Insurtech UK appeals for startup backing amid Covid-19 crisis

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Members of the trade body have also raised their concerns due to the coronavirus business interruption loan scheme not being suitable for startups

Trade body Insurtech UK has signed an open letter to the chancellor of the exchequer, Rishi Sunak asking for relief measures for startups due to the impact of Covid-19.

The letter was also signed by Coadec, Innovate Finance, teckUK, UK Tech Cluster, Tech Nation and Tech London Advocates.

All signees believe that the current measures exclude the majority of start-up businesses.

With knock-on effects from the pandemic are being felt by some of the software insurtechs, Insurtech UK believes the letter will form a positive start for a discussion with government and further measures to be developed, the trade body has already been contacted by officials for feedback on its approach.

It follows Covid-19 having and impact on certain areas of the insurance industry as well as a major impact on the economy.

Not suitable

The letter stated that the existing UK government support package is simply not suitable for early stage tech startups because the coronavirus business interruption loan scheme (CBILS) is not an option as they are not viable.

Grants based on payment of business rates will not help. These companies are unlikely to pay business as they are often in co-working spaces or sub-letting.

Although the government’s announcements show a huge commitment to the UK economy, there remains a number of unanswered questions for insurtechs and the broader startup community as to whether the current support measures can help.

Niall Barton, chairman of Insurtech UK said: “We supported this open letter because it is important for the Government to understand that the current relief schemes see the majority of the start-up community slip through the cracks.

“This surely cannot be their intention, given the huge champion government has been of the entire sector in recent years. We see the open letter and its broader proposals as a good start, but we believe that the proposed funding will need to be significantly increased over time to support the entire UK start-up community, not least the UK insurtech sector.

“We look forward to discussing these proposals further with government and we will make sure our voice is heard to ensure the Insurtech scene continues to prosper.”

Insurtech UK members have raised a series of concerns, these are outlined below:

Ensure the CBILS scheme incorporates support for the start-up community: The traditional avenues for capital available to Insurtech UK members are now significantly reduced, resulting in many wishing to access the government’s CBILS. However, there are concerns that the viability criteria might disqualify investment backed early-stage businesses from receiving such a loan. Equally there is alarm around the variations in requirements from the different lenders creating a lottery for businesses when undertaking the application process. Finally, there is widespread apprehension for those start-ups that are deemed eligible, having to commit to excessive personal guarantees from some of the lenders in order to access these loans. This goes against the spirit of the scheme in these unprecedented times. An assessment of the viability criteria to be more accommodating to early-stage businesses, which is consistent across the various lenders would be incredibly helpful to those who are going to struggle to replace the lost funding opportunities in the months ahead.

Creation of new fund aimed at supporting start-ups: The government should also go further and create a new fund within the British Business Bank which specifically targets the needs of startups. It has seen other governments across the world create liquidity packages designed for the startup community and it urges the government to do the same. Many Insurtech UK members are worried about the funding options of their businesses in the short to medium term if they cannot access any relief. There is flexibility around the model of the fund, whether it be a convertible debt model or an agreement for future equity. It would welcome a discussion with government about the details of such a scheme, but it is vital that the government takes quick action to protect a huge success story in the UK economy in recent years, pioneering the innovations it will depend on in the future.

Provide clarity on the COVID-19 job retention scheme: Insurtech UK is awaiting details of the government’s Covid-19 job retention scheme, and particularly the extent to which employers can keep in touch with furloughed workers to maintain their skill development, mental well-being and team cohesion. Whilst Insurtech UK fully supports the spirit of the proposals, considerations should be explored around a part-time option that enables more flexibility for both employees and employers (whilst creating less of a financial burden for government) during this period where the traditional working structures are having to adapt.

Insurers commit to their existing partnerships and stand by their distribution channels: Insurtechs are forming a huge component of the industry’s efforts to innovate and drive efficiencies. Existing arrangements should not be deemed dispensable and it would be counter-productive for the long-term future of insurance if the traditional insurers looked to cut delegated authority with its insurtechs now. Initial signs have been very positive, and it calls for this spirit to be maintained.

Increase governmental support through existing startup incentives: Insurtech UK recognises the Government is under huge pressure to support every facet of the diverse UK economy. A certain level of patience is required to create and implement new relief schemes for its component parts. Therefore, Insurtech UK is also open to the possibility of the government extending existing schemes in order to provide immediate relief to insurtech businesses. This could include creating existing incentives such as increasing R&D (research and development) tax credits, doubling SEIS/EIS (seed enterprise investment scheme) limits or providing VAT rebates. Insurtech UK would welcome a discussion about how this could work with government.

A coalition of more than 30 different VCs, investors, accelerators and industry groups have brought forward proposals to address CBILS not being suitable through the creation of a new ‘Runway Fund’ through the British Business Bank.

It would include investing £300m in “Simple Agreement for Future Equity” (SAFE) notes for startups who are at risk as a result of the Covid-19 crisis and its impact on their ability to raise investment.

This would get around the issue of debt financing as it is equity-driven, and because it can be priced into a startups next funding round it side steps the risk for startups of a down valuation.

This solution requires allocation of additional funding to the British Business Bank.