Is insurtech the best space for the brightest entrepreneurs? Interview with Insurtech Gateway

Insurtech Gateway has become the world’s leading insurtech incubator – and it’s no exaggeration to say that they’ve played a big role in putting insurtech on the map.

We were fortunate to catch up with co-founders Robert Lumley and Stephen Brittain to learn more about the journey they’ve been on, and why the insurtech space will be such a haven for innovators and entrepreneurs from a variety of sectors in years to come.

Let’s start with an easy one: why did you set up Insurtech Gateway?

Robert : I'd been looking at this whole area for a number of years as to where the insurance market would change and was lucky enough to be introduced to Steven by a mutual friend.

We realised that, from an insurance operator's point of view, every start-up goes through the same 3 challenges: trying to find operating capital; trying to find underwriting capital and trying to get regulated.

And it can take anywhere between 12 and 18 months to get through those hurdles. You've probably burned through somewhere between £200,000 and £3 million before you even get into market. And it was this meeting with Steven that enabled us to really nail down what problems needed to be fixed.

Stephen : We've just peeled those layers back and created a platform so that a non-insurance savvy person, a very clever entrepreneur who understands technology, can walk into the insurance market, get authorised, get insurance papers and launch a world changing idea. That's why we did it.

We're absolutely appealing to people who are on the periphery of tech and FinTech to see what can be achieved in insurtech.

How has it changed in the last five years? Since you've set Insurtech Gateway up, what have you seen evolve most dramatically?

Rob : The most important thing I think is the creation of data into a usable format that enables either dynamic pricing or new models.

Part of the issue that the industry needs to solve is that there's so much cost involved with processing claims or even matching the insured to the insurer. And if you can cut that cost by having dynamic pricing, there's a huge opportunity.

Did you have any strong views on why the big insurers aren't bringing out this innovation themselves?

Stephen : While I don't think that the insurance industry is short of ideas, I think there's something in the nature of early-stage start-ups that fuels ideas. These new ideas are work-intensive and require a dedicated effort and focus that large corporates just aren’t structured to deliver on.

Is this the end goal for the insurtech companies? When we look at exit strategies, is it a sale to a larger insurer – or even one of the big tech companies?

Stephen : I think it's the other way around. Somebody who's got an incredibly clever data set that can see profitability and smart pricing better than the traditional insurer – why wait for the insurer to learn? Why not just acquire the insurer cheap because their numbers are bad and radically refresh them using the power of new insurtechs.

So I think the very smart investor will see the power of what we're doing and look to use it as a lever to buy other insurance books.

It reminds me of some of the conversations around exit strategies for Monzo. Why don't they just absorb one of the old retail banks?

Stephen : Exactly. Why should we be creating products for an industry that’s 10 years behind us?

I read the Reid Hoffman book about ‘blitz-scaling’ – basically, growth at all costs, and don’t worry about profit until much later. Is that still relevant? Is that going to be possible anymore?

Rob : I mean part of that is what you deliver to the consumer. Let’s take flooding as an example.You've got a product that the consumer needs because they live in a flood zone, then actually you can sort of scale it really quickly because you're solving a problem, a big problem if it’s a $50 billion a year issue like flooding. So I think it is possible to do that.

Stephen : I'm not sure whether we ever in the UK investment community bought into that approach of just chasing customers. I don't think it really fits with the London, UK or European vibe.

What we have is a strong sense of evidence and a structured approach to these things. So the diligent approach says, absolutely go for acquisition but have a sense of the customer lifetime value. So it's absolutely fine if you know what you're going to do when you've got them, but don't just go for customers, for customers’ sake.

Our businesses know that it's a lot of wasted effort going into acquisition of customers right now. The channels are completely diverted, so your acquisition numbers are all over the place, but your understanding of lifetime value is strong.

Do you think company valuations will come back to a more manageable level now? Could a post Covid economy get the investors and the founders closer to being reasonable with each other around value of the business?

Stephen : I think we've got quite a distinct answer to your question because we are literally very often the first investor, which means that this is a complete finger in the air valuation, and we are able to greatly reduce the cost to market. Therefore, the initial sort of friends and family money we can make go a long way.

