If you think embedded insurance is the only hot thing in insurtech these days, we’ve got a surprise in store for you: While it’s true that startups that help sell insurance together with other products and services are enjoying tailwinds, there are plenty of other opportunities in the space, several investors told TechCrunch+.
You see, insurtech startups often need to take into account the myriad rules and regulations in place when they seek to innovate and embed insurance into products, which might make it difficult to pull it off. Given the current emphasis on achieving cost efficiency to extend runways in the broader startup ecosystem, it appears investors are open to insurtech startups that can build a sustainable business model, regardless of it including embedded insurance.
“Insurtech startups that do not offer embedded insurance, and rather provide other innovative solutions will still attract VC funding this year, especially if they can show cost-efficient and sustainable growth,” said Nina Mayer, a principal at Earlybird.
And according to David Wechsler, a principal at OMERS Ventures, “having an embedded strategy is not required for venture funding.”
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Mayer added that there is particular interest in products that go beyond embedded insurance. “We are generally open to startups innovating any part of the value chain as long as the problem and market are big enough.”
This focus on cost efficiency instead of growth at all costs is driven by the same factors that affect startups more broadly. “It’s been a turbulent few months for all tech sectors, including insurtech,” said Stephen Brittain, director and co-founder of Insurtech Gateway.
There’s another reason why fundraising is harder for insurtech founders in 2023. Wechsler said, “Many firms who dabbled in insurtech (aka ‘tourist investors’) have left the space. This makes it much more challenging to close subsequent rounds.”
On the flip side, he predicts that corporates with venture capital arms that are “committed to the insurance sector will likely step up their involvement.”
This also seems true more broadly of venture funds with a strong insurtech thesis. “We are still bullish on insurtech and we have been active in 2023,” said Hélène Falchier, a partner at Portage Ventures.
But investors are being careful to not put all their eggs in one basket. “Beyond embedded insurance, we are also particularly excited by solutions tackling claims prevention or underwriting in verticals such as climate or cyber,” Mayer said.
Artificial intelligence will likely take longer to demonstrate its full potential for the insurance sector, but its current applications are already being tracked actively by venture capital funds.
Talking about generative AI and insurance, Astorya.vc’s founding partner, Florian Graillot, reported seeing a lot of enthusiasm around that topic. He thinks that early use cases may center on customer service but is certain that more will follow.
“There is a lot more to expect from these generative AI solutions not only to smoothen the engagement with customers but also to get a sense of customers’ risks, collect documents in the claim process or maybe deliver reporting to the regulator. We are clearly in the early days, whatever the industry!”
Read on to find out what insurtech investors think about where the sector is heading in 2023, why they feel IoT and parametric insurance are a hot opportunity, how Apple will change the game if it ends up launching its insurance product and more.
We spoke with:
- Florian Graillot, founding partner, astorya.vc
- Hélène Falchier, partner, Portage
- Stephen Brittain and Robert Lumley, directors and co-founders, Insurtech Gateway
- Nina Mayer, principal, Earlybird
- David Wechsler, insurtech lead investor, OMERS Ventures
Florian Graillot, founding partner, astorya.vc
Embedded insurance is growing in popularity as more companies find ways to bundle insurance products with their offerings. How important will it be for insurtech startups to have an embedded insurance product to attract funding this year?
It’s true we’ve seen a lot of insurtech startups rebranding themselves toward that positioning. I’d even say it became a buzzword. But there are few players really offering third parties a way to seamlessly add insurance solutions to their customer journeys (that’s how I would define embedded insurance).
I believe the time has passed when claiming such a positioning was enough to raise money. Investors have matured and the market knows B2C and embedded insurtech are two very different companies. Hence, you cannot switch from one to another overnight.
But for startups that have the right balance between tech/product and insurance, there is a huge opportunity, as more and more platforms, e-commerce and marketplaces are looking for additional revenues on their existing customer base. That’s what such insurtech startups can offer them! We have long been pushy on such an indirect distribution, having invested in four embedded insurance startups in property and casualty, bancassurance, life and SME insurance.
How has your approach to the insurtech industry changed since the last time we spoke in Q3 2022?
Since astorya.vc’s inception, we have been investing in tech-based startups and have done a lot of B2B/enterprise software deals in the insurance space. That hasn’t changed. And the current market is rather reinforcing our investment thesis.
