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INNOVATION| 05.04.2022

Insurtechs in Latin America are beginning to move mountains

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Brazil, Mexico, Argentina, and Chile top the list of countries with the greatest number of insurtech companies. Venture capital investment and partnerships with insurance companies are the hallmarks of the ecosystem in Latin America.

More than 350 technology-based companies operate in LATAM. Between new business models, digital distribution, and enablers, this sector is carving out a niche in the insurance industry with a highly collaborative spirit. 

Something is changing in Latin America. Having been hit hard by the pandemic, the signs of social resilience and digital development and innovation have been underscored by different experts as virtues for the survival and progress of the more than 600 million inhabitants in the region. 

In fact, agriculture and financial services—two historical pillars of the LATAM economy—are undergoing a true technological metamorphosis linked to changes in regulation and consumption patterns, according to the Latin America Digital Transformation Report 2021 published by Atlantico, an organization operating under Canary, one of the most important seed capital funds in the region. Elsewhere, as indicated in the latest report from LAVCA (Association for Private Capital Investment in Latin America), 40 percent of the venture capital invested in 2020 went to companies and startups linked to financial services that employ innovation and technological solutions. In 2021, investments in startups have skyrocketed, while technology companies were able to attract more than $15 billion. 

With close to 300 million Internet users, Mexico, Brazil and Colombia are leading the region with the best functioning digital ecosystems. The first two account for more than half of the region’s population and almost 50 percent of Latin America’s GDP, where unicorns (start-ups that have reached a value of $1 billion) doubled in both number and total value.

Insurtech, the next frontier

“The recent boom in technology and startups has been driven by an unprecedented level of investment […] Insurance is the next frontier, driven by deregulation and consumers’ expectations,” say Atlantico’s experts. The increased investment in the insurtech sector has been repeated worldwide: investment reached $2.55 billion in the first quarter of 2021, 180 percent more than in the same period of the previous year, according to figures from a report by Willis Towers Watson. This British-American multinational risk management company has identified Brazil as one of the countries with the most early-stage insurtech ventures.

Against this backdrop, the strong emergence of the insurtech concept is undeniable. The use and application of technology by both long-established and emerging companies is disrupting paradigms in the insurance industry. Not long ago, a survey by Capgemini and Efma highlighted that 50 percent of customers would be willing to sign a policy with an insurtech or major technology company.

According to the study LATAM Insurtech Journey, 352 insurtechs currently operate in Latin American, the majority of which have their headquarters in Brazil (129), Mexico (82), Argentina (71), and Chile (41). The consulting firm behind the report, Digital Insurance Latam, which specializes in innovation and transformation, assures that this insurance ecosystem “is growing by 25 percent annually.” Between 2019 and 2020, the total amount of investment increased by 77 percent; as of June 2021, investment exceeded $125 million.

Collaboration with major insurance companies

The insurtech venture profile in Latin America, as recognized by this consulting firm, is divided into three approaches: 12 percent create new business, 42 percent are engaged in digital distribution of insurance, and 46 percent are enablers collaborating with other insurance companies or brokers. It is important to define the insurance culture in this regard. Martín Ferrari, co-founder and CEO of 123Seguros, explained it recently: “As people are focused on expenses, promoting a culture of prevention and insurance becomes a marathon where the distribution strategy is key to achieving inclusion and causing the least impact on the insured party’s finances […] That’s why, in order to bring insurance policies and customers together and cover the protection gap, insurtechs need to be able to enter the platforms and applications that users already have integrated into their daily lives. 

This commitment to technological inclusion, rather than disruption, is making progress alongside the digitization of processes and improved user experience. This is where collaboration between start-ups and established insurers comes into play. 

There are examples that show the virtues of this collaborative approach. Mid-January saw the Mexican insurtech Kinsu raise $700,000 in a pre-seed round led by Mundi Ventures to develop a mobile insurance contracting and management platform for a new generation of insurance vendors. While the majority of Mexicans are not insured, insurance products already exist for different segments of the population, and there is sufficient purchasing power. Seventy percent of automobiles are uninsured, yet this represents the most popular insurance product. These numbers are surprisingly high due to cultural issues related to prevention and trust,” explained Agostina Luzzi, co-founder of the startup which is being validated by Qualitas and MAPFRE. 

