A new fund launches to compete for insurtech investments

The majority of the capital currently being invested into the space is coming from the investment arms of large insurers and reinsurers such as Munich Re, Aviva or Axa.

But specialist venture capital investor Eos Venture Partners intends to offer an alternative by raising a $100 million debut fund, EVP I in what could become one of the first global, independent insurtech investment funds targeting early and growth stage investments.

Eos has already attracted a limited partner (LP) commitment of $20 million for EVP I from a global insurer, with whom it has entered into a strategic partnership to accelerate their innovation strategy, and a second $10 million commitment from a European insurer.

The plan is to reach first close in the second quarter and then look to reach the $100 million target by the end of the year at the latest.

Among the players Eos is in advance discussions with are medium insurers, that may want to avoid making the significant investment needed to setting up their own fund which can be expensive and requires a lot of capital, says Sam Evans, general partner at Eos.

But Eos is also talking to one of the three largest global insurers which is already investing hundreds of millions in various insurtech initiatives and structures. “They see what we are doing as complementary on the one hand, but also as having the potential to create something a little bit different,” Evans says. “Because a lot of the money being invested in insurtech is coming from corporate venture capital funds and therefore from within the industry, having a group like us, thinking maybe a little bit outside the box, is also appealing to some."

“The fund has sole and final investment decision and authority,” he adds.

At the same time, the core of Eos’ business model is close strategic partnerships with their (limited partners) LPs to drive return on investment and innovation. Eos works closely with its LP’s to develop, refine and execute a tailored innovation strategy to drive growth, improve profitability and enhance customer propositions.

Eos’ alternative solution entails taking funding from insurers and investing the money in insurtech ventures while taking into account the partnering insurers’ needs. While investment decisions are ultimately made by the fund, LPs and investors are represented in an advisory board, a forum for exchanging investment ideas and priorities.

“We are very cognizant of the needs and challenges of our investors and that plays a part in how we structure our investment strategy but it’s important to us to remain fully independent,” Evans says.

While insurers are the main focus as the fund seeks investors, Eos essentially wants to attract partners who are connected to the insurance value chain including brokers and reinsurers.

“What we are finding is that our approach and proposition resonates much more strongly from a strategic perspective than a financial perspective. We essentially act as an extension of the insurer’s, broker’s innovation team and strategy,” Evans says.

“We have a very close relationship with investors to help them with their innovation strategies, both identifying opportunities but also linking through to underlying technology solutions and ultimately executing on some of the key priorities.”

Eos was formed in 2016 and has made eight insurtech investments so far, six of which went on to raise up-rounds. Notable investments include Neos, a connected home insurance proposition, which raised $7 million from Aviva and Munich Re, and Digital Fineprint, a business that uses social media to enhance the insurance process, which raised $2.7 million from PenTech Ventures.

Where to invest

In terms of geographies, investments made through EVP I are set to have a weighting towards the UK, Europe and the US. However, Evans notes that there are also very interesting new technologies being developed, particularly in Asia. “We don’t place any restrictions on ourselves geographically,” he explains.

Regarding the parts of the value chain, Eos is looking into life & health as well as property & casualty, both in the personal and commercial space.

“At the moment we have a strong focus on commercial lines where we see some very compelling opportunities given the current dynamic and heavy intermediated process which is often very traditional, highly manual and where increasing amounts of data and new technologies are becoming available and have yet to be harnessed in commercial underwriting,” Evans says.

In marine commercial insurance, for example, Eos is looking into the potential for blockchain, which enables insurers and brokers to connect with commercial insurance clients and harness the relevant information to provide the underwriting.

In the Internet of Things (IoT) space, vessels are now covered in sensors, from everything like location to the engines, the propellers, and the machinery, delivering information about a fleet and individual vessels with regards to maintenance, Evans notes.

The combination of the blockchain and the IoT solutions in marine present insurers in-depth analytics data for risk selection and pricing in underwriting, Evans says. In addition, the data can be used by insurers to mitigate and prevent claims and supply risk management services to the end client rather than purely protection-based solutions, he adds.

In the small and medium-sized (SME) segment, Eos is particularly interested in technological advancements in the cyber space. “There are several solutions out there which enable SME’s to run a diagnostic on their business to understand their risk profile, almost acting as a cyber compliance officer, which enables the firms to put relevant mitigations steps in place,” Evans said.

At the same time, the insurer gains access to a more granular view on the risk profile of the company, enabling it to provide appropriate underwriting, Evans notes.

“The SME sector is typically significantly underinsured,” Evans says. Other opportunities for insurers in the SME space includes technology that allows for digital underwriting, reducing the cost for insurers to reach the end customer, Evans says. The risk solution can then be tailored based on the specific circumstances and characteristics of the company, he explains.

How to invest

Eos wants to use the EVP I fund to make only a relatively small number of investments to avoid being spread too thinly.

“We are really looking at having a maximum of 12-15 investments or investment themes,” Evans explains.

Some investments may include several companies linked through a theme such as commercial marine.

But the investments may also include some larger deals, say $40 million, for example, where the fund would chip in $10 million, and the additional funding would be provided by existing LP’s or third-party players.

Eos will look to acquire between 15 to 30 percent of the insurtech companies in equity.

“Our sweet spot is series A, series B stage from an investment process,” Evans says.

Exiting the investment will vary depending on the underlying business. Buyers of the holdings could be incumbents, insurers or brokers, Evans explains.

“There is also a large volume of bigger technology companies servicing insurance and some of the services may be complementary and additive to their existing platforms so they would look for an acquisition to bolt on,” he says.

Private equity may also be an option, as many like the services side of the insurance sector, Evans adds. “For the ones that are performing particularly well there is also the option of an IPO.”