The State of Venture Capital

Tuesday, February 6, 2024

◄ Back to News

Expert Insights on Insurtech Capital Raises in  2024

It’s no secret that insurtechs require capital investments to succeed. They have a variety of hurdles to clear in order to stay competitive, comply with regulations, expand market reach, acquire customers, and develop and enhance the technology they need to operate. 

Over the last few years, the investment climate and market conditions have significantly impacted the availability of capital and made it challenging for insurtech companies to attract funding. Here, four venture capital experts provide insights and predictions about the impact fundraising will have to steer insurtech in 2024:

  • Adam Blumencranz is a Partner at Distributed Ventures, a venture capital firm that invests in insurtech, fintech and digital health entrepreneurs.
  • Michelle Gouveia is Vice President at Sandbox Industries, a venture capital firm whose strategy is to run investment funds in highly regulated industries, including insurance and health care. 
  • Jason Gross is Vice President, Head of Platform at ManchesterStory, a venture capital firm that targets investments in fintech and health care, with a particular interest insurtech.
  • Ricky Lai is a Partner at Portage  and invests in early-stage insurtech and fintech across North America and Europe. 

Why has the environment been so tough, and what are your predictions for 2024?

Gross: Economic cycles and market conditions have had a huge impact over the last few years, and investors are more cautious and risk-averse when there is an economic downturn. There is more to it, of course, but the fact is, venture capital is inherently risky, and there is a high rate of failure for startups. What happens in 2024 hinges on a potential economic recovery and a more balanced market.

Lai: Before 2023 the cost of capital was lower in the market, so it was an easier time to get funded. It feels tough now, but there are still many companies being funded. That said, the cost of capital has risen, so investors will continue to be very selective about deploying the capital they have. 

What market trends are you closely monitoring within the insurtech industry, and how do you expect startups to address and capitalize on these changing dynamics?

Blumencranz: First and foremost, we’re interested in the mergers and acquisitions side of the industry. We need these businesses to get acquired. If the market is cold or dry, it impacts everything we do in the early stages. It’s a trend that we, as early-stage investors, are always monitoring. 

Gouveia: We closely monitor a lot of trends, but top of mind at the moment is the regulatory landscape and the laws related to data privacy and how it will impact AI. We’re also monitoring digital payment solutions, automation as part of the quote process, and data exchange in general between brokers, carriers and reinsurers. Data management is another key area, as in how companies are building up their infrastructure to better manage and access the data within their four walls.

Speaking of AI, what makes for a solid investment in an AI-focused insurtech?

Blumencranz: The AI piece is not the important piece. Does the business solve a problem? From there, is it the right team, the right time? If the technology leverages some of the recent advancements in AI, that’s fantastic. But AI isn’t going to lead the conversation. It’s just part of the conversation. 

Gross: AI has been around forever, but in the last 18 months, large language models like Chat GPT have brought a lot of attention to it and changed a lot of perspectives in the process. With AI, we’re certainly able to consume large amounts of data, but the question is, can we make good use of it? Overall, we have to be careful in our diligence process to understand what’s hype and what’s helpful.

What regulatory considerations do you consider when evaluating potential investments in the insurtech sector?

Lai: The use of data, especially for life and health insurance products, as there is increasing emphasis on consumer data rights and transparency.

Gouveia: When we’re talking to startups, we want to make sure we have a firm understanding of how they envision the competitive and regulatory landscape, and how their solution fits in. It boils down to a few key questions. For example, how will internal compliance guidelines or new regulations set up by the states play a role in the adoption of the solution the insurtech is selling? Is it going to be a longer sales cycle because the companies aren’t ready to adopt the technology, or is there an education process as part of the sale? How well do data privacy laws impact new data that can be used in insurance pricing and risk selection for carriers? 

The industry has seen increasing concerns around climate change and ESG (environment, social and governance) metrics. How are you prioritizing ESG when considering investments?

Gouveia: This is part of our due diligence process, and our company has been incorporating ESG into various levels of decision making for a long time, now it’s just more formalized. We take a look at all of the factors, like risk mitigation and sustainability, and we manage and monitor throughout the duration of our investment. We also spend a lot of time talking to entrepreneurs that are building companies to address the insurable risk side of it. So, we’re really investigating it from both angles.

Lai: We track certain ESG metrics and we factor many of those metrics into our overall investment evaluation. Portage is part of Sagard, a global multi-strategy alternative asset manager, which is a signatory of the UN PRI, meaning we are publicly committed to investing with sustainability outcomes in mind.

In the context of digital transformation, what role do you see for insurtech companies in 2024?

Blumencranz: When I think about the potential within the insurance industry, little has changed on the ground floor, especially from the consumer perspective. I think we’re looking for a back-to-basics approach. We’re looking for a more transparent, digitized, modern experience. We’re looking for easier processes and less repetition in terms of questions we ask. We’ve been talking about this for over a decade, but it hasn’t quite delivered yet. 

Gross: We cannot overstate the importance of smartphones and how they alter customer experiences across industries, including insurance. I see insurtech companies leveraging mobile technology for seamless interactions, claims processing and more.

Gouveia: Insurtechs move faster than the large incumbents. They can bring new products to the market faster given the right partners and the right strategy. We are seeing a lot of innovation with new product coverages and policy structure. So, that’s an innovation on the new product side. We’re also seeing new distribution strategies of existing or new insurance products, like embedded insurance. Incumbents seem to actively be seeking insurtech partners to help them execute digital strategies.

What should founders and investors be expecting for 2024?

Gross: As the market adjusts, I think we’ll see new deals, mergers and acquisitions. Also, I think we’ll see insurtech companies seeking additional funding to fuel growth and expand operations, raising capital to buy competition, enter new markets or develop new products. Overall, a more balanced market could benefit investors but might pose challenges for founders seeking higher funding.

Lai: Great companies, great products and teams will always get funded, even in a tough fundraising environment. Timelines will be longer than expected. If you think you need three months to raise your next round, you’ll likely need six to nine. So be mindful of that and plan accordingly when you’re looking to achieve certain metrics and milestones.

Blumencranz: 2024 is a transition period that will start off slow. As the public market opens back up and businesses transition to focus more on profitably, I think the venture market will open back up. We won’t go back to the unhealthy levels of 2021, but we should experience a bounce back that will benefit founders and investors alike.   

Tuesday, February 6, 2024