In 2017 there was a wave of new insurtechs in Mexico. Still, it was last year that this startup segment managed to attract $23 million in investments (almost doubling the amount registered three years before). For 2021, the forecast of the Mexican Insurtechs Association (AIM, in the acronym in Spanish), which has 43 members, is something around $27 million in funding — $20 million were already poured into those companies’ accounts until August.
“This capital increase indicates that there is a growing interest in the sector, specifically from venture capital funds,” says Enrico Robles del Río, CFO and intelligence director at Endeavor Mexico, an organization that promotes entrepreneurship.
The coronavirus pandemic, as in many other industries, was a catalyst for this movement. Social isolation accelerated digitization and motivated the development of new distribution channels. At the same time, with the public health system often approaching collapse, Mexicans were forced to look for alternatives. As a result, private health insurance penetration has increased even in a high cost and adverse scenario.
According to the country’s center for economic and budgetary research (CIEP), with a public system that managed to serve less than 43% of the population, the average health expenditure per person increased by 40% in 2020, from MXN 2,358 ($117) in 2018 to MXN 3,299 ($164) last year.
However, only one in four Mexicans has some type of insurance, according to 2018’s National Survey of Financial Inclusion. Mexicans do not usually hire health insurance either because they consider the service expensive or do not know what it is or how it works.
“The industry is experiencing significant growth,” says Robles. The number of insurtech startups grew 46% in 2020 compared to the previous year. According to the study Panorama Insurtech in Mexico, by Endeavor, there are 80 startups in this sector, which together generate 1,271 jobs and MXN 1.37 billion ($ 68.1 million) in revenue annually.
“The pandemic was a powerful impulse for the insurers that were not so familiar with the digital world; sales rebounded very strongly, and it was a great step for the insurtechs that are their distributors,” says Marisol Sánchez, president of the AIM, has 43 members, and co-founder of Clupp.
Although traditional companies managed to migrate to digital media during the pandemic, physical media prevails in most of their processes.
In contrast, according to the study, insurtechs have achieved 90% of the customer journey through digital media. So, it is not surprising that the average age of their clients is between 31 and 40 years old (Millennial Generation) and that Generation Z, between 18 and 30 years old, is a growing customer segment.
What insurtechs have in common is that they have managed to generate business models to offer low prices and an emphasis on the user. For example, Zenda.la became the first to provide insurance under a freemium business model, that is, a free coverage plan at its most basic level. This innovation was achieved thanks to the alliance with the insurer Prevem and the reinsurer Swiss Re.
What insurtechs do is optimize a part of the insurance industry’s value chain: the analysis and data management system, the digital marketing strategy, product design, or claims management, among others.
Zenda.la is part of the distribution category of insurtechs. According to Endeavor, this category accounts for 59% of the market, operating as marketplaces or brokers; 34% are enablers, which provide some technological solution; and only 7% of the startups in Mexico are classified as full-carrier or full-stack (they offer all the services that a traditional insurer provides).
“It agrees with the high level of entry barriers that exist (in the insurance sector), for example, the need to comply with extensive regulation to operate or have a minimum capital to cover claims,” according to the Panorama Insurtech in Mexico report.
The search for alliances is the most helpful formula to start in the business in the face of high regulation, one of the biggest obstacles facing the sector.
Sofía opts for the longest but safest path
Sofía sought to be certified as an insurer by the Mexican regulatory body, a long and expensive path that insurtechs do not usually pursue. “A company like Sofía that wants to modernize the sector faces the same operational burden as a mature company like AXA,” says Arturo Sánchez, one of the three founders of the startup that took two years to obtain the authorization and began operating in 2021.
Due to the disruptive model they wanted to implement, an initial partnership with a traditional insurer was not feasible. Sofía proposes to offer people with a medium-income level, who do not yet have health insurance, a health plan with a coverage of MXN 1.5 million, which includes small and large medical expenses.
Users access video consultations and a network of 120 specialist doctors in Mexico City, and only pay for 30% of the cost of medical care and medicines.
