Insurtech refers to the bringing together of traditional insurance companies, technology companies and disruptive startups that use new technologies such as blockchain, digital marketing tools, big data and cloud computing to provide innovative products and services within the insurance sector. Insurtech facilitates the ways companies, business owners and customers manage their finances by using specialised software on computers and mobile devices.
Insurtech differs from traditional insurance in the way that it leverages customer-centric analytics to deliver rich, personalised experiences. The most promising opportunities for cooperation and new capabilities often involve the use of cutting-edge technologies, such as the Internet of Things (IoT), artificial intelligence (AI), and machine learning. With the arrival of 5G consolidating the importance of connectivity in providing greater value to customers and increasing touchpoints, there has been an explosion of IoT or telematics solutions, and more players than ever are interested in insurtech-as-a-service solutions that facilitate connections between insurance sector actors and digital platforms.
A positive outlook for scalable businesses
According to LatAm Insurtech Journey, a robust review by Latin American insurtech consulting firm Digital Insurance LatAm, as of January 2022, there are 393 insurtechs in Latin America, representing seven per cent of the global insurtech ecosystem. Brazil has the largest concentration, with 33 per cent, and the remaining 67 per cent are spread across the rest of Latin America. The ecosystem’s current average annual growth rate of 22 per cent means that Latin America could have close to 1,000 insurtechs by 2025.
Most insurtechs are not profitable in the early stages of their operations, and they require significant capital to compete with traditional insurance players. These startups tend to have a well-defined strategy to reach a large number of potential consumers as quickly as possible and win investors' confidence by showcasing high growth potential within a typical timeframe of five to 10 years.
At that point, insurtechs follow a somewhat standard pattern applicable to new ventures worldwide of going public or merging with a larger company. The insurtech environment in Latin America is expected to experience increased merger and acquisition activity in coming years, and already includes examples such as Argentina's 123Seguro merger with Brazil’s Seguro com Voce, both large digital brokers in their respective markets, and the acquisition of Brazil’s largest digital insurance brokerage, Minuto Seguros, by leading digital consumer solutions platform Creditas.
Insurtechs tend to rely on robust digital marketing strategies that allow them to reach a large audience, and there is ample room for growth in the region. According to a 2020 report by Spanish multinational insurance company MAPFRE, the region's average penetration rate (the volume of premiums as a percentage of GDP) was 3.1 per cent in 2020, a third of the European rate and a quarter of that in the US.
In addition, many ventures are increasingly looking to capitalise on consumer demand for products and services that have a social or environmental impact. A regional example of note is Betterfly, a Chilean benefits and wellbeing platform designed to transform healthy habits into social donations. Betterfly aims to have a positive impact on the world and inspire people to become a better version of themselves. Betterfly landed in Brazil in 2021, and plans to expand to Mexico, Colombia and Argentina in partnership with Chubb.
Brazil leads the pack in numbers and funding, but other countries are catching up
Crunchbase estimates that since 2018, aggregate investment in insurtech in Latin America is US$778 million (less than two per cent of total global investment in the sector). In 2021 alone, $391 million flowed into the sector (50 per cent of the total since 2018). Further analysis reveals that three countries represent 98 per cent of investment flow in the region: Brazil (71 per cent), Chile (16 per cent) and Mexico (11 per cent).
Mexico has 85 insurtechs as of 2021, the second-highest number after Brazil
Brazil has the largest ecosystem in Latin America, with an estimated 146 insurtechs in 2021 and a 25 per cent annual growth rate. It attracted the highest level of investment in 2021 – $302 million (+335 per cent compared to 2020) – and accounts for 85 per cent of investment growth in the region, according to Digital Insurance LatAm.
However, Chile also has an active ecosystem, and an estimated one in five of its domestic ventures also operate abroad. It is home to Betterfly, the first insurtech unicorn in Latin America and a notable example of this internationalisation trend.
