From mutuals to mutualism. How the new InsurTech leaders are being born from incumbent-innovator collaboration.

Here in the UK we’re really good at financial innovation. The increasing verticalisation of financial services is threatening incumbents, with hundreds of nimble, specialist and forward thinking providers offering a better proposition in their chosen focus area. At least, that has been the case in banking. Historically less so for insurance. But why is this and how is it changing?

Insurance is a $4.6tr global market, accounting for 6.7% of global GDP (FinTech50) yet until fairly recently it has been one of the overlooked sectors in FinTech.

The evolutionary hindrance is in large part due to a strange symbiosis between incumbents and their ambitious startup competitors. They need each other: startups need the incumbents to back them in this capital-intensive, highly regulated sector; the incumbents need the startups because they alone cannot attract the tech talent they need away from sexier sectors (if you’re a talented engineer, would you prefer to work for Aviva or Google?). The bar is set high given that the market now expects the same frictionless, almost pleasurable experience it gets from Amazon or Deliveroo, from the most functional of financial services. Everyone’s aware of the problem. According to PWC the vast majority (90%) of insurers fear they will lose business to a startup, whilst insurance innovators with momentum and early scale are still relatively few and far between.

There are exceptions. Our own portfolio company, Bought by Many, has transformed the way people buy pet insurance and already has over 100,000 live policies. In May 2020, they announced an £80m funding round led by FTV Capital, putting them in an exclusive group of larger scale, well-funded, InsurTech innovators.  Likewise, By Miles, who empower lower mileage drivers to pay only for the miles they drive, rather than a one-size-fits-all policy that in the end subsidises high mileage drivers. In May 2020, they also announced a £15m funding round led by CommerzVentures. Finally, Dead Happy, which allows people to buy Life Insurance in minutes, and have a laugh along the way, making any competitor look…well, dead. These companies have Net Promoter scores that any consumer brand would kill for and consumers are learning to expect more from their insurance providers.

We have been fortunate to back some of the most exciting direct-to-consumer insurance innovators in the UK, and have come to observe the following pattern emerging in their success.

1. Ticket to the party

In order to even begin on the journey, you need to find a forward-thinking incumbent who is willing to provide the capacity and regulatory framework to write business. These are the very incumbents the start-ups are often looking to challenge, so it makes for an interesting dynamic. The most active incumbents are often re-insurers who tend to lack the direct customer connection, and can see the benefit in cutting out the carrier middle-man. Others are insurers who like the vector of innovation, but have barriers to achieving it in-house – either through a lack of capability or reliance on a certain business model. 

Those who are able to access the support of these incumbents often come from the industry themselves – which means an Insurance executive on the founding team is typically important.

2. Tech talent

InsurTech start-ups win because they do not have to worry about a legacy tech stack, getting to start from a blank sheet of paper with the latest technology standards. This means better access to data, more seamless customer experience, and quicker product development cycles. 

Winners in this space tend to have technology in the DNA, and therefore in the founding team. 

3. Unit economics

The race is typically between the start-up trying to crack distribution and achieve scale, before the incumbent can adapt their proposition to meet an increasingly demanding customer.  Incumbents are on legacy systems, and have trouble hiring technical talent. InsurTechs are cash-strapped, and need to present compelling unit economics to unlock external capital to fund marketing. As a result, InsurTechs in verticals with relatively large policy values (£300 per year plus) tend to have seen the best success so far, given the higher commission rates creating more margin to fund marketing spend. 

Better for customers

We’re excited to continue spending time diving into the evolving world of InsurTech. We’re seeing innovation in the distribution of products, new categories and verticals within existing categories and better data to price risk and efficiencies achieved on the claims and policy administration front.  All of these make products better for customers – easier to buy, better post purchase experience and better value.  

That said, even the nimblest of tech startups still faces a number of challenges:

  • Regulatory requirements are significant barriers to entry to the market. With the industry regulated differently across markets, even in Europe, international expansion can be tricky.
  • Capital requirements are difficult, if not impossible to meet for startups, which results in a dependency on incumbents.
  • If data is key for appropriately pricing products, newer entrants have less historical data to rely upon. This is less of an issue with emerging risk categories, but it’s a consideration nonetheless.
  • Then there is the issue of trust: the entire industry is based on it and unless consumers see immediate financial benefits, they may be unwilling to try out new players or use untested concepts.


So we’re left with a delicate but potentially mutually beneficial relationship. The insurance giants have to establish effective cooperation models with tech startups to stay in the game. And the startups can’t start up without their backing. Bureaucracy is a blocker, but this tenuous collaboration is already producing new – dare we say it, exciting – opportunities for bold entrepreneurs.

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