Key Recommendations from Insurtech UK for Policymakers.pdf

Insurtech UK has released a roadmap with recommendations for policymakers to maintain and enhance the UK’s leadership in insurance innovation. The plan details how the next government can support the growth of the UK insurtech market. Insurtech plays a vital role in the UK economy.

The United Kingdom is positioned as a global leader in the field of insurtech. A flourishing ecosystem of start-ups, investors, and incumbents is working together to drive innovation and growth in the industry, from AI and machine learning to the Internet of Things.

UK insurtech has an estimated combined value of more than $20 bn, making it the third largest globally after the USA and China, with an annual revenue of £2-3 bn

The industry supports more than 60,000 jobs and contributes nearly £5 bn to the UK GDP. The United Kingdom’s insurtechs have not been immune to the recent global tightening on valuations.

The UK InsurTech sector in 2024 continues to thrive, characterized by innovation and growth

Startups and established companies alike leverage advanced technologies like AI, blockchain, and big data to streamline operations and enhance customer experiences.

According to Global InsurTech Funding report, investments in this sector remain robust, with both venture capital and corporate funding driving new initiatives.

Regulation and Digital Transformation

A regulatory regime that enables more new entrants

Recommendation 1

The PRA to maintain momentum in evolving the regulatory regime to the needs and structures of insurtechs as they start and scale, including:

a: a swifter, more transparent application process for PRA authorisation
b: clear guidance and communications as the new PRA mobilisation regime is introduced and embedded, meeting the commitment to be in place by end 2024

Recommendation 2

The FCA to work closely with the insurtech industry to ensure the ongoing availability of, and confidence in, a proper Appointed Representative scheme which allows market access for start-ups and enables future innovations in embedded insurance

Recommendation 3

Regulators to deploy a progressive, enabling approach to emerging technologies such as AI, blockchain and Open Finance, taking into account how these may best be applied within an insurance context to maximise consumer benefit and confidence.

1. 11 Key Recommendations from Insurtech UK for Policymakers
Insurtech UK has released a roadmap with recommendations for policym akers to maintain and enhance the UK’s leadership in insurance innovation. The plan
details how the next government can support the growth of the UK insurtech market. Insurtech plays a vital role in the UK economy. The United Kingdom is positioned as a global leader in the fiel d of insurtech. A flourishing eco system of start-ups, investors , and incumbents is working
together to drive innovation and gr owth in the industry, from A I and machine learning to t he Internet of Things, according to Beinsure Report .
UK insurtech has an estimated c ombined value of more than $20 b n, making it the third largest gl obally after the USA and China , with an annual revenue of £2-
3 bn
The industry supports more th an 60,000 jobs and contributes nea rly £5 bn to the UK GDP. The United K ingdom’s insurtechs have n ot been immune to the
recent global tightening on valuations. UK’s insurtech market structure

2. Indeed, of the estimated 3,000 insur tech firms in the world, ap proximately 280 are located in t he UK — the highest number of i nsurtechs per capita among all
major world economies
The UK boasts the world’s second-largest insurtech cluster, characterized by its impressi ve scale and economic impact:

Number of Firms: There are 280 insurtech compani es, with approximately one-thir d located outside London.

Combined Value: These firms have an estimate d collective worth exceeding $20 b illion.

Unicorns: The UK is home to 8 insurtech un icorns, surpassing any other E uropean country and second only to Silicon Valley.
The insurtech sector in the UK is notable not only for its size and value but also for its dynamic and diverse workforce.
Opportunities for insurtech gr owth include developing or deploy ing new technologies, more partne rships with insurers, and inte rnational expansion.
Barriers cited in recent sector s urveys include access to fundi ng, access to talent, and new customer acquisition.
The industry is already working t ogether, through its trade ass ociation Insurtech UK, to cultiva te a proactive ecosystem that inspires and strengthens UK start
ups and scale ups.
It employs around 14,000 people, with a notable demographic profile:

Age Distribution: Two-thirds of the workfor ce are under 40 years old.

Gender Diversity: Nearly half of the employees are female, highlighting the sect or’s commitment to diversity and inclusion.
The multiples of some of the m ost successful publicly listed in surtechs fell from 15 times those of traditional peers to below the level of incumbent insurers,
and private capital funding decr eased 32% compared with the peak in 2021 (see InsurTech`s evolution and investment landscape).

