Looking Back/Looking Forward: Three Questions
By: American Family Ventures
Tags: Insurtech, Insurance, Venture Capital, Venture, Future

Some flagged it as a lost year, others as an opportunity to reboot. No matter your outlook on 2020, it was unquestionably an open and ongoing invitation to reflect. Many of these reflections were rushed, conducted in haste to manage sudden and brutal headwinds, but year’s end is traditionally time for a calmer review. In that spirit, our team stepped back and took stock of the past twelve months, the moment at hand, and where things are headed as we move into 2021.

Which moment from 2020 has had the biggest impact on your perspective?

Dan Reed, Managing Director: The public offerings of Lemonade and Root, two of InsurTech’s most high profile startups, represented not only a breakthrough moment for the wave of investment that has been building for the past six or seven years but also a sign of things to come. The public markets value these companies based on growth and the transformational potential yet to be fully realized across the insurance industry, even as incumbent carriers dismiss the valuations. LMND and ROOT were among the first, but they won’t be among the last InsurTech companies to achieve multi-billion dollar valuations via the promise of a more efficient, customer-centric insurance industry.

Devin Devrai, Associate: It is exciting to see appetite from the public markets for late-stage InsurTechs. Seeing this larger path to investor liquidity should positively impact how the broader venture capital ecosystem thinks about many of the newer entrants within insurance and should support continued private market interest for businesses disrupting the legacy insurance industry.

Christy Kaufman, Chief Compliance Officer: In 2018, when Marsh, Munich Re and Metabiota introduced PathogenRX (a pandemic insurance product), literally no one bought it. Now it’s flying off the shelves. Hindsight bias is alive and well: we only believe something is possible after it happens. If there is a silver lining of the pandemic, it is that 2020 could spark risk managers to evolve from reaction to foresight. If that happens, there will be enormous opportunity for the insurance industry to support that transition.

Mike Mansell, Associate: For me, it was first seeing health care workers dressed head-to-toe in PPE treating largely helpless COVID-19 patients. It was a stark reminder of how quickly risks can impact people and society, and also a reminder to embrace many things I take for granted.

Kyle Beatty, Principal: For me, the first moment was when the public stock market fully recovered from the pandemic downturn. The second moment was the realization there was not going to be a market correction — there was a structural reason why there was insulation. It was clearly a miss for me regarding how the capital markets were fully insulated from the human and small business impacts of the COVID pandemic.

Drew Aldrich, Managing Director: Imagining a materially different near-term future is core to being a VC. COVID-19 demonstrated the value of fundamental analysis and considering the conclusions, even if they portray radical future states. Looking at the early known facts of the pandemic, it was clear we had no solution outside of the famous hammer and dance: we were working from home, wearing masks, and not seeing friends or family until a vaccine. This unthinkable future in February was knowable by early March. If the numbers and the logical story are stating their case, something that feels unconscionable isn’t necessarily wrong.

Andy Stilp, Platform: It was when Professor Neil Ferguson, preeminent UK epidemiologist and key adviser on COVID-19, was caught breaking the May lockdown to see his married lover. So much of the global rebound relies on uncomplicated human participation. There in one sentence, we learned we were standing on a stool with a wobbly leg.

Molly Lahr, Investor Relations Director: The convergence of COVID, the presidential campaign, and Black Lives Matter, particularly after the death of George Floyd, is what stands out for me. It is hard to imagine the world bouncing back to normalcy. My perspective on how to approach work, social life, and relationships — just to name a few — has greatly augmented and I am still seeking for a balanced approach.

Which story are you following closely as we head into 2021?

Dan: The effect of the forced innovation resulting from the COVID crisis. Carriers everywhere needed to rapidly adapt, and many are now more aggressive in the pursuit of their technology roadmaps. We’re following how this dynamic will affect demand for startup partners who can help advance data science initiatives and innovation agendas, and whether the carrier sales cycle will shorten as a result.

