Venture capital trends in insurtech


Insurtech Guest Column VC

By Bill Rossi, CEO, Metabiota

With the growth of insurtech, a new breed of specialized insurers are addressing the industry’s next frontier: protection against cyber crime, terrorism and epidemics. These catastrophic events can have a significant impact on the global economy beyond even what we see from localized disasters, such as Hurricane Harvey, which wreaked havoc on major areas of Texas and the Gulf Coast. Enterprise risk managers are taking note of these emerging threats as a result.

With capital, technology and marketing prowess, insurtech startups are becoming specialized insurers to serve this growing need, and they’re doing it through a well-known insurance industry structure known as the MGA (Managing General Agent). This model enables insurtech companies to serve the end customer directly with an insurance product while transferring the risk to an insurer/reinsurer with a large balance sheet. It has quickly become the go-to model for bringing new insurance innovations to market.

The original $1 bln insurtech exit

Perhaps the poster child of successful insurtech companies is Climate Corporation, purchased in 2013 by Monsanto for $1.1 billion. It started life as a weather analytics company (initially for the ski industry), but quickly pivoted to provide crop insurance to the agriculture industry combining its weather-based models with data gathered from inexpensive soil implanted sensors to help underwrite the risk.

The company was backed by OneBeacon Insurance Group as well as several notable VCs, including GV and Khosla Ventures.

With such a great exit, many companies have been funded in their footsteps.

A surge of new insurtech companies

The success of Climate Corp, availability of advanced computing technologies such as AI and machine learning, cheap sensor hardware and a wave of new capital looking for better returns, has supercharged the insurtech industry and MGA model. We’re now seeing many new technology companies backed by VCs becoming MGAs and serving the needs of various industries.

In cyber insurance, there’s Cyence, in terrorism insurance there’s Fiducia, and in epidemic insurance, there’s Metabiota. And there are many more examples.

Where is it going?

A large number of traditional insurance companies, such as Munich Re, Swiss Re and Lloyds, have become very active in the technology value chain, not only helping to fund startups, but also giving them access to their customer base. With joint marketing and sales and collaborative underwriting, these startups are helping mainline insurers develop new markets to put their immense balance sheets to work.

The insurance industry is actively looking for new opportunities as their core business wilts under increasing competition and price pressure.

Solving a big problem

Cyber security threats are among one of the top concerns cited by enterprise risk managers, and the insurance industry has responded to this need as organizations have scrambled to protect their information assets and brand.

Just as cyber insurance products have seen take-up by corporations, another emerging area where insurance is starting to play a role is in epidemics. Pandemic and epidemic risks appear in the headlines every day. Whether it’s Zika, SARS, MERS or measles, the damages due to pandemics and epidemics are higher in both casualties and total cost than those due to natural catastrophes.

Zika could end up costing Latin America and the Caribbean up to $18 billion, according to a report from the United Nations.

Companies like Metabiota provide advanced data catalogs and models via its unique analytics platform that assists in the underwriting of epidemic risk. Many organizations and governments recognize that infectious disease is the next frontier, and there’s little we understand about the actual threat.

With greater population density, increased urbanization, climate change and extensive global transportation networks, the impact associated with the spread of infectious disease has never been greater. While governments are taking action to prevent infection disease spread, insurance can play a large role here as well in funding an immediate response plan as exemplified by the World Bank’s Pandemic Emergency Fund.

Summary

Insurance has long been the domain of large international companies with massive balance sheets focused on a few core catastrophic risks such as earthquakes, floods and hurricanes. But the industry is seeing more and more emerging non-physical threats like cyber crime, terrorism and epidemics that can impact the global economy. The enterprise risk manager is facing greater urgency in managing these risks than ever before.

Insurtech companies with new technologies like big data, machine learning and AI, are now turning to the MGA model to chart a direct path to the end customer, and traditional insurance companies are looking to partner with these promising young companies.

This has created a tremendous opportunity for entrepreneurs, venture capitalists and corporate development professionals with expertise and capital to bring to this next frontier and a desire to address some of the world’s largest emerging risks.

Guest Column Insurtech VC
Bill Rossi, CEO, Metabiota. Photo courtesy of the company

Bill Rossi is the CEO of Metabiota, a provider of epidemic risk modeling. He is formerly an advisor and COO of Khosla backed energy software company Bidgely, and CMO of solar microelectronics company, Enphase Engergy, that went public in 2012. he can be reached at [email protected].

Photo of insurance concept on a compass courtesy of olm26250/iStock/Getty Images

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