By the way, that makes a lot of sense when you remember that insurtech is three to four years behind fintech in terms of investments, and insurers usually lag behind banks in digital adoption rankings.
In terms of maturity, we haven’t changed our seed focus, as this is where the market is the most active (almost half of deals announced last year in [Europe’s insurtech sector] were below €3 million, see here), and anyway, insurtech is still a very young industry.
Apple is reportedly launching health insurance in 2024, for which it may leverage data from its other offerings. What impact would this have on interest for data-driven approaches in the insurtech sector?
First, let me share: I’m very excited about that perspective, as we’ve long been very pushy toward third parties entering the insurance industry. The rationale behind that is if insurance claims it is all about data, usually platforms own more data on their (vertical) market! Who owns health data? The Apple watch, not insurers. Hence, it makes perfect sense that such a company considers entering that space.
Florian Graillot, founding partner, Astorya.vc. Image Credits: Florian Graillot
Obviously, there are many challenges to tackle, but at least they have the data and customers’ trust to share this data with them. Let’s see how they are delivering. And their huge customer base could be a competitive edge. See how they are doing in the payment space with Apple Pay!
Every time a big name enters insurance, there is always a mix of skepticism from incumbents and a reminder that change is needed. In the short term, I don’t expect any impact, but if the first figures of adoption are nice, re/insurers will probably kick off similar projects. It’s worth reminding that there is already such a project, live on the market: Vitality.
Do you expect B2B companies to follow Apple in this and leverage wearables data as well?
At least they should, as I believe they have three strengths to support such initiatives:
- They have a lot of customers.
- They own a lot of data on their customers.
- They have regular touch points with these customers.
We’re actually seeing more and more third parties launching insurance products. I’m thinking about Tesla in the car insurance market. In France, for instance, we have BlaBlacar, a ride-sharing platform, and Ornikar, an online driving school, which have launched their own insurance solutions at scale. To make the link with the first question, we expect that move to accelerate as insurtech is developing “embedded insurance” solutions, which is the tech infrastructure required to plug insurance solutions to third-party platforms. For instance, it’s gaining momentum in the SME space!
As parametric insurance becomes a reality, which areas of insurance do you see extracting the most value from IoT applications?
Parametric insurance is a very exciting space: We’ve been discussing it for a few years now, but there are still only a few players delivering it at scale. Nevertheless, that addresses a real need in the market around what we call “new risks.” Not every insurer is offering such products. The risk didn’t exist a few years ago, and it is growing fast. Hence, there is a real challenge to spot relevant datasets and get a sense of them through algorithms. This opens the door to more insurtech/insurance partnership rather than competition.
In terms of use cases, weather insurance has been the hottest topic so far both in terms of the number of startups launched in that space and by the scale of the most advanced players. But there are many other opportunities to tackle. I think about cyber insurance, which was hot recently. I also have in mind cloud outage — we have invested in Riskwolf in that space. I think about digital assets as well: one can add new ways of working, etc.
When do you think that ChatGPT will start to have a tangible effect on insurance?
That’s a very good question. We see a lot of enthusiasm around that topic. The first use cases may be around the customer experience, and I even believe major attempts at leveraging ChatGPT in insurance recently are what we’ve long been expecting from “chatbots.”
But there is a lot more to expect from these generative AI solutions not only to smoothen the engagement with customers, but also to get a sense of customers’ risks, collect documents in the claim process or maybe deliver reporting to the regulator. We are clearly in early days, whatever the industry!
How enthusiastic are you about insuring crypto wallets?
This falls into our “new risks” category and we’ve long been excited about them, because we strongly believe incumbents would need to partner with insurtech to succeed, more than in any other area of the market.
Crypto insurance or, more generally, the opportunity to insure digital assets makes a lot of sense, especially as it’s a huge market already. But unfortunately, there are few startups in that space. That’s probably because the crypto market is not mature enough and is changing fast, but I see no reason insurtech solutions would not pop out in the near future.
How has CVC activity in insurtech been so far this year compared to 2022?
Well, I have to say I was a bit surprised the investment market is quiet! If last year ended with a drop in money invested, rounds announced were still up from a year before in [the European insurtech sector]. But Q1 2023 is different, and we are now feeling the slowdown discussed last year.
Obviously, several startups have raised money and haven’t yet announced their rounds, but overall, there is a mix of startups waiting as much as possible to come back to the market and investors unclear about how to value startups.