3. Categories of Insurtech

4. The UK InsurTech sector in 2024 continues to thrive, characteri zed by innovation and growth
Startups and established compan ies alike leverage advanced tech nologies like AI, blockchain, and big data to streamline operat ions and enhance customer
experiences.
According to Global InsurTech Funding report , investments in thi s sector remain robust , with both venture c apital and corporate funding driving new
initiatives.
The average deal size experi enced a reduction of 30.6%, decreas ing from $14.14 mn in the fourth quarter of 2023 to $9.8 mn in the first quarter of 2024.
This marks the first time si nce the third quarter of 2017 that the average global InsurTech d eal size has fallen below $10 mn.
P&C InsurTech funding also declined, dropping 22.5% to $605.6 m n in the first quarter of 2024, the l owest since the third quar ter of 2018.
The average deal size in this category reached its lowest point since the first quarter of 2018 at $10.09 mn, and the total nu mber of deals decreased to 70, a
reduction of six deals from the previous quarter.
The roadmap outlines three main themes for gover nment action to foster UK insurtech growth:

A regulatory regime that encourages new entrants

An investment environment that supports funding

Initiatives to unloc k scaling opportunities
Key recommendations include creating a regulatory framework tha t attracts new businesses and est ablishing an investment climat e conducive to funding and
growth.
The roadmap suggests the Department of Business and Trade develop a long-term framework to ease international expansion and inve stment for UK insurtech
companies.
Financial recommendations inclu de extending the (Seed) Enterpri se Investment Schemes to all in surtech categories and broadenin g Enterprise Management
Incentive criteria to attract skilled talent (see about Global Landscape of Insurance Digital Transformation ).
Insurtech UK calls for government -backed reinsurance schemes to cover new societal risks and sup port affordable insurance, pro moting financial inclusion.
To lower entry barriers and stimu late growth, the roadmap propo ses a fairer VAT/IPT regime. The se comprehensive recommendations aim to help UK
insurtech achieve its full potential.

5. Key recommendations with the roadmap

Regulation and Digital Transformation A regulatory regime that enables more new entrants
Recommendation 1
The PRA to maintain momentum in evolving the regulatory regime to the needs and structures of i nsurtechs as they start and sca le, including:

a: a swifter, more transparent a pplication process for PRA author isation

b: clear guidance and communications as the new PRA mobilisation r egime is introduced and embedde d, meeting the commitment to be in place by end
2024
Recommendation 2
The FCA to work closely with the insurtech industry to ensure t he ongoing availability of, and con fidence in, a proper Appoint ed Representative scheme which
allows market access for start- ups and enables future innovatio ns in embedded insurance

6. Recommendation 3
Regulators to deploy a progressi ve, enabling approach to emergi ng technologies such as AI, bloc kchain and Open Finance, taking into account how these may
best be applied within an insurance context to maximise consume r benefit and confidence Access to Finance An investment environment that facilitates funding
Recommendation 4
HM Treasury should extend SEIS and EIS to all categories of ins urtech to incentivise more inve stment into this high-potential sector, and to prevent a cliff-
edge where Managing General Agents may transition to being a regulated insurance firm
Recommendation 5
HM Treasury should significantly e xtend qualifying criteria for EMI from its current limit of £30 mn gross assets to attract m ore experienced talent as
insurtechs scale
Recommendation 6
HM Treasury should re-extend the long-stop date for Advance Sub scription Agreements back to 12 m onths, removing the additional pressures on concluding
accelerated funding rounds that re ducing this to 6 months has c reated
Recommendation 7
An urgent review of the HMRC R&D credit scheme should be conduc ted to provide clarity, consisten cy and confidence in both the application of scheme
criteria and scheme administration
Recommendation 8
The value and positive impact of Innovate UK’s Professional and Financial Services programme supporting research and developme nt in insurance should be
recognised and expanded by HM Treasury in future spending round s Tackling barriers and driving growth Targeted action that un locks future potential

7. Recommendation 9
HM Treasury should introduce a fair er VAT/IPT regime, enabling insurtechs to scale quicker a nd on a level playing field with o ther tech sectors
Recommendation 10
A three year strategy from the De partment for Business and Trad e for international promotion o f UK insurtech – to facilitate a ccess to key overseas
jurisdictions and encourage inwa rd investment, drawing on evide nce of priority countries and posit ive past experiences with in surtech corridors and fintech
bridges
Recommendation 11
New government-backed reinsurance schemes (Innovation Re) shoul d be scoped by HM Treasury to enabl e cover of new societal risk s or act as a back-stop for
new accessible and affordable insurance policies providing grea ter financial inclusion in insurance.