XL Innovate's Martha Notaras on Major Trends in the Growing Insurtech Startup Scene

By Martha Notaras, Partner, XL Innovate

Martha Notaras, Partner, XL Innovate

What are some trends in technology that have affected the insurance landscape?

Legacy systems are a challenge to replace in any industry, but in a space as complex and as regulated as insurance it can be especially difficult. However, unlike other industries, incumbent insurers are eager to work with upstart ventures that are looking to create greater efficiencies. We’re seeing insurance-focused technology startups developing new business models, creating novel forms of data, and using digitization to their advantage.

Lemonade, for example, is a full-stack insurer that has built their own policy administration and core systems from the ground up. They’re a great example of testing new business models, building their product with mobile in mind, and baking AI into the claims process. All of this creates a much better experience for the end user.

Cape Analytics, on the other hand, is an example of offering new forms of data using AI and machine learning. Cape uses aerial imagery and computer vision to extract property data that would otherwise necessitate an in-person inspector. This saves underwriters time and money, while allowing them to offer faster, more accurate quotes to their customers.

"Unlike other industries, incumbent insurers are eager to work with upstart ventures that are looking to create greater efficiencies"

This is where startups are most useful to incumbent insurers: they can lean into innovation and illustrate the art of the possible.

What are some ideal traits a ventureinvestor like XL Innovate looks for in Insurtech startups?

Every investor is going to have a different perspective and changing theses as the Insurtech industry develops. As venture capital investors, we look for compelling value propositions and teams that have relevant entrepreneurial experience. It also helps if the team has deep knowledge about insurance and some kind of tech expertise that helps them build a better product. Beyond all that, we like to see teams that have the vision to scale a business to the point where a venture investment makes sense in terms of potential returns.

What are some of the common challenges facing InsurTechstartups?

We’ve seen challenges pop up across two disparate kinds of startups we invest in.

The first type leans towards data analytics, such as Cape Analytics, GeoQuant, Pillar Technologies, and Notion. For these companies to be successful they need be able to quickly demonstrate value and to be aware that getting commitments from large insurers can take time. It’s not an overnight process. This is especially important for startups to understand when there is a constant need to ensure that you are hitting milestones in a timely fashion.

The second category of startups are those that are exploring new business models, like Lemonade, Embroker, New Energy Risk, Slice, and Stonestep. For these companies, it’s important to understand and address the regulatory environment, like the need to obtain a license in order to accept commissions. Thankfully, we’re seeing regulators taking the time to understand the underlying promise of Insurtech startups and they are working with the industry to see how these new companies and models can fit within the existing regulatory structure.

Any final bits of wisdom for Insurtech founders?

The most critical aspect of building an insurance technology company is to have a gripping value proposition: give insurers a compelling reason to adopt your product. You can help insurers work faster, work more efficiently, and/or minimize cost. It can also be helpful to identify products that have been widely adopted within the industry but could be done in a better way by leveraging more recent technologies.

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