I expect this would change around the summer, as startups cannot wait forever, and several investors would need to invest funds they have raised. In the meantime, we’ll probably see a few companies going bankrupt and M&A processes being accelerated.
When investing, how important is it to you that the founder or founding team has prior knowledge or experience in the insurance industry?
We are looking for the perfect balance between tech/product skills and insurance background. Especially as we are investing a lot in B2B/enterprise software. There, the tech and product skills are an obvious requirement, but the insurance background often provides an edge and helps accelerate the sales process. And in insurance, where the sales process can sometimes last as long as 24 months (‽), having deep roots in that industry can help you access decision makers faster.
Even in the B2C/MGA space, having a background in insurance could ease your access to insurance capacity because people already know you. Interestingly, we see a lot of these startups currently looking for a “chief risk officer” or “chief insurance,” as the challenge of profitability [becomes more pressing] in the startup space.
Are you open to cold pitches? How can founders reach you?
Always happy to engage with founders leveraging technology to build the next insurance generation. We are investing in insurtech x seed x Europe, and beyond social networks (Twitter or Linkedin), I’m available at florian@astorya.vc.
Hélène Falchier, partner, Portage
Embedded insurance is growing in popularity as more companies find ways to bundle insurance products with their offerings. How important will it be for insurtech startups to have an embedded insurance product to attract funding this year?
To attract funding, it’s most important to have a robust business model with good unit economics. It’s true that many retailers have grasped the value of having a good insurance product, specifically designed for them, and offering it to their customers. And, having negotiated distribution partnerships can help an insurtech achieve attractive KPIs.
Hélène Falchier, partner, Portage Ventures. Image Credits: Aurélie Vandenweghe
But multiplying distribution channels is different from diversifying them and can also take focus away from the initial strategy.
My advice is: If this is not part of your model, don’t create an embedded product just to raise money!
How has your approach to the insurtech industry changed since the last time we spoke in Q3 2022?
No real change. We are still bullish on insurtech and we have been active in 2023.
How enthusiastic are you about insuring crypto wallets?
Insurance can help mitigate certain types of risks related to crypto wallets. The question is what kind of insurance is the most useful for users. Do they need a theft protection insurance, a private key recovery solution or cyber-risk insurance? Will insurance products be built in the traditional way, with an insurer and a reinsurer, or could we see new solutions emerge?
This is very promising from an innovation point of view.
How has CVC activity in insurtech been so far this year compared to 2022?
It’s too early to tell, but the timing for launching CVC activity is very interesting in terms of entry price and competition. As a CVC, you can also benefit from being a long-term investor compared to the classic VC fund structure with a need for liquidity over time.
In your opinion, are there enough insurtech solutions that focus on aging?
Decumulation [the conversion of assets into income], pensions, health: Aging is a broad topic and we have seen many solutions born in this area. Support and advice are needed, because it can be complex when we talk about insurance products. This is not the sexiest topic, but it’s a real subject in our modern societies.
When investing, how important is it to you that the founder or founding team has prior knowledge or experience in the insurance industry?
It’s extremely important. A strong, cohesive founding team, especially in a complicated industry like insurance, is one of the most critical parts of a company’s success. At Portage, we evaluate the founding team very closely, spending lots of time diving deep into the problem the team is solving for.
Are you open to cold pitches?
Yes, I am happy to receive cold pitches, especially from female founders.
Stephen Brittain and Robert Lumley, directors and co-founders, Insurtech Gateway
Embedded insurance is growing in popularity as more companies find ways to bundle insurance products with their offerings. How important will it be for insurtech startups to have an embedded insurance product to attract funding this year?
Stephen: It’s certainly key that early-stage insurtech businesses identify an efficient and sustainable distribution plan. Embedding deep into a client’s product or system is difficult to achieve but very sticky. When we see embedded solutions with a high level of client relationship and a natural fit to their core offering, we get very excited.
We’ve watched portfolio company SUPERHOG deeply embed themselves into the short-term rental ecosystem by increasing the transparency of the host and guest risk profiles. They can now access more hosts and guests than some of the major platform operators. It’s very hard to see them displaced, and that’s why they closed their recent funding round so quickly.
Robert: I think that embedded insurance is important in order to warrant services — I worry when insurance is thrown in and the product price increases.
For commercial insurance, embedded increases the adoption rate of the underlying product or service sold.
