Reinsurers still keen to invest in “good” insurtechs despite chill winds: HSCM’s Jones

Despite the death spiral valuations and emergency cost-slashing measures which have become all too common in the insurtech sector of late, large reinsurers are still committed to the sector, according to HSCM Ventures partner Adrian Jones.

This means innovation and MGA start-ups will still be capable of attracting venture capital and capacity support from reinsurers, Jones said, even if the funding environment is “not as good as it was a few years” ago.

As the head of strategic partnerships at Scor and in his earlier role as head of corporate strategy at RenaissanceRe, Jones was at the vanguard of the sector shift five to seven years ago which saw reinsurers (and insurers) establish units to sponsor and collaborate with insurtech initiatives at a time of buoyant valuations, a roaring SPAC market and cheap debt.

But those sunny days are a distant memory and the wider fintech sector is now buffeted by a series of icy economic winds which, as of last week, include the collapse of Silicon Valley Bank.

Nonetheless, Jones believes this downturn will not see (re)insurers walk away from the insurtech space altogether.

“Every large reinsurance company has some sort of venture investment programme … They don't want to step away from understanding the technological changes that are being implemented, so they’re staying closer than people think.”

Overall, insurtechs are estimated to have raised as much as $50bn over the last five to seven years. But new investment has reduced recently.

But Jones said this may also indicate a more discriminating approach by investors.

It is “a positive sign that capital markets, insurers, reinsurers are increasingly able to distinguish between companies that know what they're doing” and those that don’t, he explained.

Jones is now leading ILS fund manager HSCM’s insurtech arm, HSCM Ventures. The unit has made a series of investments over the past year across a range of insurtechs.

These include leading on several funding rounds, including a $15n Series A raise for life insurtech platform Inclined, as well as a $10mn Series A round for Layr and a $25mn Series B round for Parsyl.

HSCM Ventures also recently participated in Branch’s $47mn Series C round and Ascend’s $30mn Series A raise.

Exacting approach

Jones believes the more exacting approach now being taken by investors in general is an accelerant to the bonfire of layoffs in the fintech sector as firms strive to reduce costs and reach profitability.

Indeed, last month workers’ comp insurtech Foresight unveiled its second round of layoffs. In total, it means the firm will have cut more than 50 staff in less than six months.

But Jones finishes on a more upbeat note, noting that (re)insurers are always under pressure to improve processes, margins and distribution efficiencies and will therefore always want to back innovation and tech projects.

“Insurance is a game of inches, but you have to be better at everything. That produces compounding machines that ultimately turn into great insurance companies. Hence, we're still seeing strong demand for tech-enabled services and software solutions.”

Jones said the onset of hard market conditions has raised questions around the future for young existing companies.

“How are they going to be impacted by reinsurers, who are increasingly stretched for capital, and looking to allocate that most effectively?

“And who's going to win between a young company that perhaps has really good data, and is only starting to show the power of that data, versus an incumbent who perhaps has not invested in their tech the way they need to, but has been around for a long time. And I think those are some of the considerations people are making right now.”

The Insurer TV talks to HSCM Ventures partner Adrian Jones.

Watch the 8-minute long interview for his thoughts on:

  • How AI is having its “Google moment” in insurance
  • How start-ups have been impacted by the hard market conditions
  • Outlook for the insurtech sector in 2023