Takeaways:
- Allianz X looks for a good fit with key parts of the value chain
- AI focus not necessarily the most important aspect
- Insurtechs should focus on specific functions, not everything all at once
Carsten Middendorf, chief investment officer, Allianz X, was one of the first employees of the overhauled venture capital arm of insurer Allianz, in 2017. Allianz X now has
This article is from a longer interview and edited for clarity.
What functions do Allianz and insurers in general want insurtechs to address?
I've seen different focus areas evolving over time, while Allianz X has evolved over time. If you think in value chain steps within insurance, it's the same things, basically, but with varying emphasis over time. Underwriting is an important one. Claims management – getting more efficient there is an important one.
Also, how to address customers in the digital age is an important one. Insurance these days is not being distributed like it was 50 years ago. Everything that essentially is situated in that value chain around insurance is always important. The emphasis -- what value chain step at that point in time is important, varies a bit over time, and obviously also varies in the sense of operating entity and region. Is it a region where we have traditionally built our foothold as Allianz? Is it a new region for us?
AI currently dominates discussions of insurtech. Do most of your recent investments include AI?
Most of them have AI built in, but it's not something that we particularly look out for. We like great business models that are wrapped around superior technology. Now, if that's AI, fantastic. But if that's something else that creates a mode for the company and it's visible, that's also great. So it's not that I'm just looking at pitch decks if they have AI in the tech line, and if they don't, I'm just going to throw it into the bin. That's not how that works.
But yes, AI has obviously become a more prevalent scheme. Data automation is important in the underwriting space, if you think about cost efficiencies. Also in the claims management space, straight through processing of claims, where a certain portion of claims can be automatically handled and settled with the clients, and then only the remaining portion needs a human intervention. That's not new, to support these steps with technologies. The new thing is that AI obviously has become a lot better facilitating that over the last couple of years.
What strategic importance does Allianz X require from insurtechs it backs?
At the time when we think about investing into a company, there should be collaboration, at least on the horizon, between one or multiple Allianz operating entities. From that sense, it already is strategic, if it makes sense and it's meaningful for the core business of these entities.
Quite often, we forge not only an equity investment, but at the same time, team up with our Allianz reinsurance, which provides reinsurance to those respective companies, which is especially important if you're a full stack insurtech, you need capacity to grow further. If they have that capacity to grow, it helps our equity stake become more valuable over time. Those are the situations that we are looking for. That's what you would call strategic value generation.
Our insurtech investments do at least one particular slice of the value chain exceptionally well. Pie Insurance can price insurance for small businesses better than most incumbents in the U.S. The way Coalition underwrites cyber is just phenomenal. Their active insurance is just so cool, where they can really find the risks out there and develop counters for them before they even reach their clients. Or Clark with their digital wallet, holding all the customers' insurances from all the different companies in one single place. The strategic aspect is where we can partner with what they do.
What insurtech innovation trends do you see? What's the focus for the next wave of insurtechs?
One bucket is what content they will focus on. That's going to be across the entire value chain, but each company will have a solution to help with a certain specific aspect in that value chain. We will not necessarily see a company that does exceptionally well all the way from underwriting to claims management to after sales. There will be very focused providers for very specific use cases along the entire value chain. There will be winners in all of those particular spaces.
The other bucket is the general approach that companies and founders take. In the 2010s and 2020s, we have seen hype times where valuations were high, where everyone was prioritizing growth over unit economics. That has come down to a way healthier level now, where growth naturally for your company is still important, but growth is geared towards reaching profitability at some point.
I believe in focusing more on the fundamentals to build a fundamentally sustainable and profitable business model. But not overshooting growth rates is something that we will for sure see in the next couple of years. We won't go back to where no one looks at profitability anymore, but we'll just focus on growth.
Do startup insurtechs understand the insurance industry better than they used to?
Yes. I feel like five years ago, you could see many founder teams that didn't have anyone with insurance background in there whatsoever, that were just thinking, hey, the traditional insurance traditional space needs to be disrupted. Let's build this venture capital case and sell it for 10x. That was five years ago, and now I rarely see a founder team with a pitch deck that doesn't have at least one insurance expert in there. That tells a lot about the change of attitude.
