London startup creates cover for cryptocurrency-related risk
The UK insurtech startup, Nayms closed a £1.5m seed funding round that will launch a pilot programme to develop insurance for cryptocurrency and assess its insurance risks.
Nayms uses smart contracts to collateralise cryptocurrency risk with matching crypto assets, therefore bringing insurance with a no foreign exchange risk to a segment that is currently 96% uninsured.
With lead investors including XBTO, Coinbase Ventures and Maven11, Nayms will build its customer base and work on capital market integrations ahead of the Series A funding round scheduled for the first quarter of 2022.
Speaking about the funding, which will finance initial pilot schemes, Nayms CTO Theodore Georgas explained, “This pilot represents a small but significant milestone for Nayms as we move into 2021 with accelerating traction.”
Georges said it was Nayms belief that challenges in scaling insurance protection for the digital asset space can be solved through a collaboration between regulated underwriters/brokers and capital markets. “Nayms is building the infrastructure to facilitate this collaboration,” he added.
Nayms will use the funding to create larger pilot schemes in time for a complete launch scheduled for later this year. The startup was recently granted a complete regulatory licence from the Bermuda Monetary Authority (BMA) and plans to build its customer base while working on capital market integrations ahead of another funding round due in spring of 2022.
The company has also partnered with one of their leading investors, MakerDAO to collateralise “Smart Insurance Contracts” using their own stablecoin, Dai.
Lead investor, XBTO’s Greg Carson said, “We are pleased to invest in the Nayms project alongside some of the top insurtech investors. We see insurance as an important spoke of the cryptofinance evolution.”
The $1.5m seed funding round also coincides with the Nayms first pilot - a digital insurance contract for Coinlist placed by Breach Insurance.
Eyhab Aejaz, CEO of Breach, explained, “Our partnership with Nayms allows Breach to cover complex digital asset risks at scale — similar to how this problem is solved for traditional catastrophic risk insurance in the P&C and Surplus Lines markets.”
Nayms CEO, Dan Roberts added, "Nayms is on a mission with our ecosystem of investors, partners, advisors and our growing team to provide brokers with a tradable, transparent, traceable and trusted insurance contract for this emerging risk category of digital assets. We look forward to seeing how the world's brokers start interacting with this technology in the months and years to come."
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.