Looking back over the summer, we spent time deep-diving into the InsurTech space to map the opportunities across the value chain. Insurance has remained one of the large verticals within financial services that has largely been undisrupted.

Looking back over the summer, we spent time deep-diving into the InsurTech space to map the opportunities across the value chainInsurance has remained one of the large verticals within financial services that has largely been undistrupted. One of the sub-verticals within insurance is the premium financing space — the business of lending against insurance premiums or offering pay-by-instalment premiums. This increases the affordability of insurance premiums and promotes financial inclusion. This led us to a $36m equity and debt round investment in PremFina, an InsurTech start-up based in London and Malta, which we co-led with Rakuten Capital.

Why we backed PremFina

The premium financing market has been around for a long time. Some of the issues plaguing the model are:

  1. Duopoly — the UK market is dominated by two incumbents, Premium Credit Limited (private-equity owned — GTCR) and Close Brothers Premium Finance Limited (part of Close Brothers Group, LON:CBG). The market has been starved of choice and a lack of price competition on APRs offered on premium financing.
  2. Relationship with customer — typically, the insurance broker ends up having to hand-over the relationship with the end-customer to the premium financing provider (even the documentation tends to be branded in the premium financing provider’s design/stationary!). Customer experience suffers as a result of this as they end up dealing with customer service teams at these premium financing providers rather than with the broker who sold them the policy in the first place.
  3. Loss of revenues — premium financing providers tend to keep all or a majority of the interest and fee income generated by these loans, leaving brokers/MGAs in a lurch. Increasingly, competition from price comparison websites, digital brokers and direct insurers have also squeezed margins for insurance brokers — insurance brokers are looking for ways to boost LTV and to service their customers better.

The market attractiveness is driven by a few factors:

  1. Size of market — The General Insurance market in the UK alone is worth £50bn per annum. Of this, approximately £10bn of these premiums are under finance with 60% being financed by 3rd parties. This particular segment is dominated by Close Brothers and Premium Credit with over a 90% market share, each with a loans books of £0.65bn+ and £3.5bn+. There are also significant adjacent market opportunities in Germany, Austria, Nordics, Netherlands and Poland. Not forgetting the giant beast of a market in the USA (estimated at approx $1.2 trillion in Net Premiums Written)!
  2. Stickiness —  many insurance categories are “must-haves”, for example car insurance in the UK (without which it would be illegal to drive!) —  this significantly decreases the likelihood of default.
  3. Type of debt — customer segment tends to be mass-affluent (not sub-prime) and the debt is generally secured pro-rata against the return-premium from the insurer, making this type of 

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