Overviewing Insurtech
By Devin McNamara
Hillside Announcements
Congratulations to our VCIC Team (Alex, Brandon, Devin, Karolina, Melvin, and Zach) for placing second in the Northeast Competition!
Save the Date: Want to learn how to get an internship in VC or PE? Hillside Ventures will be hosting a panel with students who interned in these industries next Thursday, March 11, from 6:00-7:00pm. RSVP Here.
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Insurtech Overview
Why was insurtech chosen?
A few weeks ago, Melvin wrote about our investment thesis and stated that one of the industries we focus on is insurance technology, or insurtech. Before I dive into the industry itself, allow me to give you a brief overview as to why we chose to invest in insurtech. In the Spring of 2020, the first class of Hillside Ventures began to create the structure of the fund. We quickly realized that creating a thesis was arguably the most important aspect, as it would play a large role in defining fund structure. We began to look through different industries that we were not only interested in, but also through industries that would make sense for future students who would join the fund. With such high analyst turnover in comparison to a traditional VC firm, we needed to pick an industry that would remain relevant and that was well-connected to us. With UConn being only 30 minutes away from the city nicknamed the “Insurance Capital of the World,” Hartford, picking insurtech as one of Hillside’s verticals became an obvious choice. Coupled with the technological revolution happening in the insurance industry and strong alumni resources in the industry, we knew insurance would be a good fit. Aside from our geographical location and close connections to an active market, the trends of the industry, as well as the size of the market, became intriguing.
Connections to Insurtech
After speaking to many people in the venture capital space, both inside and outside of class, one thing that seems to be consistently reinforced is to always connect and create relationships with people. While this may seem like an obvious concept, networking is stressed so often due to its importance. Being able to achieve a stage where our fund can rely on inbound deals and also have industry experts in our network is invaluable. Not only is Hartford the “Insurance Capital of the World” but many UConn alumni work within the city at one of the many insurance companies. Another great connection that Hillside Ventures has is that UConn, the University of Hartford, CTNext, and the Connecticut Center for Entrepreneurship and Innovation (CCEI) have recently teamed up to work on an insurtech initiative. Between a university course, a fellowship program, and first-hand experience, being able to work with students and faculty involved in this program will give Hillside Ventures even more exposure to this space. Aside from both of these connections based on our geographical location, members of our fund have actively been seeking out connections within different startups, companies, and venture capital firms within the insurtech industry.
General Overview
Hillside Ventures defines insurtech startups as “companies within the insurance sector, who take advantage of new technologies to improve industry efficiency and increase an insurer's customer value proposition. The traditional insurance functions that insurtech startups serve can be broken down into the following domains: distribution, pricing and underwriting, billing, claims, and several additional areas along the value chain. An insurtech may also serve as an agent or broker for an incumbent insurer, or provide full-stack insurance services in a direct-to-consumer approach. Any of the above functions may, then, serve within traditional markets such as P&C or health, or within newer markets such as pet or coverage for the gig economy.” While insurtech is not necessarily new, the industry has been exponentially growing. McKinsey reported that in 2011 an annual average of $140M was invested into insurtech companies and by 2015 that number rose to $2.7B. Accenture also released in their Technology Vision for Insurance that 86% of insurers believe that they must innovate at an increasingly rapid pace simply to retain a competitive advantage. 87% of the same respondents believe that this technology is advancing at an exponential rate rather than a linear fashion. Both investors and insurers alike are realizing the importance that insurtech is playing in innovating an industry that is greatly in need of a change.
The future market size of insurtech is also quite intriguing. Our insurtech team at Hillside Ventures was able to calculate the 2020 insurtech valuation at $5.8B, more than double of 2015. Taking a step back and looking at the total global IT spending of insurance companies, we were able to calculate that roughly $202.1B was spent in 2018 and projected that number should grow to nearly $294.3B by 2023. In just North America, insurance IT spending was $82.6B in 2018 and projected to exceed $133.5B by 2023. One of the main factors pushing this exponential growth is the expansion of the sectors that innovation is occurring in, as well as the types of technology being used. For instance, some insurers have been using the same hardwired systems for over 50 years. In this scenario, insurtechs can improve backend operations without necessarily having to uproot that company’s core system that an abundance of capital was invested in. These new and upcoming startups are also expanding into areas of insurance outside of the typical sectors, such as P&C and health, by moving into new sectors such as pet insurance while using technologies such as blockchain, IoT, and AI.
To conclude…
Insurtech is an industry that we are continuously learning about and gaining valuable knowledge from, to not only better ourselves, but the fund as well. We are constantly looking to connect with anyone within the insurtech industry, whether it be investors, UConn alumni, or experts to continue our learning. Feel free to email me at devin.mcnamara@uconn.edu or connect with me on LinkedIn.
By Devin McNamara, Analyst at Hillside Ventures
UConntrepreneurship Highlights
Amy Errett (CLAS ‘80) is the CEO and Founder of Madison Reed, a D2C women’s beauty company, which just raised $50 million
Are we missing any exciting #UConntrepreneurship activity? Comment below or email karolina.tarnacki@uconn.edu or noah.sobel-pressman@uconn.edu to be featured in the next newsletter.