Building the Insurers of the Future: the SCOR P&C Ventures Approach
An article coauthored by Adrian Jones, Will Thorne, Pierre Favennec, and Will Bird.
Insurers and reinsurers are unique as corporate VCs because of the extensive investing expertise that resides in-house. SCOR, for example, invests nearly €20 billion of assets. Indeed, nearly every insurer or reinsurer has an arm to invest the so-called “float” generated by the insurance business.
In light of the explosion of interest in InsurTech, it’s not surprising that insurers and reinsurers would extend their investment capabilities into their own industry, taking advantage of the InsurTech trend by investing in and partnering with young companies in their sector.
We’ve done the same here at SCOR. As thesis-driven investors, SCOR P&C Ventures is structured around three objectives, with a wide range of ways to form a tailored relationship to meet these objectives. In this post, we cover our investing objectives and how we approach investing.
P&C Ventures Objectives
Invest to create the insurance companies of the future
We help to develop technology-driven insurers and MGAs, an area where we have particular expertise and ability to align interests. We believe that insurance is changing, even though the fundamentals of the business remain as critical as ever. Insurers and MGAs are still measured on both size (premium volume) and profitability. So are reinsurers. Companies we work with are both portfolio companies and clients, and SCOR can help to bring resources and expertise to increase the chances of a successful outcome for everyone.
Invest in technologies that our core business uses
When SCOR’s core business leverages a start-up’s technology, and even helps to co-develop it, an investment can help to cement the long-term relationship. We also believe in supporting industry-wide initiatives to improve the re/insurance business.
Invest in solutions for our clients and partners
With this objective, we seek to identify how new thinking and new technology can make insurance respond more directly to the problems that our clients face.
To fulfill these objectives, we have set-up our team and approach differently from some others.
What makes P&C Ventures unique:
We are a central team with extensive local expertise
SCOR operates in 160 countries around the world, and our staff understand their insurance markets deeply. Indeed, SCOR deals with most of the world’s insurers. We keep our investing expertise centrally to promote consistency of approach and capital allocation. By forming local/central partnerships, our portfolio companies benefit from the entirety of SCOR’s capabilities both in their market and around the world.
We are fully integrated in SCOR’s business
Venture and strategic partnerships units can be integrated with the core business or separated – with “cool” offices in a trendy co-working space. We chose integrated. SCOR’s core business has experts in nearly every country and every functional area. That expertise is essential to being good investors and to bringing value to portfolio companies. We have formed a network of innovators within our core business, which we think is far more powerful than if we were separated. Further, by being integrated, we can bring portfolio companies the full range of SCOR’s capabilities, both expertise but also highly-tailored risk capacity and (sometimes) insurance licenses, via Lloyd’s or SCOR’s own companies.
Our Ventures team is small so we seek to be well-networked both internally and externally, working alongside the core business to fulfill our mandate and add value to portfolio companies.
We have a rapid decision-making structure
The Ventures Committee includes SCOR Global P&C’s senior-most executives. The Ventures Committee meets monthly or as often as is needed. All new engagements are raised with the Committee quickly so that we can bring a “fast no” where a deal won’t work and make decisions rapidly where we do engage. The Committee can also allocate SCOR’s resources (people etc.) towards portfolio companies.
We invest to align incentives across a broad strategic relationship
If a relationship is structured properly, incentives between SCOR and founders can be highly aligned. Strategic value and financial value become one. Our investments usually accompany a broader commercial relationship, with the purpose of the investment being to align the incentives of SCOR and the start-up as the company scales. We do not invest purely for financial returns, as this can lead to misalignment. As an example, an insurer might invest in companies building new forms of distribution but the core business refuses to distribute their products through the portfolio company because of perceived channel conflict.
However, we also do not invest purely for “strategic value” in a woolly sense, which can be stretched to justify a “dabbling” approach and ignoring financial returns. Instead, we believe that the best investments come from a broad strategic relationship and investment which are premised on the portfolio company growing and achieving profitability with appropriate help from SCOR.
We also believe that the value of young companies is maximized when they are able to operate independently, and thus we look for entrepreneurs who are keen to own their technology stack rather than relying on critical components from a reinsurer.
We act for the long-term
We look for a long-term investment and commercial relationship. Insurance rewards patience and the power of compounding over time, driven by earning customer loyalty. We are not in this business to get a fast exit, nor do we do invest with the ultimate intention of acquiring our portfolio companies, . Additionally, we have no retail insurance platform to compete against our portfolio companies.
By setting-up as we have, we have built a high quality portfolio and engaged the SCOR organization in the exciting future of our industry.
Since forming in late 2017, we have invested at a rate of roughly 4-5 deals per year, many of which have included a commercial relationship reinforced by an investment. By design, the portfolio is balanced between consumer and commercial/specialty businesses. We have led or co-led around half of our investments, typically series A or B. We typically seek 5% to 15% ownership at first investment, which may include a Board seat. Our investment stake is intended to make SCOR a meaningful contributor to the company but leave founders room to manage their cap table.