RIO DE JANEIRO, BRAZIL – Owners of new insurance companies want to make taking out insurance for one’s car or cell phone increasingly similar to opening a digital bank account.
They are also trying to expand distribution using popular sales channels, such as trip apps or large retailer websites.
The sector’s entrepreneurs, still little represented in the startup market, say that attracting new investments comes amid a review of the sector’s rules promoted in the last two years by the insurance regulatory agency SUSEP (Superintendence of Private Insurance).
The easing of rules began in 2019, with the authorization for companies to create intermittent insurance, says Eduardo Fraga, SUSEP’s technical director.
In a car insurance under this model, drivers may activate protection when they start a trip and suspend it as soon as they reach their destination, for instance. The goal is for the possibility of paying only for what one uses to enable more clients to afford coverage.
In order for new business models to emerge, the regulator also created the sandbox in 2020, an environment with simplified regulation for testing innovative services. Ten companies are currently involved in the program, where they may remain for up to 36 months and the public notice for the program’s second edition accepted suggestions until mid-June.
Fraga explains that sandbox companies can operate as insurance providers with a capital starting at R$1 million (US$196,000), which is about a quarter of the amount required from smaller established companies. In addition to requiring lower amounts for provisions, they undergo an annual audit, rather than two, and have ongoing communication with SUSEP.
The concept is that these companies will bring new ideas to the market, as they are more agile in testing products and adapting if necessary, Fraga says.
Rodrigo Mendes, partner at Deloitte, says that the new regulatory environment provides security for investors to seek the sector. “No one wants to invest in something that runs the risk of being blocked by the regulator.”
In this new scenario, ideas are under development such as startup Pier, in which contracting protection is done through an app. The startup pays claims immediately to 10% of its auto and cell phone insurance customers, and the goal is to increase this percentage, says company partner Igor Mascarenhas.
According to the entrepreneur, a speedy decision is possible due to the use of artificial intelligence to analyze a large volume of data from the moment consumers look for the product to the time they report the problem. The startup seeks to demand as little information as possible and to be able to analyze as much data as possible, he says.
Just like Nubank at the start of its operations, Pier also has a line of clients waiting for approval.
According to Mascarenhas, currently 100,000 people are waiting to contract insurance. There are 20,000 requests and 5,000 authorizations per month, he says. The entry barrier exists because the startup is improving the algorithms it uses to define the price of products depending on the risk attributed to each client.
Pier raised US$14.5 million with investors in late 2020.
In May, fund managers also announced a R$44 million investment for 180° Seguros, which plans to develop products to be distributed in websites and apps for real estate, financial, and retail sales.
The startup was founded by Mauro Levi D’Ancona, one of the first Nubank executives.
His company’s strategy is to connect an insurance provider that develops customized products for other businesses to companies that want to sell insurance in their distribution channels, a format known in the market as “embedded insurance.”
The startup’s first product is home insurance which is distributed from Loft’s website, a billion-dollar startup in the real estate market. The startup also launched life insurance for employees in June, distributed from the Caju company’s platform.
A sandbox participant, startup 88i also seeks to take insurance to distribution channels with a greater flow of clients and where there is a higher predisposition to buy.
Led by Fernando Moreira, who has led companies in the sector such as HSBC Seguros in Brazil, it develops insurance products to be sold in trip and delivery apps (for delivery drivers and couriers), through fintechs or from e-stores (insurance against product breakage or delivery failure).
The growing market helped startup Justos secure a R$15 million investment before launching its product on the market.
The startup intends to launch a car insurance product this year that has its price reduced according to the driver’s performance, measured by sensors present in cell phones.
Dhaval Chadha, a partner in the startup, says that raising funds before starting the business is needed because the complexity of the insurance market is greater than others in which startups operate. “You need to be prepared to handle risks and to cater to customers if they need it,” he says.
On the other hand, the entrepreneur sees similarities between the billion-dollar market of fintechs and the new segment of digital insurers. According to him, both the insurance and banking markets were characterized by high costs, little competition, and a large population with no access to products and services, before the advent of startups.