For its part, Mexico has 85 insurtechs as of 2021, the second-highest number after Brazil. It also has a number of mature endeavors such as Super.mx and Miituo, two leading digital insurance platforms.
Colombia stands out as the country with the highest growth of insurtechs in Latin America: the number of endeavours grew by 62 per cent between 2020 and 2021. It is also attracting significant interest from abroad, and a quarter of endeavours currently have foreign investment. According to Henrique Volpi, Co-Founder & CEO of Kakau, a digital platform that pioneered the use of machine learning in Brazil’s B2C segment: “Although limited in size compared to the Brazilian or Mexican markets, Colombia is definitely a blue ocean with plenty of opportunity for insurgents and innovation.”
Government and industry support leads to successful endeavours
Investment in Latin American insurtechs grew by 231 per cent in 2021. The largest investments were:
- Alice, a Brazilian insurtech focusing on healthcare offerings that raised $33 million in its February 2021 investment round managed by ThornTree Capital Partners. In December 2021, Alice raised a further $127 million in a Series C funding round led by Softbank Latin America Fund.
- Betterfly, which raised $60 million in June 2021 in a Series B funding round with DST Global, QED investors, Valor Capital, Endeavor Catalyst and the SoftBank Latin America Fund. In February 2022, Betterfly raised a further $125 million in a Series C funding round led by Glade Brook Capital.
- Justos, a Brazilian insurance company, which aims to be the first in Brazil to use data to determine rates. In May 2021, Justos raised $2.8 million in a seed round led by Kaszek, one of the largest and most active VC firms in Latin America. In October 2021, Justos raised a further $35.8 million in a Series A funding round led by Ribbit Capital.
These Brazilian and Chilean success stories may be related to government policies designed to aid the insurtech environment, and an overall industry focus on promoting innovation. For example, since 2017 the Brazilian Superintendence of Private Insurance (Susep) has operated what it calls a ‘regulatory sandbox’, in which it licenses entities to test innovative projects for a defined period ‘while they observe a specific set of regulatory provisions that supports the controlled and delimited execution of their activities’. And the Chilean trade association, InsurteChile, promotes a collaborative ecosystem for these ventures by bringing together founders and investors to promote growth and share industry trends.
Key trends: open insurance and machine learning
A key trend across the region is the evolution of open insurance, a new way of doing business that promotes open data sharing among organisations across different industries. Open access to information includes terms and prices, and its ultimate goal is to allow providers to offer products and services in digital ecosystems that have lower operating costs, while achieving higher efficiency by reaching a greater number of people while maintaining customer segmentation. For example, the Chilean insurtech LISA uses AI-powered technology to facilitate claim processing by quickly verifying user data it gathers from multiple sources and organisations.
Cutting-edge user experience developments from across the globe are also expected to become widespread in Latin American insurtechs
In Latin America, Brazil is taking the biggest steps in this direction. Its insurance regulator Susep is already in the advanced stages of implementing a regulatory framework for this model, as reported in ITIJ’s March 2022 article: Identifying opportunities for travel insurance growth in Latin America.
Cutting-edge user experience developments from across the globe are also expected to become widespread in Latin American insurtechs. Chief amongst them is machine learning to predict attrition rates, detect fraud and analyse purchase patterns. For example, LISA uses machine learning to better understand the needs of users and develop tailored products and services.
Data mining that feeds information into machine learning systems, and big data analytics that drive personalisation of Latin American insurtech services, will both be technology focal points for founders and investors. It is likely that companies in both these areas will show up across the region in coming years.
The Latin American insurtech ecosystem presents an ideal mix of elements that come together to drive global interest and promote growth. Low penetration rates of standard insurance offerings are common across the region, and well-defined strategies by new ventures are designed to escalate their businesses and reach large audiences in short timeframes. Brazil leapfrogs all other countries in terms of investment volume, number of ventures, user potential and government interest in promoting the industry. But countries such as Mexico and Chile have developed similarly mature ecosystems, and others, such as Colombia, have plenty of potential that investors are already realising.