How has your approach to the insurtech industry changed since the last time we spoke in Q3 2022?
Stephen Brittain, co-founder and director, Insurtech Gateway. Image Credits: Morgan Shaw
Stephen: It’s been a turbulent few months for all tech sectors, including insurtech. We’re feeling the shock of recent financial market events, the extreme weather and price inflation.
Amidst all of this, we find ourselves discussing the opportunity to build greater resilience. Our deal-flow team continually surprises us with battle-ready ideas to solve these and other problems. Don’t underestimate a startup that understands risk and can spin up an idea to fix a crisis.
In short, the last few months have reinforced my belief in small teams to solve big problems.
Apple is reportedly launching health insurance in 2024, for which it may leverage data from its other offerings. What impact would this have on interest for data-driven approaches in the insurtech sector?
Robert: We will see the question of the ethical use of data coming to a head. Apple is a strongly trusted brand, and therefore, people trust them with their data and trust them to use it ethically. Data issues only arise where unethical actors seek to exploit or disadvantage the supplier of this data.
Stephen: When Apple shares its distribution channel with innovators, like with the App Store, we all get very excited about a new open platform to enable tens of thousands of niche innovators to meet customer needs. It was the catalyst to billions of venture capital.
The Apple Watch and iPhone also offer developers the potential to nudge healthier behavior through activity tracking and the occasional nag — I mean alert. This could be game-changing for high-risk groups like diabetics, who are often excluded from insurance.
Do you expect B2B companies to follow Apple in this and leverage wearables data as well?
Stephen: If this is an open platform, there will be many niche B2B insurtech plays leveraging the Apple health data and device ecosystem.
But I think the market is shaping the other way around. There have been many niche B2B plays using wearables to track health and well-being in areas like post-operative recovery and professional sports over the last 10-15 years. What’s new is the scale of Apple’s reach to distribute this to a much wider market. Finally, we can realize the potential of these systems to solve bigger social issues like obesity.
As parametric insurance becomes a reality, which areas of insurance do you see extracting the most value from IoT applications?
Robert: Areas that suffer catastrophic losses or remote/expensive claim costs will benefit from IoT applications. In addition, the binary nature of the parametric loss will help insurance carriers recapitalize after a loss. This is because the settlement cycle will be quicker.
When do you think that ChatGPT will start to have a tangible effect on insurance?
Stephen: I remember when an insurer told us to “come back when you have 10 years of data” when we showed them a new underwriting product. As ChatGPT can only access data back to 2021, I guess we need to start the clock from then!
Robert Lumley, co-founder and director, Insurtech Gateway. Image Credits: Morgan Shaw
I reached out to Mark Musson, CEO of Humn, an AI-powered fleet insurer, to see what they made of it so far. They have been using ChatGPT to explore new methods to improve driver behavior through educational content and piloting this through chatbots. For example, content that explains why braking hard causes skids, how ABS works and other aspects that ChatGPT was able to draw into an educational package.
How enthusiastic are you about insuring crypto wallets?
Robert: We are very enthusiastic, having backed Coincover in 2018 and watched them develop from an idea to a soonicorn. It’s a great example of where the additional protection of insurance is the feature that defines the most premium segment of a category. The best wallet is an insured wallet.
In your opinion, are there enough insurtech solutions that focus on aging?
Stephen: As this is almost April Fools’ Day, it might be the right time to announce our new anti-aging insurance solution, “Immortal.”
The cost of healthcare for an aging population is an enormous challenge for any government. The health and well-being side of the insurtech community are generating many solutions to reduce the cost and increase access to healthcare.
We’ve met insurtech entrepreneurs looking to shape a new premium healthcare space, characterized by the rapid growth of telemedicine and employee benefits programs. They see insurance as the business model to pay for it. A lot of progress has been made in a short period of time, both technically and to triage customers efficiently.
But your question is a good one. What about the elderly who can’t afford these new schemes? How do we catalyze the startup community to solve for them too?
Robert: The issue is not so much around the focus on aging, but the impact aging has on our health and care requirements, leading to increased costs.
When investing, how important is it to you that the founder or founding team has prior knowledge or experience in the insurance industry?
Robert: It is a low priority for us. Deep expertise in the field where the insurance is needed is more important. But we would say that, as we can access that side of the solution easily. Over time, we encourage teams to hire a head of insurance.
Are you open to cold pitches? How can founders reach you?
