Marshmallow -- a U.K.-based car insurance provider that has made a name for itself in the market by providing a new approach to car insurance aimed at using a wider set of data points and clever algorithms to net a more diverse set of customers and provide more competitive rates -- is announcing a milestone today in its life as a startup, as well as in the bigger U.K. tech world.
The London company -- co-founded by identical twins Oliver and Alexander Kent-Braham and David Goaté -- has raised $85 million in a new round of funding. The Series B valuation is significant on two counts: it catapults Marshmallow to a "unicorn" valuation above $1 billion -- specifically, $1.25 billion; and Marshmallow itself becomes one of a very small group of U.K. startups founded by Black people -- Oliver and Alexander -- to reach that figure.
(To be clear, Marshmallow describes itself as "the first UK unicorn to be founded by individuals that are Black or have Black heritage", although I can think of at least one that preceded it: WorldRemit, which last month rebranded to Zepz, and is currently valued at $5 billion; co-founder and chairman Ismail Ahmed has been described as the most influential Black Briton.)
Regardless of whether Marshmallow is the first or one of the first, given the dearth of diversity in the U.K. technology industry, in particular in the upper ranks of it, it's a notable detail worth pointing out, even as I hope that one day it will be less of a rarity.
Meanwhile, Marshmallow's novel, big-data approach and successful traction in the market speak for themselves. When we covered the company's most recent funding round before this -- a $30 million raise in November 2020 -- the startup was valued at $310 million. Now less than a year later, Marshmallow's valuation has nearly quadrupled, and it has passed 100,000 policies sold in its home country, growing 100% over the last six months.
The plan now, Oliver told me in an interview, will be to deepen its relationships with customers, in part by providing more engagement to make them better drivers, but also potentially selling more services to them, too.
In this, the startup will be tapping into a new approach that other insurtech startups are taking as they rethink traditional insurance models, much like YuLife is positioning its life insurance products within a bigger wellness and personal improvement business. Currently, the average age of Marshmallow's customers is 20 to 40, Oliver said -- and there are some early thoughts of launching new products aimed at even younger users. That means there is long-term value in improving loyalty and keeping those customers for many years to come.
Alongside that, Marshmallow will also use the funding to inch closer to its plan to expand to markets outside of the U.K. -- a strategy that has been in the works for a while. Marshmallow talked up international expansion in its last round but has yet to announce which markets it will seek to tackle first.
Insurance -- and in particular insurance startups -- are often thought of together with fintech startups, not least because the two industries have a lot in common: they both operate in areas of assessing and mitigating risk and fraud; they are in many cases discretionary investments on the part of the customers; and they are both highly regulated and require watertight data protection for their users.
Perhaps because so much of the hard work is the same for both, it's not uncommon to see services built to serve both sectors (FintechOS and Shift Technology being two examples), for fintech companies to dabble in insurance services, and so on.
But in reality, insurance -- and specifically car insurance -- has seen a massive impact from COVID-19 unique to that industry. Separate reports from EY and the Association of British Insurers noted that 2020 actually saw a lift for many car insurance companies: lockdowns meant that fewer people were driving, and therefore fewer were getting into accidents and making fewer claims on policies they took out before the pandemic.
2021, however, has been a different story: new pricing rules being put into place will likely see a number of providers tip into the red for the year. And the Chartered Insurance Institute points out that it will also be worth watching to see how the low usage of cars in one year will impact use going forward: some car owners, especially in urban areas where keeping a car is expensive, will inevitably start to question whether they need to own and insure a car at all.
All of this, ironically, actually plays into the hand of a company like Marshmallow, which is providing a more flexible approach to customers who might otherwise be rejected by more traditional companies, or might be priced out of offerings from them. Interestingly, while neobanks have definitely spurred more traditional institutions to try to update their products to compete, the same hasn't really happened in insurance -- not yet, at least.
"We started with the idea of the power of data and using a wider range of resources [than incumbents], and using that in our pricing led us to be able to offer better rates to more people," Oliver said, but that hasn't led to Marshmallow seeing sharper competition from older incumbents. "They are big companies and stuck in their ways. These companies have been around for decades, some for centuries. Change is not happening quickly."
That leaves a big opportunity for companies like Marshmallow and other newer players like Lemonade, Hippo and Jerry (not an insurance startup per se but one for comparative insurance shopping, with a wider focus on car ownership services in general), and a big opening for investors to back new ideas in an industry estimated to be worth $5 trillion.
“The traction the team has achieved demonstrates the demand for a new kind of insurance provider, one that focuses more on consumer experience and uses the latest technology and data to give fair prices," said Eileen Burbidge, a partner at Passion Capital, in a statement. "We’ve been proud to support the team’s ambitions since the start, and now look forward to its next chapter in Europe as it continues its mission to change the industry for the better.” Alongside Passion Capital, Investec and Scor also invested in this round. A full list of backers was not disclosed.