Marshmallow, a U.K.-based provider of car insurance, has established a reputation for itself in the market. It uses a wider range of data points and clever algorithm to offer a wider variety of customers and lower rates. This milestone is both in Marshmallow's life as a startup and in the larger U.K. tech industry.
In a new round, $85 million was raised by the London-based company that was co-founded in 2012 by identical twins Oliver Kent-Braham (and David Goat). It is significant for two reasons: Marshmallow's Series B valuation surpasses $1 billion, specifically $1.25 trillion; and Marshmallow becomes one of very few U.K. startups that were founded by Black people Oliver or Alexander to achieve this figure.
Marshmallow is the UK's first unicorn founded by people of Black origin or Black heritage. However, I am able to think of at least one other that was preceded by it: WorldRemit (rebranded to Zepz last month and now valued at $5 billion); co-founder and chairman Ismail Ahmed, who has been called the most influential Black Briton.
It doesn't matter if Marshmallow was the first or the last, it is a noteworthy detail that I think it is worth noting, regardless of whether it is the first or the last.
Marshmallow's innovative, big-data approach to gaining market traction speaks for itself. The startup was valued at $310million when we first covered its latest funding round, a $30 million raise in November 2020. Marshmallows' valuation has almost quadrupled in less than a year. It has sold 100,000 policies in its home country and has grown 100% over the past six months.
Oliver said that the company's current goal is to strengthen its customer relationships. This will include providing more engagement for better drivers and possibly selling more services.
This will allow the startup to tap into an innovative approach that other insurtech startups are using as they rethink traditional models of insurance. YuLife, for example, is positioning its life insurance products within a larger wellness and personal enhancement business. Oliver stated that Marshmallows customers are currently between 20 and 40 years old. There are also plans to create new products for younger customers. This means that customers can be loyalized and kept in business for many more years.
Marshmallow will use the funding to move closer to its strategy to expand into markets outside the U.K., a strategy that has been in development for some time. Marshmallow spoke up international expansion during its last round, but has not yet announced which markets it will target.
Fintech startups and insurance are often grouped together because they have many similarities. They both work in areas such as assessing and mitigating fraud and risk mitigation. In many cases, they are discretionary investments by customers. Both industries are highly regulated and require data protection.
Because so much of the work is the same for both, it's not unusual to see services built for both sectors (FintechOS, Shift Technology are two examples), so that fintech companies can dabble in insurance services.
In reality, however, COVID-19 has had a significant impact on insurance, specifically car insurance. This is a unique industry. EY and the Association of British Insurers reported that many car insurance companies saw an increase in 2020. Lockdowns meant that fewer people drove, which resulted in fewer accidents and fewer claims.
However, 2021 has been a completely different story. New pricing rules will likely lead to a lot of providers going into debt for the year. The Chartered Insurance Institute also points out that it is worth watching to see how low car use in a year will affect future use: Some car owners, particularly in urban areas, may question the need to insure a vehicle.
Ironically, all of this plays into Marshmallow's hands. Marshmallow is offering a more flexible approach for customers who might otherwise have their requests rejected or priced out of the offerings of more traditional companies. While neobanks have certainly encouraged more traditional institutions to upgrade their products to be competitive, it is not the case with insurance.
Oliver explained that we started with the notion of data power and using a wider variety of resources than incumbents. Marshmallow has not seen sharper competition from the older incumbents. These are large companies that have remained steadfast in their ways. These companies are around for decades and some have been around for many centuries. It is difficult to see the future.
This leaves Marshmallow and other companies like Lemonade and Hippo with a huge opportunity. Investors also have a great opportunity to back new ideas in a $5 trillion industry.
Eileen Burbidge (a Passion Capital partner) said that the team's success demonstrates the need for a new type of insurance provider. She emphasizes the importance of the consumer experience and uses data and technology to provide fair prices. Since the beginning, we have been proud to support the team's ambitions and look forward to the next chapter in Europe.