Yes very much so:
Nina Mayer, principal, Earlybird
Embedded insurance is growing in popularity as more companies find ways to bundle insurance products with their offerings. How important will it be for insurtech startups to have an embedded insurance product to attract funding this year?
Embedded insurance has indeed seen a popularity upswing given its strong advantages: It helps to sell insurance in a cost-efficient way, targeting customers right at the point of sale and improves the customer experience while increasing monetization for merchants.
We observe a new wave of verticalized end-to-end players in this space that serve merchants with highly flexible API solutions and deep integrations, allowing for personalized and customizable insurance options by leveraging customer data.
Nonetheless, insurtech startups that do not offer embedded insurance, and instead provide other innovative solutions, will still attract VC funding this year, especially if they can show cost-efficient and sustainable growth. I would recommend these companies stay focused on what they do best.
How has your approach to the insurtech industry changed in the past six months?
There is a clear trend toward “insurance-as-a-service” companies that unbundle the insurance tech stack along the value chain. This reduces innovation cycles and addresses insurance trends with focused, high-quality tech solutions.
Beyond embedded insurance, we are also particularly excited by solutions tackling claims prevention or underwriting in verticals such as climate or cyber. We are generally open to startups innovating any part of the value chain as long as the problem and market are big enough.
Apple is reportedly launching health insurance in 2024, for which it may leverage data from its other offerings. What impact would this have on interest for data-driven approaches in the insurtech sector?
Apple’s potential entry into the health insurance market will likely have a significant impact on the interest in data-driven approaches in the insurtech sector. Apple has a vast amount of data on user behavior and health-related information, which could be leveraged to underwrite risks and create personalized insurance products. Data points collected by an Apple Watch for example, such as blood pressure, blood oxygen levels, ECG readings and body temperature are considered the “holy grail” for health insurers.
As long as Apple leverages this data without crossing data protection laws, they will, ultimately, have an unfair advantage. So Apple becoming a data-driven insurtech player could trigger a wave of interest in data-driven insurtech startups overall.
Do you expect B2B companies to follow Apple in this and leverage wearables data as well?
In theory, we expect more B2B companies to follow Apple’s lead and leverage data from wearables to provide more personalized insurance products, as long as this is possible in light of data protection laws. Fitness trackers, smartwatches and more provide a tremendous wealth of health data that, as mentioned, can be leveraged to assess an individual’s health and risk profile. That data will be hard to get via a different route — ultimately creating defensible moats for B2B companies like Apple, Samsung, etc. However, we do believe those companies need strong insurance partners and on the other hand, tech companies analyzing the data for them.
Nina Mayer, principal, Earlybird Venture Capital. Image Credits: Chris Marxen
As parametric insurance becomes a reality, which areas of insurance do you see extracting the most value from IoT applications?
Parametric insurance (as opposed to traditional indemnity insurance) is an insurance type that pre-specifies the amount of payout based on concrete “trigger” events. For example, the payout could be linked to a certain weather event, such as the height of a river above the flood point. The key advantages of parametric insurance are fast payouts, high flexibility and the option to provide coverage for losses that are difficult to model.
The potential to collect real-time data via IoT devices will help to either prevent events from occurring or automatically trigger payouts based on certain parameters. Areas of insurance that could extract the most value from this might include home insurance, car insurance and crop insurance.
To give some examples:
- IoT sensors can detect potential hazards such as leaks, fires or break-ins and automatically trigger payouts or even help to prevent those hazards.
- IoT sensors and devices installed in vehicles can collect data on driving behavior, such as speed, distance or location, and trigger payouts for accidents or other events that meet specific criteria, or again, prevent those accidents.
- IoT sensors can collect data on weather conditions, soil moisture and other variables, enabling insurers to provide more precise coverage, for example, tailored to the specific needs of farmers.
When do you think that generative AI, such as ChatGPT, will start to have a tangible effect on insurance?
Generative AI (GAI) has great potential to modernize many processes in the insurance industry, especially when it comes to digitizing customer journeys and communication channels, improving risk underwriting and risk management, streamlining claims processing and enhancing fraud detection.
To give more details: GAI will likely be able to analyze data and create simulations to predict and identify potential claims before they occur, improving overall risk management. GAI might use data analysis to create personalized policies, leading to more accurate pricing and coverage decisions for improved customer satisfaction and lower claims costs.
