TechTalk: UK insurtechs to capitalise on US opportunities post-pandemic

UK-based insurtechs have got their eye on entering the US insurance market, seeking to follow in the footsteps of American insurtech disruptor Lemonade, which racked up an impressive 20,000 policy sales last year and is now buying usage-based car insurance insurtech Metromile, based in San Francisco.

For example, in March 2021, UK pet insurance specialist ManyPets announced its intention to launch in the US. Fast forward to March 2022 and the insurtech is now operating across 40 states.

MGA scaleup FloodFlash also confirmed its plans to enter the US market back in February 2022 after it completed a $15m (£11.6m) fund raise. The business additionally wants to make its mark in Germany, Australia and Japan.

Rory Tanner, government and external affairs manager at trade association Insurtech UK, told Insurance Times: “The US remains the most attractive global destination for UK insurtechs.”

Tanner’s view is supported by 68% of Insurtech UK members, who highlighted the US as the most important international export market in a 2019 survey.

However, Tanner warned that the “US is actually quite a challenging regulatory market to enter, as insurance regulation differs state by state”.

He continued: “But the large customer bases, perceived cultural similarities, lack of language barrier, strong professional services network and huge pools of capital means that for insurtech businesses, the pros outweigh the cons.” 

Innovation appetite 

For insurtechs targeting growth, being well funded is a key priority.

Businesses that wish to tap into the deep financial wells of US venture capital (VC) firms, therefore, may need to look more seriously at launching their operations stateside, as some VC companies quiz an insurtech on how it plans to enter the US market as a prerequisite to funding.

“This inevitably pulls UK insurtechs towards the US market if they want to access this capital,” Tanner explained.

Stephen Brittain, director and co-founder of accelerator Insurtech Gateway, added that US investors have a different mindset towards innovation compared to UK backers, which means that larger investment is often provided earlier in the funding process. 

He feels that UK investors are possibly more watchful about loss ratios.

Brittain also noted that due to the size of the insurance market in the US, it is much easier to find groups of consumers interested in insurtechs and what these businesses have to offer.

Insurtech UK has sought to support insurtechs’ expansion goals with the launch of an insurance corridor between the UK and Connecticut in March 2022.

As part of the broader US-UK Financial Innovation Partnership (FIP), which was established in May 2019 by the US Department of the Treasury and the UK’s HM Treasury, the corridor is designed to remove the barriers faced by insurtechs in the UK and US when looking to access each other’s insurance marketplace and enhance transatlantic cooperation.

Tanner added: “This commercial trade partnership sets out to reduce the barriers facing UK businesses when launching in the US. The vision for this corridor is to establish Connecticut as the landing spot for UK businesses with US ambitions.

“Here, they can access the largest concentration of insurance businesses in the US, test their products in one of the US’ most innovative regulatory landscapes and create their proof of concept to enter larger states with bigger populations, but more stringent regulation.”

Brittain added that “the UK is a very good pilot market” for businesses looking to expand further because it allows insurtechs to refine their products and models before scaling up.

IPOs ’lost some of its gloss’? 

Initial Public Offerings (IPOs) have also become more prevalent in the insurtech market – Lemonade filed its IPO in June 2020, while Ondo was the first UK insurtech to file an IPO in March 2022.

An IPO is when is a private company becomes public by selling its shares on a stock exchange, supported by investment banks. This process of selling shares to the public can help raise money for business expansion.

However, some insurtechs - such as Lemonade, Hippo, Metromile and Root - have all hit obstacles in the public market over the past 18 months or so. 

Jonathan Jackson, chief executive of flood modelling technology firm Previsico, which is also planning to address the US market later this year, explained: ”2022 has seen some of the fizz come out of the market as insurtech IPOs, such as Hippo, have seen their share price fall sharply.

”There is still a significant level of market liquidity, but insurtech has lost some of its gloss. This said, the interest in climate-related insurtech investment is still strong.” 

Competition ready 

UK insurtechs are certainly ready to take advantage of US-based opportunities.

Steven Mendel, ManyPets’ chief executive, said: “We are a monolith player in the US - we are only interested in pet insurance and [are] completely obsessive about it.

 “We are the only pet insurance business in Europe with a fully automated claims process - policyholders get paid the same afternoon. This is a great opportunity for us to keep challenging the accepted norm.”

Meanwhile, Adam Rimmer, chief executive and co-founder of FloodFlash, believes the MGA can tap into the ”much more developed” US flood insurance market using its Internet of Things-based flood water sensor and accompanying parametric insurance policies.

“This is the sandpit we have got to be playing in,” he said. 

In the UK, cover for flooding is a default inclusion that doesn’t exist as a standalone line of business. In the US, however, flooding is a default exclusion, Rimmer explained, he agreed this shift has happened due to the tumbling of the public insurtechs. 

“The thing that you are always trying to solve with parametric insurance is basis risk, the idea that what you get paid should be the same as what you lose, Rimmer added. 

“For consumers, innovation and competition is a really good thing.”