The question arises occasionally from investors and market commentators (but interestingly never from customers or distribution partners) as to whether Wrisk is planning to ever have its own insurance “Wrisk Capital” to bear insurance risk, or will we always use third-party insurer capital. Our response tends to fall under three headings.
Why become a full-stack insurtech?
The case for supporting in-house insurance capital is strong if the insurance classes being assumed run at very profitable combined ratios; are leveraged through reinsurance or tax status or where the bottom-line can be supplemented through embedded non-risk fee income.
There is a notion to think we’ll be able to move much faster or be more flexible if we had our own insurance capital in-house (aka “full-stack”)? In theory, this should make sense and in times of frustration at slow-moving, inflexible insurance partners, then this is an obvious panacea. But so far in the Wrisk journey, this has generally not been the case. We’re getting better at knowing which insurers can move fast and who are thinking 2025, not 1985.
What’s the reality?
It’s challenging (and expensive) enough to build a brand new insurtech business and platform. If, as part of your business model, you want to have an in-house regulated MGA, then don’t underestimate the resources and stamina needed to build and manage the latter. Overlay onto that the multi-million round minimum insurance capital and the manpower resourcing for building/managing your own insurer, this becomes an enormous challenge, because the amount of regulatory infrastructure and machinery needed for the management of risk capital should not be under-estimated.
Lastly, most UK insurtechs will have raised some of their capital from private investors on the basis of EIS status for their investment. These private investors would lose their EIS tax advantage if the insurtech had its own risk-bearing insurance capital inside the original investment vehicle.
With all of this reality in mind, it’s no surprise that so few UK insurtechs feel it necessary or suitable to raise their own insurance capital.
Are there any alternatives?
Yes, new insurance capital solutions emerge all the time, so this isn’t a binary choice of third-party capital vs. own-insurance capital. For instance, it’s now a well-worn path to circumvent the traditional third-party insurance sector by instead accessing the reinsurance industry through means of a third-party fronting insurer. In the future, I believe we’ll see a host of new insurance capital models emerging, including:
- “PRA Sandbox” capabilities, perhaps through a protected cell company structure
- Lloyd’s vehicles such as their new “Syndicate in a Box”, an initiative which has already got off to a strong start.
Wrisk is in the business of ‘insurance technology’ and ‘insurance distribution’. Our distribution partners are major customer-facing brands. By harnessing the power of Wrisk’s technology platform, we bring together the best of breed insurers with our distribution partners. Technology and distribution, that’s what we feel we’re good at. Do we feel the need to have our own insurance risk-bearing Wrisk Capital? No, not in the near future.