At the same time, GAI could automate tasks, such as document review and data entry, to reduce claims processing time and improve customer experience. It might also analyze data patterns to detect fraudulent activity, reducing fraud and improving profitability.
In short: Generative AI will have a significant impact on insurance in all its key aspects very soon.
In your opinion, are there enough insurtech solutions that focus on aging?
This is a widely untapped opportunity in Europe. The aging population continues to increase and evolve while also being increasingly tech savvy. The share of Europeans over the age of 80 is expected to rise to nearly 15% by 2100 from 6% in 2019, per McKinsey. The U.S. and China have seen the first insurtech models targeting caregivers or the elderly, such as the U.S. company Homethrive or the Chinese platform HiNounou, which combines insurance protection with health devices.
It is, however, key to point out that the senior population is far from homogenous. It’s important to create offerings with real value-add for this target market. In general, the elderly demographic is widely saturated when it comes to standard insurance offerings and is often more difficult to target via online channels.
When investing, how important is it to you that the founder or founding team has prior knowledge or experience in the insurance industry?
It is certainly helpful if one of the founders has a background in the insurance industry due to the high regulatory complexity as well as the specific stakeholders and dynamics in this field. But this is not a deal breaker.
On the contrary, we are open to founders who are eager to challenge this massive market. It can even help to bring in a fresh perspective on an established industry, especially if the founders have strong technical backgrounds.
Are you open to cold pitches? How can founders reach you?
I’m always excited to hear from founders. You can reach me via Linkedin or via our website contact page. We discuss every opportunity that fits our investment scope: early-stage tech companies out of Europe.
David Wechsler, insurtech lead investor, OMERS Ventures
Embedded insurance is growing in popularity as more companies find ways to bundle insurance products with their offerings. How important will it be for insurtech startups to have an embedded insurance product to attract funding this year?
Embedded insurance is finally having a moment. We call it “embedded,” because it’s typically sold as a bolt-on to another, more interesting product. For instance, people love to car shop, but they don’t like shopping for auto insurance. Why not “embed” the insurance purchase with the sale of the car?
Embedded insurance has a lot of upside, so it’s always good to see startups recognizing that potential and including a strategy to leverage it. Embedded insurance distribution is typically flattened and less expensive, since there is now a direct route to the buyer (versus agents, brokers, etc.). Underwriting may also be more accurate, as the information obtained in the transaction can be used to better assess risk.
But having an embedded strategy is not required for venture funding. In fact, there may be regulatory or operational constraints that make it impossible to embed a coverage. That said, I do worry about a company that ignores the risk an embedded competitor might pose.
At the start of the insurtech boom, embedding insurance had high technical and regulatory barriers. That gave way to embedded platform providers who packaged up everything from licensing to risk capacity for a turnkey solution. A broadening API landscape has begun to commoditize this embedded platform approach to some degree, and now I would argue it’s the business relationships that make the most difference.
Insurtechs with solid go-to-market partners for their embedded plays will attract the most investor interest.
How has your approach to the insurtech industry changed since the last time we spoke in Q3 2022?
I love insurtech and have high confidence in its long-term impact on the market. But I was cautious in 2022 and plan to be just as cautious in 2023. There are so many fantastic ideas on how to improve the world of insurance, but many are not realistic investments for VCs based on the complexities of the market.
Great ideas that take large amounts of capital to demonstrate product-market fit or major shifts in customer behavior or regulatory framework will be challenged. We (the VC community) want to invest in these types of disruptive opportunities but find it hard to manage against our mandates.
David Wechsler, insurtech lead investor, OMERS Ventures. Image Credits: OMERS Ventures
As potential investors, we worry a lot about where the next round of money will come from. Many firms who dabbled in insurtech (aka “tourist investors”) have left the space. This makes it much more challenging to close subsequent rounds.
So entrepreneurs effectively must convince us that the next round of funding will either get them to cash-flow break-even or be able to demonstrate clear product-market fit. This is very hard, and we get that, but it’s the way the market works right now.
So for me, it’s market traction: fewer anecdotes, more proof. At the least, I need a clear and believable plan on how to prove the necessary milestones for additional funding. It’s very hard to bet on good teams and interesting ideas in markets that can take decades and tens of millions in funding to prove themselves.
Apple is reportedly launching health insurance in 2024, for which it may leverage data from its other offerings. What impact would this have on interest for data-driven approaches in the insurtech sector?
