What makes an InsurTech start-up special?

Jonathan HoweThis month Tapoly had the opportunity to meet Jonathan Howe, Global Insurtech Leader at PwC, at the FCA Project Innovate. He has spent over 20 years advising the insurance industry. We asked him some questions about what makes insurtech so hot for investors, what a good business proposition looks like, and how insurtech start-ups can be more appealing to investors. Here is what he had to say:

How did you get into insurtech?

About two years ago, I started noticing that there wasn’t much substance around insurtech. I heard things like “imagine if Google did insurance”, so there were clearly a lot of ideas floating around. People were talking about what a connected home might look like, or how telematics could be used, but there wasn’t much detail or insight about new entrants into the market. So, I thought I’d try doing that research myself. I spent twelve months at insurtech meet ups and conferences, listening to the people I met there, and that really helped my understanding of where the industry is headed.

What makes insurtech attractive to an investor?

I think insurance is hugely important for society. The idea of protecting your assets, and managing your risks, is valuable to both individuals and companies. There is still an issue with under insurance, both in the west, and around the world. When you look at middle class growth in developing countries, the first thing they do is acquire assets, and the second thing they do is try to protect those assets. And there are also many under protected groups in more developed insurance markets.  So there is a massive demand for the industry, and with that comes opportunities. Insurance is currently expensive to provide, and people are seeing how technology could revolutionise this if used properly. It will have a dual benefit – improving customer experience while also increasing profits.

What are you looking for when you see a new insurtech start-up?

One of the key things is – what is your unique selling point, and is it protected? Lots of insurtech people have really good ideas, but ideas can be copied. If they are using publicly available technology, then what is it that will make them successful in a competitive market, when they have fast followers? Is it knowledge, application, enthusiasm? Do they have something special that nobody else can replicate? For an investor, that’s really important.

What should insurtech start-ups think about when starting a funding round?

Most start-ups have a really good understanding of how their product will be used, and the benefits that it brings to the customer, but they tend to be much less sophisticated about their own business model. I often see great pitches, but at the end I ask – how do you make money? And they say they will license it, or maybe charge a fee, but they don’t have a clear idea of what makes it robust, either to market shocks, or to competition. It’s not enough just to have the idea, you’ve got to be able to talk about how it’s also a business.

Do you have any additional insights that you could share?

A key thing for fund raising is that if your business depends on partnering with an insurer, then you have to get some insurers excited about it. That’s where accelerators or start-up hubs work quite well, because you can quickly get one of the global players to a point where they are prepared to do a demo with you, or a pilot scheme, and that gives you huge credibility when you start meeting investors. The other way is if you are going to be truly disruptive and don’t need to partner with an insurer. Though in that case you need to have a really good business model that is credible to investors, so they believe you can make money and won’t immediately be pushed out of the market by existing players.

Tapoly would like to thank Jonathan for his time. To summarise his main points:

  • There is a huge need for better insurance to provide for the under-insured population in an engaging and cost efficient way, this is mainly what attracts investor’s money.
  • Advice for start-ups is to think about your unique selling points and translate them into a robust business model that adds value to customers, investors and themselves.
  • Joining accelerators or start-up hubs is good idea to get the opportunity to meet and partner up with a large insurer.

We hope this article will benefit everyone who is looking to find both capacity and capital partners. We wish you all good luck!