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Insurtech

Insurtech: the golden ticket to growth?

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Being keen to gain insights into the untapped potential of the insurtech world, I was delighted to be granted an interview with Richard Chattock, CEO of Insurtech Gateway.

His request that this should take place during an Uber journey was certainly fitting. Not only is he uber-busy, but this gig economy space is being directly addressed by a couple of insurtechs that Gateway has incubated and invested in. So, we jumped in at Kings Cross and squeezed in as many questions about product innovation, venture capital and opportunity spaces as we could before reaching his Southwark offices.

How does product innovation in insurance differ from that in other markets?

Insurance is more challenging because it’s a regulated sector, and many insurtechs also require an underwriting balance sheet from a third party. Insurers don’t tend to have the new product facilities we see in other sectors. Most insurance also exists on very narrow margins and is highly commoditised, with buying decisions largely made on price as insurers struggle to differentiate themselves on quality. It’s no coincidence that industries with the largest R&D or innovation spend also have the largest gross margins.

Is venture capital a driving force in the insurtech space?

Venture investment in insurtech is still well behind. Dealroom stats show fintech, excluding insurtech, received about eight times as much venture funding as insurtech*. So we haven’t even scratched the surface yet. 

How do you feel venture could be doing things better?

I’m not a fan of regurgitating the same products with a slightly better digital journey, which seems like a very short-term win. Ultimately, these companies will still be competing purely on price, with no real advantage over the incumbents. The big opportunities for future growth are in insuring brand-new lines of business. 

Can you tell us a little more about what you are trying to do and how the Gateway model was born?

We are on a mission to close the funding gap in early-stage insurtech, and to attract a new kind of founder that tackles complex climate and social challenges. The model was born out of the frustration that quality founders experienced when trying to start businesses in the insurance industry. The regulatory complexities, lack of investment capital, and shortage of willing insurance partners were putting the best founders off. But our model removes these barriers to entry.

How do you support the growth ambitions of your insurer partners?

We are providing insurers with a window into the world of early-stage insurtech, as we see emerging lines of business before anyone else. It’s best to avoid being surprised by the future, and our partners get to keep an eye on the latest products and technologies, giving them plenty of time to prepare themselves. Growth requires agility as well as ambition, and startups can pilot and pivot ideas much more easily than incumbents. 

And how do you work together?

Most of our partners create teams that work with us, attending regular meetings. It has been interesting getting heads of innovation, investment and underwriting in the same room, and this breaks down some of the silos in these organisations.

How does backing a small startup get them closer to new billion-dollar opportunities?

They are small when they start, but the expectation is that they and the industries they work in will grow rapidly. Once insurers start to partner meaningfully with these companies, they are able to scale quickly. For example, BondAval’s proprietary credit instrument, which gives credit teams frictionless access to more capital-efficient solutions, will be eyeing up a largely-unserved $7 trillion global trade finance market.

Are you seeing any long-term shifts in customer needs?

Customers want better, smarter products, not just a pretty user experience. Insurers should be integrating data, mitigating and understanding the risks better, and charging accordingly, without having to ask a load of questions. They should also be reporting back to customers on how they can improve their risk. It should all be seamless.

What have been the biggest scars left by the first phase of digital platforms? 

As digital platforms emerge, large communities of new stakeholders are left poorly protected. Take Uber, for example, as we’re sitting in one. We support two companies directly addressing this space. Collective Benefits is providing health and wellbeing cover for millions of vulnerable gig workers, whilst Humn.ai is providing deep tech data-driven solutions for vehicle fleets, reducing accident insurance and operating costs. Insurers need to address more than the mere risk transfer element if they want to create sticky customers.

I know a number of your portfolio members are in the climate space, which is a hot topic right now. Can you tell us about them?

We believe that climate will be a hotbed for innovation for the foreseeable future, and have put in a dedicated capability to support these founders. Insurance can be a power at a product, markets and predictive data level. Kita Earth is seeking to insure the delivery of carbon credits to accelerate the formation of a bona fide carbon credits market. IBISA offers climate insurance to smallholder farmers at a time when 74% of the world’s food supply is uninsured, whilst FloodFlash pays flood claims to small businesses in six hours.

What’s next for Gateway?

We have raised the first tranche of investment for Seed Fund II, which will enable us to support another 20 new ideas over the next four years. We are also widening our reach, with plans to launch incubators in Europe and then the US. These markets both suffer from the investment and market access hurdles that the Gateway overcame here.

Why should insurers start investing now?

It’s hard to think of a decent reason not to invest, and I’m astonished that more aren’t already involved when they are struggling to grow profitably from their existing commoditised business. It seems like an absolute no-brainer to commit a bit of money to these new opportunities. The insurance industry still has less than 1% of all its assets invested in insurtech venture capital, which lags well behind other industries.

We’ve arrived

Well, time certainly flew by, which seems quite a compliment to insurtech when you’ve spent most of your time stuck in traffic! I shall certainly be keeping a keen eye on this space and trying to get to the bottom of why current insurer investment in it is so low. It will be one of the first things I look to bounce off insurers I talk to but, given their reluctance to think outside the box, I doubt if those interviews will be taking place in an Uber!

*Dealroom stats show fintech, excluding insurtech, received $323 billion of venture funding over the last six years, compared to $43 billion received by insurtech.

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