Latin America Insurance Fund – In conversation with its founders and team
The insurtech ecosystem in Latin America has been developing in the past years, although it is still in an early stage. When we analyze each country separately, the gap between countries with robust ecosystems such as Brazil or Mexico and those that are in formation, such as Colombia and Peru is evident. Today we find in Latin America about 244 insurtechs according to the latest radar published by the consulting firm Digital Insurance Latam and Finnovista mentions a 24% growth in new startup creation only in the last year.
This growth has increased the appetite of private equity funds and corporate funds that are seeing the potential of the region and the insurance segment as an attractive investment opportunity. In 2019, Latin American fintech and insurtech companies raised capital close to $ 2.659 billion, according to the latest Finnovating report.
Therefore, we invited the Latin America Insurance Fund (LAIF) team to talk about their experience of nearly 2 years operating as the first corporate venture capital fund in the region specialized in insurtech. In our conversation we spoke with Eduardo Iglesias, Co-Founder and Managing Partner, Gabriel Chaufan, Co-Founder and Managing Partner, and Nicolas Iglesias , LAIF Analyst.
Tell us about LAIF, how the fund was born?
Eduardo: LAIF was born from a need that we identified in the Latin American insurance market because we did not see dynamism in the creation of startups that sought to innovate the value chain of the insurance industry.
In 2014, we began to hear about digital transformation, and we started to see changes in different industries around Europe and the United States, including the insurance industry. However, We did not see the same pattern occurring in our region.
As we began to investigate why the pattern was different, we identified several problems. The first was that insurance penetration in Latin America is lower than in other regions, which made the sector less attractive. Besides, we saw that there was a lack of knowledge among entrepreneurs about the insurance industry, which made it difficult for them to identify innovative solutions for the insurance value chain. Finally, we saw that those who took the risk suffered from trying to interact with insurers because insurers did not know about digital transformation issues. Also, finding the necessary funding to scale their business models was very difficult.
From these problems, in 2017 the idea of structure a corporate fund that would allow a better and easy relationship between entrepreneurs and the insurance industry was born. The initial idea was that insurers who are the experts in their field validated and promoted those entrepreneurs who could generate improvements to insurance products or processes. And by doing that Insurers will accelerate the development of the entrepreneurial ecosystem in the industry. So, after reviewing different corporate venture models from different regions and industries, at the end of 2018, we managed to structure the fund as the first corporate fund focused on insurtech.
The idea of the fund is that entrepreneurs not only have the capital for their ventures but also, to be able to integrate into the value chain of insurers. For example, we have come across several startups that are operating in other industries, and their solutions have applications in insurance. So, we guide them on how to provide a service that generates value to the different insurers.
Gabriel: LAIF works for two worlds. On one hand, we have the insurers that are our investors, and on the other, we have the entrepreneurs. With insurers, we want to bring them closer to the insurtech world, to show them what is happening in the region and what are the main trends in the world. We help them to identify innovations and opportunities that insurers can integrate into their value chain. And finally, we help them to innovate their work methodologies. Entrepreneurs can contribute to the management of companies, integrating agile methodologies to generate results in a faster and more efficient way.
On the other hand, we have entrepreneurs. And the main objective with them is to create an ecosystem. We help startups to identify problems that exist in the insurance industry, and with our experience, we can work with the startups to validate and focus their business models. Also, we have a mentoring program that generates a double bond with the entrepreneurs because entrepreneurs can benefit from the guidance and advice from an experienced manager.
An example of this is the partnership we developed with Insurtech Connect, which is the platform in charge of organizing the largest insurtech event in the world. LAIF is the official partner of Insurtech Connect for Latin America. In the past two years, we have developed with their support an insurtech challenge where several startups from the region have participated, and the winners have had the opportunity to participate in the global Insurtech Connect pitch day. In addition to this partnership, we achieved other alliances with accelerators like Finnovista, which increase our network of startups throughout the region.
What kind of startups are you looking for, what requirements must they meet?
Gabriel: The idea of the fund is to invest in seed capital stages. However, what has happened to us on several occasions is that companies that have already gone through one or two investment rounds with models developing contact us. They see LAIF as a “validation” seal to jump to look for international funds because they know that our network with other VCs is relevant.
Eduardo: We want to invest in any startup that generates value in the insurance value chain. It may be in distribution, claims management, or underwriting. For us, the important thing is that it creates value and innovation in the processes of insurance companies.
What types of technologies do you see on the market today? Where are the crucial disruptions? Any technology or business models where LAIF prefers to invest?
Eduardo: We see that in the same way as what happened in the United States and Europe, in the beginning, most of the startups are focused on distribution. Most companies are on BtoBtoC or BtoB models. I don’t see that there is capital for models like Lemonade or Hippo in Latin America. Also, we are seeing some startups looking to solve the internal problems of insurers in areas like claims management, customer onboarding, and inspections.
We have seen some exciting solutions for health insurance. But the one that caught our attention the most was Lisa, an insurtech that helps insurers manage claims using artificial intelligence.
But in the end, the most important element is the founders’ team and its business vision. We are looking for viable business models with significant growth potential. It is an equation where we balance the entire insurtech model, from its team to its technology.
Gabriel: It is important to mention that we are looking for ventures with exciting technologies that are scalable regionally and that do not solve a specific issue of a country, but rather are a business model that can be exported to at least Latin America.
What are the markets in Latin America that have the greatest potential? What makes them different?
Eduardo: Each country’s economic size defines the potential of the market. Brazil, far ahead of the other countries in the region, has a much more developed market with great potential. Then, Mexico developed a Fintech Law to boost and create a robust ecosystem and regulate the relationship between entrepreneurs and traditional companies.
Behind those two countries comes a very even group with Argentina, Chile, and Colombia. Chile has developed some programs to encourage the creation of VCs developing a robust ecosystem. The same incentives were created in Argentina, but unfortunately, that project is no longer working.
What success stories can you share with us?
Eduardo: Today in our portfolio we have alquilando, which is a startup in the proptech and insurtech space and which has been quite successful in Argentina and has recently entered other markets in the region. We invested in them and we have accompanied them in their growth with a very close role of advisors and they are currently closing a series A.
Another company in our portfolio that is doing very well is Seguro Simple, which is an auto insurance aggregator from Peru, which is now in Mexico. We accompany them throughout this process of opening their operation in Mexico.
We have other companies that we are following and actively advising but have not yet closed. Our process usually takes several months from the initial contact until we decide to invest in a startup.
How do you see the investment landscape for the next few years?
Gabriel: Covid accelerated the digital transformation of the insurance industry, and with that, we hope that many startups will accelerate their growth. Also, we hope that the number of resources available to invest in the region will increase; with that, we will achieve a more robust ecosystem.
The truth is that we see a very positive outlook, the region is growing, and there is a lot of potential in its entrepreneurs.
What do you recommend to an insurtech in Latam that is looking to raise capital?
Eduardo: The first thing I would recommend is that they need to understand their business model very well and be clear about how it contributes to the system. Insurtech by nature are enablers of the insurance ecosystem. So they must understand how they are going to add value to the industry. How to lower costs, how to make processes more efficient, how to improve the customer experience, and so on.
We are available to contribute to entrepreneurs in Latin America. We like to generate a relationship with the startups where we are going to invest. We want to accompany them in their process and help them be successful.
Many thanks to the LAIF team for their time and interesting insights about the insurtech and entrepreneurial ecosystem in Latin America.
If you are interested in talking about entrepreneurship and insurtechs, do not hesitate to contact me at [email protected]