Insurtech in Europe finds its groove
Nikolaus Sühr, CEO of German insurtech KASKO, talks about how the sector has changed for the better in Europe. By Paul Ust
The new camera you just bought comes with its own insurance policy for theft and damage. That’s one trend in the $6 trillion global insurance industry, which is gravitating to service-led models for value-adds like risk analysis and prevention.
In Europe, insurtech investment is growing faster than anywhere else in the world. European investment startups have a combined enterprise value of €23B, up 5x from €4B five years ago.
Nikolaus Sühr, CEO of German insurtech KASKO, grew up in the insurance business with his dad, who helped insure classic cars. Not finding a passion for vintage Porsches, he chose to start KASKO, a German insurtech that helps European insurance companies digitize their offerings.
Nikolaus talks about how the sector has changed for the better in Europe.
Archie: How did you get started working in insurance?
Nikolaus: My dad ran an insurance intermediary business for classic car insurance in Hamburg, Germany, and I planned to take over the family business someday. I chose to study insurance management in university. Turns out, I had no passion for classic cars, so instead I got involved in strategy consulting for banks and insurance companies. I was fascinated to see how many startups were doing interesting projects around digital transformation. It helped me realize that I needed to start my own company—not take over the family business.
Nikolaus Sühr, Co-Founder and CEO of KASKO
Archie: You created KASKO, which is an insurtech as a service. What problem are you helping to solve?
Nikolaus: Our clients are traditional insurance companies. The conversations we have with them revolve around new growth, new products and requirements of distribution partners. We’re helping them cost-effectively launch smaller to medium-sized products, which can grow into something larger. We build trust with our clients by understanding the market. For insurers, it’s not purely a tech problem; it’s the challenge of understanding the intersection of product, distribution and process. That is where the technology comes in. We have transformed distribution and are trying to fix the infrastructure one product line, or one distribution partner, at a time. At the end of the day, we work with any insurance company that would like to design or digitalize an existing product and has about $30K to $50K to invest.
Archie: Where are you in your company’s growth?
Nikolaus: We are a startup that still faces an uphill battle, as there are still so many milestones to achieve. But at the time we started, if you told me we would have 30 companies as customers, 30 investors, 30 staff…Today I would say we are a scaled-up company, an SME player in the insurance sector. We haven’t found the single silver bullet yet, and we still need to find new ideas. We do have cash run rates to work against. So all of the things that you have in a cushy corporation might not be that imminent here.
Archie: What makes the insurance business in Europe different from the US?
Nikolaus: Europe is more fragmented. You might have one license for the European market, unlike the U.S., where they require state-by-state licenses. But Europe has very fragmented distribution access. Even if the regulation is the same across Europe, countries have different interpretations of the regulation or ways of doing business. Generally it’s really tough to take a business template for insurance and expand it through Europe. Whereas in the U.S. market, you don’t have to completely reinvent the wheel on the ‘go-to-market’ strategy and product development side. You just have to manage the state-regulatory aspect. For example, in the UK, you could say that 70% of the business goes through online price comparison sites, while in Switzerland, barely any does. In France, you have bank insurance that works really well, but in Germany it doesn’t. Conversely, we don’t have to admit rates in the same way in Europe. That means you can do dynamic pricing, and more product innovation is feasible. You can mess with prices and try different algorithms much more easily.
Archie: What’s next for the insurtech sector?
Nikolaus: Embedded insurance is all the rage. Embedded insurance is transforming the insurance distribution model, providing insurers and their customers with a seemingly limitless number of unique and niche value propositions offered in real-time or at point of sale. Switch product strategies— creating tariffs that enable insurance companies and distribution partners to acquire the relationships, but not the existing contracts—are more common. Insurtechs that are finding it difficult to acquire new customers, but have built all these new technologies and are now looking to white-label existing solutions to carriers. This comes from the realization that customers do not want to switch insurance all of the time.
Archie: What is the biggest challenge for Insurtechs?
Nikolaus: Direct to consumer models (B2C) have proven difficult to scale. The customer acquisition cost of direct-to-consumer spending is excessive. By focusing on that sub-sector of customers who are tech-savvy and actively looking for alternatives, you are pre-selecting people who are price-sensitive. They know what they are buying, and they buy based on cost.
Archie: Private equity has been driving deal-making in the European insurance sector. How have insurtechs been involved?
Nikolaus: There have been more private equity roll-ups of brokers and agents because they have great deal efficiencies through recurring subscriptions and commission revenue. Wefox took a different route to market than, say, Lemonade in the US. The company recently raised $650 million and then bought an organic distribution. It’s a PE play, converting someone else’s book of business from the distribution side of the carrier. That’s something that private equity could look at, helping carriers or insurtechs, but spending some of the money to buy and roll-up distribution, then switching to a carrier value chain that has higher multiples on premium.
Archie: What European insurtech firms should we keep an eye on?
Nikolaus: Wefox, from Germany, is one of Europe’s biggest insurtech unicorns. They combine digitally enabled agents with a P&C carrier that designed products specifically to switch clients from other insurers and thus managed profitable growth without excessive customer acquisition cost or bad underwriting. KASKO works with the former CEO of Wefox. The French insurtech Alan positions themselves as a health super app offering health benefits to employers, but also offers insurance as a service to other insurers. In the past year they raised $220 million. Cover Genius, though technically an Australian insurtech, is making strides in Europe through its partnership with Ryan Air on embedded insurance. They have proven that as an MGA (managing general agent), you can win against the big incumbents in the highly contested embedded insurance space.