging” investment market has been partially influenced by high interest rates – she confirmed that this can have a huge impact on insurtech capital and “how valuations are considered”.
As of 19 September 2024, the Bank of England’s interest rate was 5%.
“We have gone from seeing interest rates being 1% [in December 2020] to now being 5%,” Birritteri said. “The market is adjusting to that and that is why investments are the way they are.”
Mark Huxley, founder at Huxley Advisory, agreed that there has been an “ongoing systemic failure” around insurtech funding, particularly in terms of late seed stages and series A rounds.
Read: Insurtech sector sees 2021 unicorn boom as pandemic accelerates digital focus
Read: Government u-turn on angel investing rules will ‘help increase diversity’ of insurtech founders
Explore more insurtech-related content here, or discover other news analysis articles here
Seed funding is the first phase of a startup’s fundraising and is typically used to finance its initial costs. Series A investments, meanwhile, follow seed funding and is typically used to finance a startup’s growth – by paying for staff, for example.
Huxley said: “From my perspective as an entrepreneur, I do see a real dearth in investment appetite between angel, seed and series A investing. Any young business is at its most vulnerable and risky [during these investment rounds], when they have won only a few customers and probably haven’t honed a proposition completely.”
Huxley added that many early stage insurtechs are in an “experimental learning stage”, therefore they have ”high capital expenditure demands” and ”need to be nurtured”.
Insurtech’s ‘golden years’
Despite current investor caution, market participants do not have to look very far back to find a time where insurtechs enjoyed some ”golden years of funding”.
For example, 2021 saw the onset of the insurtech unicorn boom, where businesses such as Zego, Tractable and ManyPets were among the UK startups to achieve a valuation of $1bn (£75m) or more.
Charlotte Koep, chief executive at low code insurance platform business Root, said: “2021 was [one of] the golden years of funding. No one went too deep into investigating the financial viability of ideas. [Many] insurtechs were born out of that and a lot of that funding went to into acquiring customers.
“As soon as that funding ran out, the growth metrics [around acquiring and retaining customers] could not be met anymore. The shiny side of insurtech potentially dying down is a good thing because there’s a lot of noise in the system.”
Scaleup insurtechs are also looking for a slice of the investment pie. For Koep, one area where this demographic shines – and can showcase a selling point for potential investors – is around creative distribution strategies, such as embedded insurance propositions.
She continued: “[Embedded insurance is based on] partnerships with non-insurance brands that have captive audiences and a trusted loyal customer base, where it makes sense to bundle an insurance cover into an existing product.”
Huxley, who has worked as a Lloyd’s Lab mentor, said: “We have got to encourage [insurtechs and insurtech investment] because some of the single ideas coming out of these [businesses] will be world beating.
“It is incumbent on the insurance industry to keep up and show that, like open banking, it is capable [of dealing] with emerging economies, [as well as the] needs and demands of the next generations.”
Interested in all things insurance technology and insurtech.
Writer of the monthly TechTalk section of the magazine and backchat. When not writing can be found doing yoga, at some kind of dance workshop, singing, globetrotting, or baking – not in any specific order.View full Profile
No comments yet