As European Insurtech Surges, Learnings from a Maturing First Wave

In the first half of 2021, European insurtech start-ups surpassed the 2020 total capital invested by more than a billion dollars, nearing $1.9 billion at end of May. The continent saw a few mega-deals, such as health insurer Alan’s €185 million Series D and fraud-detection software provider Shift Technology’s $220 million round. Other insurtechs to enter unicorn territory were pet insurer Bought by Many and gig economy focused London-based Zego. In June, Tractable announced $60m Series D making it the fifth European insurtech to hit unicorn status. Tractable sells its AI platform to carriers, harnessing computer vision to rapidly assess photos of car damage, thereby speeding claims processes that took days requiring a human appraiser to verify the claim.

Going west across the Atlantic, there’s been a flurry of US insurtechs going public, leading to expectations that European insurtechs will follow. The trend started with home and renters insurer Lemonade going public last summer. Pay-per-mile car insurance provider Metromile was next, going public via a special purpose acquisition company (SPAC) followed by Oscar Health and Hippo, the home insurance agency opting for a SPAC.

European insurtech activity in UK, Germany and France attracted 85% of funding since 2016, while other countries attracted significant share of early funding, but fewer follow up rounds. The start-ups are gaining credibility with incumbents, as almost 40% of rounds over the last year had strategic investors participating. B2B SaaS solutions for product and pricing, underwriting and claim management are attracting 50% of rounds in 2021, at 20% of total funding. Distribution attracted most of funding in previous years, with the attention shifting to full stacks of late.

One exceptional success has been Germany’s Wefox, which raised the largest Series C in the insurtech industry of $650 million. Wefox specializes in personal insurance products, such as household, motor and personal liability. As Wefox pivoted from B2C broker and technology provider to challenger full-stack insurtech, revenue mix changed from 100% commission in Jul 2015 to 70% commission, 30% direct premium in March 2021. Next year, it plans to add subscription revenue from risk prevention and in 2-3 years, build an embedded distribution platform. Its 2030 vision is to earn 50% direct premium, 30% third party commission, 10% subscription and 10% from platforms. The Wefox story is in various ways, the story of successful insurtechs of the first wave, pivoting with agility to become full stack and getting future ready with prevention services and embedded platforms strategies.

In 2022, world’s largest publicly traded P&C insurer Chubb turns 230 years old, an amazing feat of longevity. By comparison, startup Root Insurance debuted as a public company last October. Five months into its listing, it was trading at less than half the IPO price and was named in a shareholder class action complaint. The complaint alleged that Root’s IPO documents omitted important facts, further asserting that traditional insurers like Progressive and Allstate already offered the type of telematics platforms that Root believed set it apart. Ironically, like other insurtechs, Root Insurance was billed by its founders as a disruptive force in the insurance industry.

Growing pains such as Root’s have been a integral part of the evolving insurtech story. While insurtech founders have been hacking away at available disruption opportunities, many still have to live up to their promise. Where insurance businesses have traditionally connoted consistent growth, founders are pitching breakneck growth. The 2015-16 cohort attracted the bulk of mega-rounds, with the US seeing a flush of exits and more expected in Europe, driven by full-stack. But performances have been subdued with the insurance carrier model appearing to be back in vogue, signifying that in insurtech, time is needed to scale. The attendant benefit emerging is of insurtech engendering an outsourced R&D service, liberating incumbents from large technology spends and defraying cost of innovations in the process.

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