Is it finally European insurtech’s moment in the sun?

Insurtech is hardly the most glamorous frontier for financial services. And in recent years, more VC funding has gone to shiny neobanks and payments companies than Allianz disruptors.

This graph gives you an idea of ​​how insurtech investment has compared to fintech investment in recent years, with insurtech taking home $2.2 billion in 2022 versus more than $20 billion for the rest of the sector.

But thanks to the darkening economic climate, this may be about to change. Investors say they’re drawn to startups that help other businesses and consumers fend off risk in downturns, and there are still a number of insurance challenges that insurers have yet to solve.

And despite a broader decline in funding, European insurtech had its second-best funding year ever in 2022, raising $2.2 billion from investors, according to Dealroom data.

So who has funded what in European insurtech so far? What are investors looking for? And what are the key challenges that the next generation of insurtechs will have to overcome?

Insurance 2.0, or what ‘insurtech 1.0’ got wrong

In 2022, public insurers such as Nasdaq-listed Lemonade were among the largest valuation of loss as tech stocks fell. But investors tell Sifted that this first generation of American insurtechs offers valuable lessons for Europe’s new startups.

“There’s a fiendishly complex need to understand unit economics at a much much more molecular level than you have in any other business – but newer players, or ‘Insurance 2.0’ as I like to call it, are starting to show signs that they can get this right, says Nigel Morris, managing partner at QED Investors.

The first generation of insurtechs focused on distribution – providing consumers with better customer service at the point of sale. But their business models relied on high customer numbers – which meant they often had high ratios of losses to premiums earned, says Malcolm Ferguson, partner at Octopus Ventures.

This time, however, Europe’s insurtech investors are taking a more discerning view, looking beyond the UX experience to focus on evidence that startups can use their technology to make better risk calculations and underwrite well, rather than just scale quickly.

One investor points to US pet insurance provider Trupanion as an example of an insurtech that has shown it can draw well, and suggests that European competitor ManyPets is heading in the same direction.

But underwriting well while achieving the scale required for strong revenues has been an insurmountable puzzle for insurtech so far.

“Incumbents have a huge data advantage, so even if they don’t use the most sophisticated technology, they have the capacity to understand risk deeply,” Ruth Foxe Bladerpartner in Anthemis, says.

“Because they are established brands with established distribution channels, customer acquisition costs are also lower.”

Investors tell Sifted they are particularly interested in embedded insurance products (where insurance can be offered as a plug-in for another brand at the point of sale); full-stack insurtech (where a startup has its own license from a regulator, so is less dependent on capacity providers); and insurance companies that focus on climate change and climate technology products – especially those that offer carbon purchase protection against the underdelivery of carbon removal credits.

“But the big caveat is that inflation, and significantly higher-than-expected levels, can upset insurance results,” warns Ferguson. “So we will have to wait and see how the sector navigates these tailwinds in 2023.”

European insurtechs to watch

After Insurtech’s nine-strong herd of European unicorns, there are a handful of soon-to-be unicorns within the sector spread across the continent.

Closest to reaching the $1 billion valuation threshold is Britain’s YuLife, which reached an $800 million valuation when it raised $120 million in Series C equity last July. It offers a gamified life insurance app through employers and wants to move into offering more wellness products through its app. It is backed by notable investors including Creandum, LocalGlobe, Target Global, Latitude, Anthemis, Notion and Eurazeo, all of which were involved in its latest round of funding – which it wants to use to expand into the US and South Africa this year.

A handful of German insurtechs sit in the $300-500 million valuation mark, including auto insurance startup Friday, digital health insurance startup Ottonava and Getsafe, which offers a range of different insurance coverages through an app.

Where can we expect to see a big insurtech surge soon? Sifted recently put the question to German unicorn Zego, which last raised venture money nearly two years ago at its $150 million Series C in March 2021. After it laid off 17% of its employees in July 2022, the company said us in December that the current runway extends well into 2024. But it has apparently completed some internal raises since Series C, so watch this space for announcements.

The UK, Germany and France dominate insurtech funding – but there is an intriguing fourth runner-up when it comes to recent funding amounts in the sector: Italy.

The country has an insurtech soonicorn, Prima, an insurance intermediary that sells car insurance online. It has built its own technology stack and data analytics tools so it can underwrite consumer auto insurance digitally. It has grown rapidly, but its last venture pledge came in 2018 when it raised €100 million from Goldman Sachs and Blackstone. So another hike could soon be on the cards.

In 2022, there were 11 seed rounds raised by new Italian insurtechs on the block, and some of them target some exciting market niches. Rome’s Walllife raised a €12m Series A in July 2022 – five months after the February seed. It provides consumers with insurance against the risks to our increasingly digital lives that have so far been left out of older policies – such as biohacking and digital identity theft. Their latest policy protects people’s sensitive information by protecting biometric data accessed through smartphones.

There’s also Wopta Assicurazioni, which was founded in Milan last year and tailors its multi-package insurance app to Italy’s artisan community, as well as SMEs and freelancers.

An overview of European insurtech: the champions and major investors

So far, Europe has nine insurtech unicorns. The top of the league is Berlin’s wefox to a value of 4.5 billion dollars. Founded in 2015, it sells insurance to consumers through third-party brokers, rather than directly to the consumer — a model the founder has credited for its rapid growth.

The second in line is 3 billion dollars Paris-based Alan, which offers workplace health insurance — a legal employer obligation in France; closely followed by the UK’s $2.4 billion ManyPets, which offers pet insurance to around 500,000 pets in Europe and the US.

Two of the most active sector investors in Europe in 2022 were specialist insurance funds – London’s Insurtech Gateway, which invested in five rounds including Bondaval’s Series A, and Mundi Ventures, which invested in five rounds including wefox and Descartes Underwriting.

Many of the most active insurtech investors in Europe are also among the top fintech investors in the region – including LocalGlobe, Plug and Play, Anthemis and Global Founders Capital.

Funding by geography

The UK, France and Germany still dominate the insurance technology scene in Europe, attracting more than 90% of funding by 2022, according to Dealroom data.

In 2022, France overtook the UK as the geography attracting the most insurtech funding by amount raised, at $737 million, ahead of the UK’s $629 million.

Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — You can register here.