The venture capital view of insurtechs

Insurtechs continue to be a highly-funded sector and the pace will likely continue into 2022. Global insurtech funding has seen over $10 billion across 427 deals so far this year which is 48% greater than all the deals in 2020, according to a report from CB Insights.

During, “The View from Venture Capital,” at the Digital Insurance DIGIN conference, Dec. 10, three experts involved in venture capital firms discussed what they look for when funding a company and what’s ahead for the industry.

Danielle Zhang, an associate at Clocktower Technology Ventures, said her company looks at fintech in general and that includes insurtechs but specific areas of interest include embedded insurance, direct and digital distribution and companies with underwriting advantages.

“There has to be some advantage in one way or another,” Zhang said, who added that it is important that a company have a creative way to reach customers directly or organically.

Kate Sampson, managing director at Anethmis, said there are four areas of interest for her company including data, analytics, artificial intelligence and technology that enhances or augments underwriting; risk management; distribution or new products and new ways to reach customers or the underserved; and technologies that are being developed outside of insurance that could have an impact on the industry.

“We take a broad view of insurtech,” Sampson said. “We want to hear about the team and the problems you are solving, market size.”

Sampson added that the company invests in later-stage companies and that traction is important but that they have moved away from certain hard metrics.

“We have had to get away from the expectation that at 100 million gross written premiums we do a Series B round, those hard metrics aren’t there right now,” Sampson said. “We look for traction and we want to be investing in a Series B to accelerate growth, we’re a little less rigid about numbers. I want to dig into those insurance company relationships and how a company will create resilience.”

Amelia Gandara, principal at Nationwide Ventures, which is the VC arm of Nationwide, said the company looks to invest in companies that tie back to the various business units at Nationwide.

For example, HOVER, an insurtech that uses photos for 3D modeling of homes. Although originally meant for use in construction and building, the app also speeds up the claims process for insurers, Gandara said.

Additionally, the VCs discussed how they operate once they’ve funded a company.

Zhang said they take a very hands-off approach.

“We never take board seats,” she said. “Sometimes, the best step is to take a step back. We provide capital and facilitate relationships.”

Gandara said Nationwide Ventures has a similar approach in that they never take board seats but they do try to play a role in connecting a funded company through Nationwide and the insurer ecosystem.

“We collaborate often,” Gandara said. “We also offer non-investing-related help too by introducing companies to publications as we have legacy relationships. We help with little things like that.”

As for whether capital investment will continue in the insurtech sector, the three experts agreed, it will.

“In terms of deal velocity and time between rounds we think it will maintain or pick up,” Zhang said. “We don’t see capital shifting away. In terms of evaluation, that is a different story. It is positive in terms of attention. … Opportunity is out there and generally exciting for insurtech.”

Gandara suggested, however, that there is little room for failure when companies are taking on so much capital.

“We worry a lot about the M&A side because insurance companies are fairly conservative,“ Gandara said. “We’ve said no to investment opportunities because they were too expensive. ... As a founder though, get out there and get the capital that is available.”