The UK insurtech sector has enjoyed a period of huge innovation and investment, not just from the UK but across the globe, in the last decade or so. Coronavirus is bound to make companies look closely at budgets and one area where cuts can be made without any major HR issues is cancelling investment or ending partnerships with start-up companies. Shows and eventas have been cancelled too, and that has a knock-on effect when it comes to prize money and PR exposure for start-ups, who then utilise that coverage to win more Series A/B funding.
Such a drastic cut in insurtech investement is understandable, but is it good business sense? It would be a great loss to the insurance industry in the longer term, as the UK needs to modernise and think global when it comes to new products, and countries like China, Malaysia, Singapore, Japan and others may well win the race to market with viable products.
Here is the statement below;
Clearly COVID-19 is having an impact on huge parts of the economy and certain areas of the insurance industry already. Those knock-on effects are being equally felt by some of the software Insurtechs. The Government’s various announcements show a huge commitment to the UK economy and Insurtech UK has already been contacted by officials for feedback on its approach, which provides some comfort.
Insurtech UK members have been raising their issues of particular concern over the past few weeks. Outlined below are the key areas which need addressing to support the Insurtech scene:
i. Ensure the CBILS scheme incorporates support for the start-up community. The traditional avenues for capital available to Insurtech UK members are now significantly reduced, resulting in many wishing to access the Government’s Coronavirus Business Interruption Loan Scheme.
However, there are concerns that the viability criteria might disqualify investment backed early-stage businesses from receiving such a loan. Equally there is alarm around the variations in requirements from the different lenders creating a lottery for businesses when undertaking the application process.
Finally, there is widespread apprehension for those start-ups that are deemed eligible, having to commit to excessive personal guarantees from some of the lenders in order to access these loans. This goes against the spirit of the scheme in these unprecedented times. An assessment of the viability criteria to be more accommodating to early-stage businesses, which is consistent across the various lenders would be incredibly helpful to those who are going to struggle to replace the lost funding opportunities in the months ahead.
ii. Creation of new fund aimed at supporting startups
The Government should also go further and create a new fund within the British Business Bank which specifically targets the needs of startups. We have seen other Governments across the world create liquidity packages designed for the startup community and we urge the Government to do the same. Many Insurtech UK members are worried about the funding options of their businesses in the short to medium term if they cannot access any relief.
There is flexibility around the model of the fund; whether it be a convertible debt model or an agreement for future equity. We would welcome a discussion with Government about the details of such a scheme, but it is vital that the Government takes quick action to protect a huge success story in the UK economy in recent years, pioneering the innovations we will depend on in the future.
iii. Provide clarity on the COVID-19 job retention scheme. Insurtech UK is awaiting details of the Government’s COVID-19 job retention scheme, and particularly the extent to which employers can keep in touch with furloughed workers to maintain their skill development, mental wellbeing and team cohesion. Whilst Insurtech UK fully supports the spirit of the proposals, considerations should be explored around a part-time option that enables more flexibility for both employees and employers (whilst creating less of a financial burden for Government) during this period where the traditional working structures are having to adapt.
iv. Insurers commit to their existing partnerships and stand by their distribution channels. Insurtechs are forming a huge component of the industry’s efforts to innovate and drive efficiencies. Existing arrangements should not be deemed dispensable and it would be counterproductive for the long-term future of insurance if the traditional insurers looked to cut delegated authority with its insurtechs now. Initial signs have been very positive and we call for this spirit to be maintained.
v. Increase Governmental support through existing startup incentives. Insurtech UK recognises the Government is under huge pressure to support every facet of the diverse UK economy. A certain level of patience is required to create and implement new relief schemes for its component parts. Therefore Insurtech UK is also open to the possibility of the Government extending existing schemes in order to provide immediate relief to insurtech businesses. This could include creating existing incentives such as increasing R&D tax credits, doubling SEIS/EIS limits or providing VAT rebates. We would welcome a discussion about how this could work with Government.