Want VC Investment? Take a Cue From the Unglamorous: The Rise of InsurTech
“Sexy” is probably one of the last words that comes to mind with insurance. However, as Baby Boomers age and traditional insurers look for technologies to respond to the evolving demands of millennials, the perception of insurance is changing. Insurance combined with tech: InsurTech (Insurance + Technology) has become a “hot.” It falls under the more general FinTech (financial technology) umbrella which is known more for Unicorns in areas such as payments (Stripe), lending (SoFi), and money transfer (Transferwise). For years InsurTech has taken a backseat. Now VCs, startups, tech trendsetters, and corporates have begun to recognize InsurTech, its money-making opportunities, and “cool” factor.
InsurTech’s new image was apparent at the Empire Startups FinTech conference this Spring. The annual event is so hip that it serves Dinosaur BBQ straight from the famous Harlem blues joint restaurant. It is also one of the few conferences where “free condoms” signs adorn the bathrooms. Organizers chose Webster Hall, the giant New York City concert venue, as the conference location years ago to signify the “disruptive” nature of FinTech startups on big banks.
Despite other areas of FinTech “cooling off,” VCs at the sold-out event were interested in InsurTech. Amy Nauiokas, Founder and President of Anthemis, a leading FinTech VC, stressed her fund’s excitement over InsurTech in her keynote. Given Anthemis’ early investments in Betterment, Stocktwits, and other well-known FinTech brands, Ms. Nauiokas seems to have a keen sense of money makers. Separately, speakers on the panel “The InsurTech Hibernation is Over” noted the 4x increase in industry investment.
InsurTech excitement was infectious for the crowd. Even at the afterparties, attendees raved over their favorite demo during the conference’s “Hot Startups” portion. Lemonade, a digital home insurance provider, was the crowd-pleaser. The company presented Maya, its charming artificial intelligence bot.
Given this, it may come as no surprise that VCs had already caught onto Lemonade. In 2016 the company raised $47 million in funding. An additional “undisclosed” amount was raised in April 2017, the month of its demo. Trov, another digital insurance provider, also raised $45 million that month. In 2015 Anthemis had already invested $6.5 million into the company.
Other InsurTech companies have benefited from increased VC interest. The $400 million capital raise for Oscar Health was among the largest venture deals of 2016. Oscar, valued at $2.7 billion, strives to streamline how people sign up for insurance plans and navigate the American health system.
With Oscar taking the lead, InsurTech venture funding more than doubled in 2016: . Investments rose from approximately $590 million to $1.2 billion (diagram) (KPMG). Prior to this, InsurTech had picked up momentum: the number of InsurTech deals more than quadrupled since 2011 (CB Insights).
Following the VC’s, corporate investment in InsurTech has begun to rise. Traditional insurers are beginning to recognize the cross-industry technologies that can be applied to the insurance sector – such as healthtech, automotive telematics, and more. Last year Fidelity led Oscar’s February funding round. This April publicly traded Allianz provided an undisclosed amount of funding to Lemonade.
Governmental policy and healthcare reform have also put the insurance industry under a microscope. President-Elect Trump threatens to kill Obamacare (aka the Affordable Care Act) with his healthcare plan. If “Trumpcare” receives final approval, the current business of insurers, especially those founded around Obamacare (like Oscar) will be interrupted and more of the industry as a whole will be primed for change.
By Emily Hunt