Kyle: I am most interested in the IPO market, both through traditional and SPAC means. I am also very interested in tracking the post-IPO performance of FinTech and InsurTech businesses. The capital-raising opportunity of an IPO, as well as how it influences venture investor appetite to continue/expand investment in these spaces, will be very important to how insurance and financial services are shaped in the medium term.

Katelyn Johnson, Principal: The continued performance of Root and Lemonade in public markets, what investors deem acceptable or not during their evolution, and the emergence of the SPAC as a tool for going public.

Drew: We are the middle of dramatic asset price inflation, probably stemming from the Fed’s asset purchasing. This could be why the stock market is relatively inflated despite fundamental weakness in the economy, including employment. This incongruity makes me feel like we’re in uncharted territory. We’re slightly shielded from it because we’re in private markets, but not fully protected from the risks.

Christy: The story I’ll be following closely into next year and hope to be talking about at the end of next year is “insurance for social good” with increased public/private partnership. Momentum is already starting — private reinsurance of the federal flood program, pandemic reinsurance through a public/private facility, AXA’s involvement in vaccine distribution ecosystem design, and so on. I will look for products that incent renewables and energy efficiency to address climate change among others.

Stephanie Mueller, Platform: The phrase “new normal” is used widely with a lot of speculation, but we have yet to grasp what it looks and feels like in terms of long-term work solutions, education, sports, music, dining and much more. I’m closely watching what changes from 2020 remain permanent and what fades as our society adjusts to living with COVID.

Devin: Rising tides in the cryptocurrency space have brought Bitcoin near 2017 highs. I will be thinking more critically around the implications this has to the broader FinTech ecosystem. It will be interesting to see if this is another bubble or if it is a demonstrated shift in market sentiment.

What do you believe we’ll be talking about this time next year?

Molly: I hope that by this time next year, we’re talking about art, music, sports, and businesses opening back up. I hope we’ll be talking about the world coming together on the other large issues we faced in 2020.

Dan: The return of conferences and how nice it was to see people again in person at OnRamp Insurance and InsureTech Connect.

Katelyn: How well or poorly the vaccine is working. The new normal of school, work, and travel will be a constant evolution, but I believe we’ll be celebrating how nice it is to be able to get back together with friends.

Andy: By then, our understanding of “Long COVID” will robust, and we’ll be starting to measure the blast crater of psychological damage from eighteen months of avoiding other people. I suspect it will manifest itself in many more ways than we realize.

Kyle: A year from now, I think we’ll be starting to reflect on InsurTech investment strategies that have worked and those that have not. It will have been seven years since the large infusion of institutional capital coming into the InsurTech space. I think this will provide an important moment of reflection on venture investment wins and losses and what that tells us about what is to come.

Mike: I anticipate next year will be another record-breaking year for startup-driven innovation, particularly within insurance. The wall between startups and large insurers will continue to decrease. I also predict we’ll be discussing another round of InsurTech IPOs.

Devin: I think we are going to see continued discussions around rising valuations. If we see a correction, investors will likely be talking about newer sources for yield. If the market continues to grow, I suspect investors will continue to engage, with meaningful discussion around appropriate market valuation.

Christy: We will be talking about rising insurance rates, growth in parametric products, commercial self-insurance, incumbent acquisition of startups, and, with any luck at all, the next season of Ozark.

Drew: There are going to be five to ten InsurTech IPOs across 2020 and 2021, and how they’re valued by the market portends a lot about the future of insurance. If they’re still doing well at the end of 2021, I think it means the InsurTech future is more extreme than we originally thought and will arrive sooner. A certain amount of institutional capital is interested in an InsurTech thesis, but they have few public investing options. Positive performance of these public InsurTechs could launch a positive feedback cycle, leading to more institutional interest in the InsurTech thesis, then additional positive performance, then more private capital flowing into InsurTech, then more InsurTech IPOs. We could be at the start of a truly transformative moment.