Photo by Ben Robbins on Unsplash

Lemonade, Next Insurance and Kin are well known names amongst those who follow the insurtech space. What’s maybe less well known about the success stories covered in the press is how they got to where they are today and the decisions the founders needed to grapple with about the industry, their business and themselves on the road to building their business.

To better understand the answers to those questions it was a pleasure to moderate a panel discussion with entrepreneurs from three major European insurtech companies, all members of the Portage Ventures ecosystem: Alexis Pantazis, founder and CEO of Hellas Direct, a full-stack insurer; Chris Lodde, founder and CMO of CLARK, a major digital insurance broker; and Quentin Colmant, founder and CEO of Qover, an embedded insurance platform.

For budding entrepreneurs who are contemplating building their own insurtech or those in the early stages of creating the next insurtech unicorn, the insights and learnings that follow will help you navigate the ups and downs on the road ahead.

What you need to know about the industry

Consumer trust is important to every business but in the insurance industry it is foundational. “Trust is a crucial issue in consumer insurance distribution, and that’s why we invest quite a bit of effort and money to build up a trusted brand,” says Chris. You can excel in every aspect of your business and the insurance value chain but without trust, you’re going nowhere fast.

With that said, the first big decision an entrepreneur looking at the insurance industry needs to make is to determine which model — broker, MGA, or carrier — is most appropriate to the opportunity they want to pursue. No distribution model is superior to another — each has its own strengths and challenges.

As a one-stop, full-service insurance company, the full-stack carrier has the most freedom of the three models, but it’s also highly regulated and capital intensive, and it carries risk. However, if a carrier focuses on superior distribution and having an ‘efficient factory’ to design differentiated products, “it can become a moat of sorts, allowing it to internalize some of its profit pools,” says Alexis. “You figure out how to be lean and mean and more efficient than others.”

Brokers work with both insurers and MGAs to provide insurance coverage. If you have an aspiration to move quickly with partners, the broker model is probably for you. It requires less capital and brokers can lean on their partners, which means there’s less risk. But that also means the payoff is generally more modest, if you aren’t offering a broad range of products and services to your customers.

MGAs occupy the space between an insurer and a broker, and can adjust depending on what the situation requires. Simply put, they’re specialized brokers that are vested with underwriting authority, which normally could only be done by an insurer.

Whether you’re a carrier, a broker or an MGA, the best model varies from market to market. One of the most important things to keep in mind as you make your choice is that insurance is, largely, a local game. Being aware of the complexity of operating beyond your geographical borders is the first thing a founder should know before launching a business, according to Quentin: “Be ready to operate in a strongly regulated business that has global needs but is super local. It’s tough.” Alexis adds that no single insurance company can claim global domination, not even multinationals like Allianz or AXA, whose success stems from an acquisition strategy rather than organic growth.

What you need to know for your business

While this goes without saying, it still bears repeating… you’ll want to focus on finding product market fit as quickly as possible (and don’t automate anything until you do). In CLARK’s case, despite growing the team from five employees to 350, the core of the business and the value it provides hasn’t changed much — because of work done at the outset. “We spent quite a bit of effort and time when we founded the company finding a great product market fit that we thought was scalable,” says Chris. That meant that functionalities were basic in the beginning, and automation only followed once the team was sure customers were interested in the product.

“It’s key to have a very deep domain experience in your company because everything takes twice as long and is twice as complex as you’d expect” says Chris. “In other industries, you can learn about the key drivers and then tackle them. But in insurance, either the founder should have deep domain experience or very quickly get in somebody who does.” And that should be followed closely by go-to-market expertise, he adds. “When starting up an insurtech, even if you have a revolutionary take on a product, no one will run into your digital store and grab it from your hands. Bringing the product to the consumer is a huge task.”

Once you have a better picture of where you’re heading, don’t forget to take the time to truly understand your customer and what you can do to meet their needs. “We launched insurance by the day in Greece about five years ago because we saw that the Greek consumer couldn’t pay for an annual policy,” says Alexis. “Insurance by the day became easy because Hellas Direct is technology driven and agile. Nobody else could do it in the market. It’s not that the actual product or the nature of insurance changed, it’s how we delivered it.

What you need to know as a founder

Just as you need a founder or senior team member with deep domain experience, you’ll want to find a VC who knows insurance. If your goals is to have your company sustain itself over decades, “from day one, you need to be thinking about finding the right partner and the right capital. If you’re opting for a VC, you’ll want deep expertise,” says Alexis.

As you move forward, make decisions based on the facts set out before you. Don’t bet on improvements unless you have tangible proof that forward movement could happen. If you want to make the right decisions and build a sustainable model, look to the data. “One thing I’ve realized is that a lot of our decisions are clouded by bias and noise,” says Alexis. “I want to coach the next generation to use data to make decisions in a smart way.”

Finally, be aware that your leadership style will change over time, and that’s to be expected. As your company’s needs change so to should the way you manage those needs. For Quentin, that involves delegating where you’re weak and then delegating where you’re strong. “In the beginning, you don’t hire where you have the skills to do things yourself. But when your company is bigger, the role of management becomes to inspire the rest of the team to pioneer beyond imagination.

As a VC with deep insurance expertise, we understand the challenges many new insurtech founders face and do our best to support them on their journeys. I hope the advice provided by Chris, Alexis and Quentin, helps you on yours.

We empower visionary financial entrepreneurs. Learn more about Portage Ventures at portagevc.com.