Another example of the power of partnerships is the recent initiative launched by Chilean insurtech Betterfly and insurer Chubb, a publicly traded company with presence in 54 countries. Founded just over four years ago, the young Chilean company offers a digital platform of benefits to collaborating companies and rewards its policyholders with improved coverage at no cost depending on their levels of healthy activity. The idea is to generate a win-win situation for both: the startup will be able to increase its portfolio, aiming to insure 100 million people by 2025, and the multinational will seek to offer its product portfolio to the right person at the right time with the help of technological capabilities and the Betterfly user experience design. 

The report Digital Insurance Latam specified the reality of the insurtech sector in each country. The ecosystem “is highly collaborative” in Argentina, where more than half of these companies are dedicated to providing services to insurers. Something similar is happening in Colombia, where the growth of services to insurance companies and brokers has increased from 17 percent to 42 percent. In Brazil and Mexico, insurtechs are more focused on opening new business models that compete directly with traditional insurers.

Entrepreneurial model

Among these new business models, 37 percent are neo-insurers that propose innovative solutions in a regulated framework, while 17 percent are developing embedded insurance formulas—integrated and personalized insurance policies that provide flexibility and cost reduction in marketing and are usually incorporated into the electronic purchase process. We are talking about coverages and protections that are included with a product, from a concert ticket to a trip. Then there are the 15 percent of insurtechs that are opting for the wallet model, a trend where insurtechs become the brokers. 

In May 2021, the Brazilian startup 180° Seguros, having launched just one year before, raised 8 million dollars in one of the largest seed funding rounds held by an insurtech in South America. Its strategy focuses on technology and partnership. In collaboration with 17 insurance companies, it not only develops programming codes that integrate systems from different companies to connect its customers with them, but it also provides its partners with a solution to sell personalized insurance and assistance products. They explain it in their launch manifesto in three words: “Nothing builds itself.” 

In December of the same year Miituo, a hallmark of Mexican entrepreneurship in insurtech, raised $10 million in two separate funding rounds to consolidate its power in the insurtech ecosystem of the American giant. Its secret is the model: pay-per-kilometer automobile insurance where the payment is 100 percent variable, with no minimum premium and no need to install any device in the insured party’s car or smartphone. Created five years ago, it has a portfolio of over 40,000 policies. 

According to the study Insurtech Landscape in Mexico, published by the multinational promoter of high-impact entrepreneurship, Endeavor, most startups that use technology to add value to the insurance industry’s production chain are focused on car insurance, followed by medical expenses and health maintenance and accident prevention. The average age of insurtech customers in Mexico is 31 years old.

Fitting the pieces

For the experts behind the study, this sector consists of “an intricate network of players: the insurtechs themselves, insurers and reinsurers, venture capital funds, regulators, and support organizations. When these pieces fit together, the sector will be able to develop and achieve the growth seen in fintech.” The profile of the founder of a start-up company in the insurance sector is curious: a 34-year-old male who began his entrepreneurial career four years earlier, has had an average of two previous jobs, mostly non-STEM (Science, Technology, Engineering, and Mathematics) students, and previous experience in an insurance company.

At the Insurtech Latam Forum 2021, the third edition of an event that brings innovation and insurance under one roof, the CEO of Leverbox, an Argentine insurtech that digitizes processes with a focus on claims, put forward an idea that many entrepreneurs in the sector agree on: “Today, a policyholder buys a policy in two clicks, and when a claim arises she also wants to settle it in two clicks. If we sell a policy digitally, but the claim is processed in the traditional fashion, the experience is going to be negative.”

Although the insurtech sector only accounts for 2 percent of the global insurance market, its expansion is causing significant movements. According to a recent study by market research firm Valuates Reports, the global insurtech market will reach $12 billion in less than five years. Its pace of growth is 34.4 percent.

 

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