Cementing London as an InsurTech hub
March 2, 2017 George Hanks
Last month Oxbow Partners attended the All Party Parliamentary Group – Insurance and Financial Services (APPG-IFS) discussion at the House of Commons. The Group was consulting on how the UK can position itself as an InsurTech hub long term. Craig Polley and Robin Merttens of LimeStreet Digital Partners put forward the case for Project RiskForge, an initiative to create an InsurTech ecosystem in London to cement the City’s position as a hub for insurance innovation and made some suggestions about how the government could help achieve this.
In this blog post, we summarise RiskForge’s proposals to Parliament. We have also asked some startups about the challenges they face and how the proposals would help them, and have provided our own perspectives.
Why RiskForge believe that InsurTech requires government support
1. The UK is not a leading investor in InsurTech: Despite being an insurance hub, the UK is not currently a leading InsurTech investment hub. According to RiskForge, 60% of the $1.7bn that was invested in InsurTech in 2016 came from the US, compared with just 5% from the UK. By contrast, the US’ share of global GWP is only four times larger than that of the UK. There is minimal investment in InsurTech by UK insurance companies and no discernible subsidies or aid from the public sector.
2. Brexit risks draining talent from UK: In light of Britain’s decision to leave the EU, talent could leave the UK in favour of other European hubs. This risk is heightened by the fact that over half of InsurTech entrepreneurs currently based in London are not British – they could easily be tempted abroad by ambitious foreign accelerators and/or government incentives.
3. InsurTech remains in Fintech’s shadow: The London insurance market has not embraced and championed InsurTech in the way that banks and other financial institutions have supported FinTech. RiskForge would like to encourage the industry and government to support InsurTech more actively.
Where RiskForge believes the government can help InsurTech
During the APPG, the RiskForge team recommended the government support InsurTech in three ways.
1. Creation of a centralised workspace: Operating costs and access to a network are two of the biggest factors for startups choosing a base location. RiskForge requested government investment to renovate vacant premises and open up low cost workspaces. RiskForge referenced the highly successful ‘Impact Hubs’ that receive support from various London Councils. Creation of a devoted Insurance Hub in EC3 would offer InsurTech startups an ideal platform from which to innovate and a community of likeminded individuals with whom to share ideas and network.
2. Financial support – greater incentives and tax breaks to fund B2B runways: RiskForge argued that InsurTech startups require higher levels of funding to non-financial startups due to the long corporate sales cycles or compliance processes. As such, it would be helpful to have specific incentives or tax breaks available to InsurTech startups trying to establish themselves in London. This would both encourage investment and give startups a higher chance of success. As it happens, the Chancellor announced a “Patient Capital Review” that addresses this point in his Spring Budget (see 3.13 in the Budget document).
3. Aid the attraction of young talent in InsurTech: RiskForge observed that Brexit will deter some of the many non-British entrepreneurs from setting up or remaining in the UK and that the talent pipeline needs to be replaced. This starts with technical education and having a ‘glowing beakon’ that attracts the best talent into the industry. They suggested that the government should provide financial support to set up an InsurTech focused Community Interest Company as part of this. The aim would be to attract young, innovative people from an array of backgrounds to the insurance and InsurTech industry.
What startups think
We spoke to some startups about these proposals and here are their views:
1. Creation of a centralised workspace: Stephanie Steel, from Paris based Shift Technology, suggested that the creation of such a Hub would be an enticing prospect for any InsurTech startup and ‘excellent for the London Market’. ‘Extremely expensive’ rents form a significant proportion of startups operating costs and lowering these would facilitate any company attempting to break into the market.
2. Financial support – incentive scheme and business rate cuts: Both David Stubbs (CEO and co-founder, RightIndem) and Sabine VanderLinden (MD, Startupbootcamp Insurance) did not see an issue with the current incentives, although financial support is always welcomed. The main issue seemed to be the length of time approval that relief can take. They suggested that speeding up the process would be a cost-efficient way of encouraging investment in innovative InsurTech startups.
3. Aid the attraction of young talent in InsurTech: None of our interviewees lamented the lack of talent in the UK. However, Paris-based Stephanie mentioned the exceptional French engineering schools that provide Shift Technology with ‘very high quality developers and data scientists.’ This raises a question as to where the problem lies; is it in encouraging youth involvement in digital and innovation or providing better quality higher education resources?
The Oxbow Partners View
All of RiskForge’s suggestions are clearly valuable to the UK’s InsurTech scene. Any initiative that cuts costs, increases investment and improves access to talent should be welcomed. Based on our own research, we would highlight a few additional practical issues to drive the development of a vibrant InsurTech ecosystem in London.
In particular, our research with InsurTech startups suggested that access to underwriting capacity, delivered through an accessible digital interface, was the single greatest challenge for most startups in any geography.
Encouraging, supporting or indeed strong-arming the industry into making their capacity available to startups would be a real game-changer for the UK as a hub for InsurTech.
A no-less severe challenge for InsurTech startups is the sales cycle. Whilst some B2B InsurTech startups have been successful getting pilots with insurers, many still struggle to move to full implementation. The barriers tend to be culture and legacy systems, which simply do not lend themselves to the integration of fancy new software. We believe that further tax breaks for technology investment by incumbent insurers could, in fact, be one of the most effective and sustainable stimulants of the startup environment long term.
The FCA has received considerable praise for its Sandbox initiative. Nonetheless, regulation remains an opaque area for most entrepreneurs – and turns many away from regulated industries such as insurance. We believe that the regulator should be encouraged to continue its journey to becoming a more transparent partner in innovation. We are happy to hear that RiskForge are speaking to the FCA and #ProjectInnovate in late March.
Finally, Brexit raises some obvious challenges for talent. Entrepreneurs – British and foreign – choose London because of its ability to attract talent. It will be imperative for the sector that the government does not restrict access to talent in the post-Brexit world.