Geektime‘s annual Techfest in Tel Aviv featured a number of panels trying to cover the major tech stories of 2016. Among them was the sudden explosion in funding for insurance tech startups in the US, Europe, and Israel. The boom has been a mild surprise to the fintech world, mainly because it seems off so few insurance startups existed prior to this year.
“Insurance is a B2C business, not a B2B business like banks. Insurance is a very complicated business, not a real product you can feel in your hand sold by brokers and agents,” explained Gil Arazi, a general partner at venture firm FinTLV.
He also suggested that the willingness of people in the market to use quick apps to select and confirm plans has changed mainly because so many millennials are now looking for insurance plans. Before the last couple of years, too few had the assets to protect.
Sequoia Capital Israel’s Shmil Levy, whose company had invested in fellow panelist Shai Wininger’s insurtech startup Lemonade, said “I like to invest in companies that change the food chain. We had the chance to totally change the landscape in insurance.”
That means eliminating the insurance company as we know it, Levy said, offering less cumbersome solutions and utilizing technology to eliminate middlemen.
On that last point, Wininger asserted that’s why startups like his have an extreme advantage as entrepreneurs and venture capitalists increasingly hop on the bandwagon.
“If you look at the insurance space there aren’t many startups. There was an explosion in the last year,’ he said, whose company raised $13 million in Series A funding last year. Add to that rounds like Embroker’s $12.2 million Series A, Friendsurance’s $15 million, Toronto-based LEAGUE’s $25 million, and several others.
He suggested the environment has been rife for total disruption for a while, pointing to publicly traded insurers he said were out of touch with possible threats to their way of doing business. He implied that by mentioning how many of them are nearly a century old (he didn’t cite specific examples).
Regulatory hurdles discourage new founders
Wininger was not surprised by innovation’s initial hesitation to get into the game considering the high level of regulation and compliance involved.
“Then on the other side you have the startups. If you ask the entrepreneurs what they want to do next it’s usually not ‘I want to do insurance. I want to deal with regulation and raise a shitload of money.’”
“For a startup to come in, you have to start everything from the beginning,” meaning building all the fundamental elements of a multilayered insurance company with brokers, policy managers, lawyers, etc. “I think that’s why it was so hard to break in because you had so many people in the business already.”
The technological advantage Lemonade offers is extreme. You can sign up for a plan in a matter of seconds. But more importantly, you can make a claim and have money transferred to your account in as little as two minutes, even astonishing non-investor Gil Arazi when Wininger mentioned the time frame.
“We know how the core systems are built. We’re trying to get insurers to improve their technology and start working with it,” Arazi added, perhaps hinting that acquisitions would be inevitable in the insurance space if the tech proves itself to have the ability to undercut established industry players.
Other considerations also make a move toward a technological solution difficult for established insurance companies, namely that middleman cuts would have dramatic effects on corporations with hundreds or thousands of employees. On that point, Wininger was frank.
“We don’t have the weight of 40,000 agents trying to feed their families to weigh us down,” leaving startups with no inhibition to offer a more efficient model. He tempered his words though with respect for what might as well have been dismissed as dinosaurs at that point in the panel, saying all his own talk was still pretty high and mighty considering how young his and other startup companies were.
“I have a lot of respect for them. It’s a huge industry and been here a long time before kids like us came along and said ‘We’re better.’ We haven’t proven anything yet.”
Are investors too quick to run from regulation?
“A lot of entrepreneurs won’t willingly go into a market like this,” Wininger reiterated, claiming that, “If you’re an early stage startup with an idea that deals with a lot of regulation you’re not gonna get money.”
But that really isn’t fair in his mind.
“You shouldn’t fear regulation.”
And on that point, Levy seemed to agree with his parting words to the crowd.
“Please continue to invest with startups in this domain. It’s a great domain, the first thing we look at is the market opportunity. The market is huge, the technology is here.”