As for the wider investment community… there is very likely to be a resetting on some pretty traditional factoring like a discounted cashflow forecast.

We have founders that come to us saying I need £2 million pounds to get into market and £10 million pounds for marketing and I have to value the business at £12 million. And we'd say, well we solve most of your challenges for you, so we’d actually value the business at £2 million instead of £12 million, just to get going. And they couldn’t argue with us, because we solved most of their challenges.

What stages do you invest? Pre seed, Seed or Series A/B?

Stephen : It doesn't stop. It's one long funding process. It's a partnership that allows someone to walk in the door with a terrible business plan, but we will write them a cheque if we see potential, just to get them some time and space to work on it. And that partnerships then goes all the way to series B. The ultimate objective is to give the founder the maximum amount of equity in their business.

Do you have criteria you’re looking for, or is it an instinctive gut-feel thing? What’s the magic sauce?

Stephen : Well, it's a complex answer. But fundamentally, the three brains of Insurtech Gateway looks at the insureability, the investability and the product market fit of a given team and idea. And if we believe that we can work with them on that process, then they've got our attention.

We look at 600 businesses a year and every one that came through our incubator came in one shape and came out another. And that means that fundamentally we learned from super bright founders who have got all those wonderful qualities of early stage business leaders.

The exciting thing about Insurtech is that it isn’t just serving the insurance market. It's unlocking new markets.

We want people here who are understanding the new economies, cryptocurrency, the sharing economy and the gig economy. They're building home sharing platforms and they're building welfare platforms and all-sorts of other things.

We want them to come to us and say, can you help me finish this puzzle? And we will throw a whole team at it.

What are the top innovations in your sector?

Stephen : The entire system has been digitised. And we're not talking about how the customer fills in the forms and policies on phones. We mean actually how risk is measured.

You and I could walk from one room to another and our risk score changes. You could go on a holiday and the risk of your home changes. It becomes dynamic and living and fair. And that's fascinating intellectually and technically.

The whole thing is becoming driven by completely granular data sets that are tracking and moving and we're aligning risk with that. So that is Blade Runner stuff and the future will be unlocked by an insurer keeping up with that change because a lot of these platforms just can't happen without the insurer having a solution for that too.

So for the super geek and the quant geek and the data analytics geek, those are the opportunities that are arising in the insurance market, and new skills are flocking to the space and it's very exciting.

For example, we've got somebody who thinks they can solve massive disasters and previously, unquantifiable problems like forest fires in Australia, or small businesses flooding in the North of England. They are working out how to quantify and solve them using new digital tools, data analytics, and you can imagine all the skills that are being brought to our world to tackle this. I mean, it's incredibly complicated and fabulous at the same time.

And it's going to see the shift of billions if not trillions, of pounds in the UK and global economy – and we're just at the infancy of them.

It's very exciting actually. It does feel like it's early days for Insurtech. It's like when people started talking about investing in FinTech in 2010/2011.

Stephen : I think it’s got more to offer than FinTech. We're starting to get quite a lot of applications from people who went into fintech four years ago and then realised that insurance gave them far more scope to build their unicorn business.

Last question, what podcasts do you listen to and what books are you currently reading?

Rob : 13 Minutes to the Moon podcast. And I've got that blitzscaling book you mentioned on my shelf that I’m meaning to read.

Stephen : I’m a big fan of Malcolm Gladwell. He’s take on the reframing of history with a sense of understanding from data and insight I find it fantastic. And it's inspired a lot of the things that I'm doing now.

References

[1] InsureTech Gateway - https://insurtechgateway.com

[2] Robert Lumley - https://www.linkedin.com/in/robert-lumley/

[3] Stephen Brittain - https://www.linkedin.com/in/stephenbrittain/

[4] Reid Hoffman ‘blitz-scaling’ - https://hbr.org/2016/04/blitzscaling

[5] https://www.bcg.com/en-gb/industries/insurance/digital.aspx

[3] 13 Minutes to the Moon - https://www.bbc.co.uk/programmes/w13xttx2/episodes/downloads

[4] Malcolm Gladwell - https://www.gladwellbooks.com/

Is insurtech the best space for the brightest entrepreneurs?