The slings and arrows of outrageous (insurtech) fortune have been hotly contested, debated and analysed in recent months between market reports, shifting valuations and predictions about where the sector will go next.
Read more: Revealed – how insurtech funding fared in Q3
As an insider to the debate, it has been fascinating for Tim Hardcastle, CEO of the British insurtech INSTANDA to see the role and contribution of insurtech in the evolution of the insurance industry. He’s proud that INSTANDA can count itself among the early waves of companies championing the idea that there are different ways to think about technology and how it can be used to enable, streamline and modernise core insurance processes.
“Ultimately, this is about creating a better proposition and a better experience for customers,” he said. “And I think people in the industry knew that what they had, several years ago, was not as good as they should be, and they were frustrated. There was a lot of hype and expectation around the beginnings of insurtech [about] five years ago. You also saw the venture capital companies coming in and realising there were some good ideas and backing them up with funding.
“So, there was a lot of hype and expectation and sadly not all of the promises have been met from the insurtech contribution. But overriding that I think the most substantive thing and the most exciting thing to be talking about is the fact that a small but significant number of companies have grown through that period, have gained traction with many clients and organisations within insurance, and have made significant contributions to the progression of insurance.”
Insurance does what it does well, Hardcastle said, and insurtech has helped it do what it does much better. And with the dust settling from the hope, hype and excitement after the splash insurtech made when it entered the market, the market has seen some amazing success stories emerge over the last five years.
He noted that while there are still some great new companies coming forward, you can point to 10-20 companies globally that are doing a lot of really interesting things and are working with some major clients and partners to the benefit of the wider ecosystem.
These firms are delivering real value and have raised capital, he said, which is always a good indicator of market confidence in the proposition. INSTANDA itself recently announced the close of its latest $45 million fundraising - led by the growth equity investment firm Toscafund, with the participation of existing investor Dale Ventures.
“You can argue that the funding providers are a kind of lighthouse seeing out into the future and believing whether or not a company has the ability to ultimately make money for them,” he said. “And so [that where] you see companies like ours, that have raised significant amounts of equity and capital coming in… And [generally speaking], looking over the five years, there’s a lot to be really pleased about.
“Sadly, not every company has made it but, really positively, there is a significant number that have made it and have really got a lot more to offer. And that’s where I feel we are. We've got to a significant milestone with the recent fundraising, and we've got so much more to do. It's now just about trying to find the hours in the day.”
Looking across the market at the makeup of the firms that have succeeded over the last five years, Hardcastle highlighted that there are some “systemic success factors” that these firms share. These are the attributes required to transition a great idea into something that matches market demand and is scalable, he said – and one such factor that is especially relevant to the market right now is the question of performance.
It stands to reason that a successful insurtech must be able to have an impact on an insurance company’s performance, he said, whether that’s to do with the customer, cost-saving, data analytics or new insights. But this systemic risk factor also offers a keen insight into why it’s so difficult for insurtechs to make the move from ideas to scalable offerings.
Large insurance companies are looking for solutions that will impact their core business, he said, and the pressing challenge, especially for new entrants, is the characteristics that define the technology companies that these goliaths are comfortable partnering with for these solutions.
“One of those metrics is – are you financially stable?” he said. “So, you're in this wonderful chicken and egg situation. Because to be financially stable, we actually have to grow and have some quite significant revenue, then we can get raise some money, and then we can have a balance sheet that looks amazing. Which is where [INSTANDA is] are right now.”
Hardcastle noted that the difficulty that arises for new firms looking to offer something like the end-to-end digital core platform that INSTANDA offers is that people do not want to use such platforms unless they know that the company is going to be around for a while and is financially secure.
It’s almost a contradiction in terms for these firms, he said. They’re being asked to have a significant impact on core operations but are not being given the opportunity to be used in a meaningful way before they have proved the full benefit of their proposition. Therein lies the challenge, and it’s the reason that a lot of companies with brilliant ideas haven’t made it – they simply haven’t been able to build the momentum necessary to get the funding required to make themselves appear a safe bet.
“You could argue that's just a natural selection process and the way that business works,” he said. “But personally, I am of the view that there are ideas out there that have been really good and could have made a significant impact, but the industry hasn’t found a way to support them sufficiently well to get them to the place where they then would be financially secure. It’s just been left to the craft and the ability of the insurtech management teams to navigate that juxtaposition.
“We’re quite fortunate that we’re seasoned insurance veterans and so have been able to navigate that, probably better than most. But I do feel for some younger entrepreneurs who may haven’t got that industry experience and quite as many scars on their back, which means they might struggle in getting that transition from idea to scale. So, that’s one of the big systemic success factors, but in and of itself, it’s a fundamental challenge.”
Hardcastle highlighted that there is an inconsistency in expecting firms to deliver innovation while measuring their success against such traditional metrics. The industry needs to find a better way to engage and support smaller companies with great ideas, he said, for the benefit of themselves if nothing else.
“There are exceptions and companies that are quite progressive,” he said. “But at an industry level, I think it could do more and it wouldn't cost it very much. And it would be so much more beneficial for the industry to nurture and develop these great ideas. So, we’re fortunate that we’re in a great position but I’m not being parochial or myopic here, I’m looking at the broader industry issues - and I think [the insurance industry] could do more.”