“Going into the preventive side of health did not fit in with the typical model of an insurance company in which, in order to use insurance, you have to have a claim,” says Sánchez. Sofía’s coverage includes hospitalization due to accident or illness at the San Ángel Inn network hospitals in Mexico City. “If we detect that the person has a disease, we help them, so they don’t have complications, and that helps us contain costs,” she says.
Compared to the traditional insurance model, the differences start with hiring the service, which can be done on the website “in just five minutes.” There are no brokers — that is, no commission — and customers do not pay deductibles (minimum payments that the customer must absorb to activate insurance coverage).
Hence, they offer prices 30% below those of traditional insurance. So far, they have raised $25 million of capital, including the seed round. “In Mexico, the potential market is around $25 billion, so our existing investors consider this market as very attractive.”
Zenda.la wants everyone to have health insurance
It was the harsh reality of the cost of healthcare services that motivated Diego Muradas and Eva Sander to found Zenda.la, an insurtech that offers low-cost indemnity insurance. Unfortunately, Muradas never received full reimbursement for his son’s angioplasty. Likewise, sander lost a close friend who didn’t have health insurance and couldn’t pay for tests and doctors that could have saved his life.
“The products of traditional insurers don’t put people at the center. They’re designed to work for the insurer, but they don’t work for ordinary people,” says Eva Sander, who is also an expert in civic technology.
The business model that Muradas, an actuary by profession, devised eliminates the main barrier that makes only 9% of the population in Mexico have insurance for major medical expenses: cost. It brought the freemium model to insurance, which uses digital platforms for other products and provides an essential service at no cost.
Zenda. la’s plans are also indemnity. Thus, in an accident, users can use the insured sum to pay for the hospital, medicines or wages not received during the recovery period, or even the deductible of their paid medical insurance.
The difference between the free plans and paid plans is the insured amount and coverage. For accidents, for example, the basic plan covers up to MXN 50,000 and the pro plan up to MXN 400,000. In addition, the startup’s insurance does not exclude people with HIV or diabetes, but it does not cover illnesses arising from these illnesses.
At its launch, Zenda.la has raised a $2 million seed round from funds like Angel Ventures and Cloud Capital and plans to launch a Series A soon. The challenge now is to convince people who have the means to take the next step; to opt for a paid plan.
At Clupp, of auto insurance, the focus is on reducing costs with technology
Clupp went from only selling insurance, like most insurtechs, to being full-stack, that is, controlling from the administration, distribution, retaining risks and dealing with claims, like a traditional insurer, but with the use of technology in each process and at a lower price.
In 2016, Omar López and Marisol Sánchez started a startup as an insurance broker that granted discounts to their clients based on how much they improved their driving habits, for which they created a mobile application. Then, in late 2020 they launched their own business model, taking advantage of a figure in Mexican law called mutuality.
They knew that complexity and high cost are the main reasons why only one in three cars is insured in Mexico, and they sought to create simple insurance at a lower price.
“All of our insurances have broad coverage. So if you hire us, you know you’re protected against the things that worry you,” says López. This means that basic coverage includes damage to yourself, third parties, and even personal injury.
Together with Munich Re reinsurer, they created a rate plan that segments the population into those who drive little, “on average,” and a lot. “Those who drive little have access to a rate 30% lower than the rest,” says López. In addition, they cover motorcycles, bicycles, and skateboards.
Thanks to technology, Clupp has implemented other innovations that make it possible to reduce the cost of claims and offer better prices. For example, when hiring, customers send a photo of the car taken with the insurtech app, which uses artificial intelligence to verify that the image is real. “When verifying the existence of the car, we make a 17% discount on the rate”, says the entrepreneur. An estimated 17% of the premium that insurers charge is used to absorb fraud.
Images are also a resource used in case of accidents so that an expert does not have to go to the place physically. “In 80% of cases, you don’t have to go”, so instead of handling five claims a day, the expert can handle 20, says López.
In early September, Clupp was about to close a $1.5 million seed round, aiming to reach 15,000 customers by 2022.