This will be huge for the industry. So many great startups have pushed to change the underwriting paradigm from historical analysis to forward-looking models, but few have had success.
As a data provider with alternative datasets or new streams of data, it’s hard to find carriers with the technology capable of ingesting and leveraging these inputs. As such, some of these companies have tried to underwrite risk themselves (“eat the dog food”). But this approach has become challenging: It’s hard to get insurance capacity when you have unproven datasets.
A big player like Apple with meaningful datasets can leverage lots of historical data and capitalize on a large volume of real-time data to build new underwriting models.
This will force incumbents to move faster to ingest these new data streams, creating new demand for all emerging data-collection sources. I believe everyone, including the (healthy) customer, will ultimately benefit.
Do you expect B2B companies to follow Apple in this and leverage wearables data as well?
Absolutely. There are new, emerging data sources in just about every market. Wearables is one of the most exciting. Health and life insurance products are underwritten against proxy data — genetics, family history, reported lifestyle — but wearables can paint a more accurate picture of what’s going on in a person’s life.
Even if the use case focuses more on risk management, I believe insurers will learn to partner with consumers to leverage data to avoid loss and will ultimately reward the customer for doing so.
This opportunity goes beyond wearables: smart home devices, telematics in autos and even dog collars in pet insurance. These data streams can help better underwrite risk and coach end-customers on loss avoidance. B2B vendors will be able to monetize these assets in new ways as the data sources become prized by insurers.
As parametric insurance becomes a reality, which areas of insurance do you see extracting the most value from IoT applications?
The obvious parametric play for IoT is weather or catastrophic insurance — specifically, earthquakes, floods, tornadoes and even hail. There are very strong IoT parametric plays in each of these markets.
The popular consensus right now is that these products will augment traditional indemnity products. So you still want earthquake coverage on your homeowners insurance but adding an earthquake parametric product ensures a rapid, no-questions asked payout in a time of need.
Crop coverage is another area where IoT/parametrics will continue to grow. I am confident IoT will have a breakout in the parametric insurance space. By the way, IoT is doing great in auto and commercial auto. Telematics is here to stay and much of it is IoT-based.
The VC funding climate for IoT is not strong, but IoT vendors are wise to start focusing on the insurance sector.
When do you think that ChatGPT will start to have a tangible effect on insurance?
I am sure that by EOY, we will see a handful of carriers deploying customer support tools based on the technology in an effort to upgrade the v1.0 chatbots many have already launched. But a more interesting discussion is the broader potential for AI in the insurance industry. It’s early days so we will see, but I am very bullish on the potential for the market.
How has CVC activity in insurtech been so far this year compared to 2022?
It’s too early to tell, but I have seen a few anecdotes indicating a pullback, including a re-org and a last-minute backout from a deal.
But there are still many strong insurtech CVCs, and I have seen a few new ones emerge. Again, I suspect the tourist investors will depart, but those committed to the insurance sector will likely step up their involvement.
In your opinion, are there enough insurtech solutions that focus on aging?
There is a lot of opportunity in aging and the market is nowhere near saturated.
When investing, how important is it to you that the founder or founding team has prior knowledge or experience in the insurance industry?
Very important. Admittedly, when I started my career in insurtech, I felt outsiders were best positioned to disrupt. But I have grown to appreciate the importance of understanding the complexities of the industry from the inside.
My ideal founding team is heavy insurance folks who have a deep understanding and awareness of the potential for technology. It’s a very hard industry to break into, and it’s impossible to be realistic without understanding the market dynamics.
This is not to discourage a founder with a big idea who comes from outside the industry, but I expect you to get validation early on. At the least, come with advisers who are respected in the industry and can confirm your solution is needed.
Are you open to cold pitches? How can founders reach you?
Yes, I am open to cold pitches, but please take your time and do your homework. Do not assume all VCs just invest in everything. We have mandates, which are often listed on our websites, about the types of investing we do and the corresponding stages of a company’s lifecycle.
Do your research, ensure you are contacting the right VCs and be clear about why you think you should be considered. For instance, I invest primarily in insurtech from Series A to C. You should be able to evidence product-market fit before approaching me for investment.
That said, I am always happy to provide feedback/advice at any stage/sector. Email me at dwechsler@omersventures.com.
By the way, the same goes for LinkedIn. Please explain why you want to connect and why I should be interested. A sentence or two showing that you took the time to learn about my focus goes a very long way.