6 VCs explain why embedded insurance isn’t the only hot opportunity in insurance

If you think so The only hot thing in insurance right now is insurance, we’ve got a surprise for you: although it’s true that startups that help sell insurance along with other products and services are enjoying the wind, there are plenty of other opportunities out there. position, several investors told TechCrunch+.

You see, insurance startups often have to consider the myriad of rules and regulations that exist when looking to invent and embed insurance into products, making it difficult to avoid. Given the focus on cost efficiencies to extend runways in the broader startup ecosystem, investors seem open to insurance startups that can build a sustainable business model without embedded insurance.

“That’s what insurance startups are all about. do not Offer embedded insurance, and instead offer other innovative solutions will still attract VC money this year, especially if they demonstrate cost-effectiveness and sustainable growth,” said Nina Mayer, principal at Earthbird.

According to David Wechsler, principal of OMERS Ventures, “Having an embedded strategy is not a requirement for venture capital funding.

Mayer added that there is a special interest in products that go beyond the included insurance. We are generally open to startups creating any part of the value chain as long as the problem and the market are big enough.

This focus on cost efficiency rather than growth at all costs is for the same reasons that have a widespread impact on startups. “This has been a tumultuous few months for all areas of technology, including insurance,” said Stephen Brittin, CEO and co-founder of InsurTech Gateway.

In the year There’s another reason why raising money in 2023 will be tough for insurance founders. According to Wechsler, “many firms engaged in insurance (‘tourist investors’) have left the scene.” This makes closing subsequent rounds more challenging.

On the other hand, he predicted that “investment capital firms will increase their participation.”

And this seems to be true of venture funds in general, along with strong insurance theory. “We’re still bullish on insurance and we’re very active in 2023,” said Helene Falchier, partner at Portage Ventures.

But investors are being careful not to put all their eggs in one basket. “Beyond embedded insurance, we’re more than happy to handle claims defense or underwriting in verticals like climate or cyber,” Mayer said.

It may take some time for artificial intelligence to demonstrate its potential for the insurance sector, but existing applications are being actively pursued by venture capital funds.

Speaking about generative AI and insurance, Astorya.vc founding partner Florian Graillot reports that he sees a lot of enthusiasm around this topic. He thinks the early usage issues will be addressed by customer service, but he’s sure more will follow.

“A lot is expected of these generative AI solutions, not only to simplify communication with customers, but also to gain insight into customer concerns, collect documents during the inquiry process or deliver reports to the regulator. Regardless of the industry, we are in the early days!”

Read on to find out what insurance investors think about where the sector is headed in 2023, why they feel IoT and parametric insurance are a great opportunity, how Apple will change the game if it launches its insurance product, and more.

We talked to:

• Florian Graillot, Founding Partner, astorya.vc
• Hélène Falchier, Partner, Portge Ventures
• Stephen Brittain and Robert Lumley, Directors and Co-Founders, Insurtech Gateway
• Nina Mayer, Principal, Earlybird
• David Wechler, lead insurance investor, OMERS Ventures

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Florian Graillot, Founding Partner, astorya.vc

Embedded insurance is growing in popularity as more companies find ways to integrate insurance products into their offerings. How important is having an embedded insurance product for insurance startups to attract funding this year?

It is true that we have seen many insurance startups rebranding themselves into that position. In fact, I would say he became a gossip. But there are few players that offer third parties a way to seamlessly add insurance solutions to their customer journey (that’s how I define embedded insurance).

I believe that the time has passed to say that such a position was enough to raise money. Investors are mature and the market knows B2C and embedded insurtech are two very different companies. So you cannot switch from one to the other overnight.

But there is a huge opportunity for startups with the right balance between tech/product and insurance as more platforms, e-commerce and marketplaces look for additional revenues on top of their existing customer base. That’s what insurance tech startups like these can offer! We have long pushed for such indirect distribution by investing in four embedded insurance startups in property and casualty, property insurance, life and small business insurance.

How has your approach to the insurance industry changed since we last spoke in Q3 2022?

Since the inception of astorya.vc we have been investing in tech-based startups and have done several B2B/enterprise software deals in the insurance space. That hasn’t changed. And the current market is intensifying our investment research.

By the way, this makes a lot of sense when you remember that insurtech is three to four years behind fintech in terms of investment, and insurers lag behind banks in digital adoption rates.

In terms of maturity, we haven’t changed our seed focus, because that’s where the market is most active (about half of the deals were known last year). [Europe’s insurtech sector] They were under €3 million, see here ) and anyway, insurance is still a very young industry.

Apple is rumored to launch health insurance in 2024. What effect will this have on the demand for data-driven approaches in the insurance sector?

First, let me share with you: We’ve long had a strong push for third parties entering the insurance industry, so I’m excited about that perspective. The reasoning behind that is that if insurance is all about data, often platforms have more data on their market. Who owns health information? Apple Watch, not insurers. Therefore, it makes perfect sense for such a company to consider entering that space.

Clearly, there are many challenges to overcome, but not least the data and the trust of customers to share this data with them. Let’s see how they deliver. And their huge customer base can be a competitive edge. See how Apple Pay works in the payment space!

Every time a big name enters insurance, there is always a mix of skepticism from officials and reminders of the need for change. I do not expect any impact in the short term, but if the first adoption figures are good, reinsurers may start similar projects. It is worth remembering that there is already such a project, directly on the market: Vitality.

Do you expect B2B companies to follow Apple and use wearable data in this?

I believe there are at least three strengths to support these initiatives:

1. They have many customers.
2. They own a lot of data on their customers.
3. They have regular touch points with these customers.

We are seeing third parties launch insurance products. I’m thinking about Tesla in the car insurance market. In France, for example, we have BlaBlacar, a ride-sharing platform, and Ornicar, an online driving school, that have both launched their own insurance solutions. To make the connection to the first question, we expect the move to accelerate as InsurTech is developing “embedded insurance” solutions, the technology infrastructure needed to plug insurance solutions into third-party platforms. For example, it is being encouraged in the SME space!

As parametric insurance becomes a reality, which insurance sectors will see the most value from IoT applications?

Parametric insurance is an exciting space, we’ve been discussing it for a few years now, but still only a few players are delivering at scale. However, that addresses the real interest in the market around what we call “new risks.” Not every insurance is offering such products. The risk was not there a few years ago, and it is growing rapidly. Hence, there is a huge challenge to identify relevant datasets and make sense of them algorithmically. This opens the door to more insurance/insurance partnerships than competition.

In terms of use cases, weather insurance is by far the hottest topic in terms of the number of startups launched in that space and the most advanced players. But there are many other possibilities. I think about cyber insurance which has been hot recently. I’ve also considered cloud disruption – we’ve invested in Riskwolf in that space. I also think about digital assets: one can add new ways of working, etc.

When do you think ChatGPT will start making a real impact on insurance?

That’s a very good question. We see a lot of enthusiasm around this topic. The first use cases are likely to be around customer experience, and I believe the major recent attempts to use ChatGPT in insurance are what we expect from “chatbots”.

But there is much to be expected from these generative AI solutions, not only to simplify communication with customers, but also to gain insight into customer concerns, collect documents during the inquiry process or report to the regulator. Regardless of the industry, we are in the early days!