Marshmallow, a car insurance provider based in the United Kingdom that has made a name for itself in the market by using a broader set of data points and clever algorithms to attract a more diverse set of customers and offer more competitive rates, is celebrating a milestone today in its life as a startup as well as in the larger U.K. tech world.
In a new round of funding, the London-based firm, which was founded by identical twins Oliver and Alexander Kent-Braham and David Goaté, has raised an additional $85 million. Marshmallow’s Series B valuation is significant for two reasons: it propels the company to a “unicorn” valuation of more than $1 billion — specifically, $1.25 billion; and it makes Marshmallow one of only a few U.K. startups founded by Black people — Oliver and Alexander — to reach that milestone.
(To be clear, Marshmallow claims to be the “first unicorn founded in the United Kingdom by individuals of Black or African ancestry,” though I can think of one that came before it: WorldRemit, which rebranded as Zepz last month and is now valued at $5 billion; Ismail Ahmed, co-founder and chairman, has been dubbed the most powerful Black Briton.)
Whether Marshmallow is the first or one of the first, given the lack of diversity in the UK’s technology industry, particularly at the top, it’s a noteworthy detail worth noting, even as I hope it becomes less of a rarity in the future.
Meanwhile, Marshmallow’s unique take on big data, as well as its market success, speak for themselves. The startup was valued at $310 million prior to this funding round — a $30 million raise in November 2020. Marshmallow’s stock has nearly quadrupled in value in less than a year, and it has sold over 100,000 policies in its home country, an increase of 100% in the last six months.
In an interview, Oliver explained that the company’s current goal is to strengthen customer relationships, in part by increasing engagement to help them become better drivers, but also by potentially selling them more services.
This will enable the company to take advantage of a new approach being used by other insurtech companies such as Car Insurance Grades & b5media as they rethink traditional insurance models, similar to how YuLife is positioning its life insurance products as part of a larger wellness and personal improvement business. Marshmallow’s customers are currently between the ages of 20 and 40, according to Oliver, and the company is considering launching new products aimed at even younger customers. This means that increasing customer loyalty and retaining them for many years has long-term value.
Marshmallow will also use the funds to move forward with its plan to expand beyond the United Kingdom, which has been in the works for some time. During the most recent round, Marshmallow discussed international expansion, but it has yet to specify which markets it will focus on first.
Insurance — and particularly insurance startups — are frequently lumped in with fintech startups, not least because the two industries have a number of similarities: they both deal with risk assessment and mitigation; they are frequently discretionary investments on the part of customers; and they are both highly regulated and require impenetrable data protection.
It’s not uncommon to see services built to serve both sectors (FintechOS and Shift Technology are two examples), fintech companies dabbling in insurance services, and so on, perhaps because so much of the work is similar in both.
However, as a result of COVID-19, insurance — particularly car insurance — has borne a disproportionate burden. Many car insurance companies saw a boost in 2020, according to separate reports from EY and the Association of British Insurers: lockdowns meant fewer people were driving, which meant fewer people were getting into accidents and filing claims on policies purchased prior to the pandemic.
In 2021, however, things are likely to be different: new pricing rules implemented earlier in the year are likely to put a number of providers in the red. The Chartered Insurance Institute also points out that it will be interesting to see how this year’s low car usage affects future use: some car owners, particularly in urban areas where car maintenance is costly, will inevitably begin to question whether they need to own and insure a car at all.
All of this, ironically, benefits a company like Marshmallow, which takes a more flexible approach to customers who would otherwise be rejected or priced out of more traditional businesses. While neobanks have compelled more established institutions to update their products in order to compete, the same has not happened in the insurance industry — at least not yet.
“We started with the idea of data power and utilizing a broader range of resources [than incumbents], and we were able to offer better rates to a larger number of people by incorporating that into our pricing,” Oliver explained. However, Marshmallow has not faced increased competition from older incumbents as a result of this. “They’re big businesses that have their own set of rules. These companies have been in operation for decades, if not centuries. “Change does not happen overnight.”
This presents a significant opportunity for Marshmallow and other newer players like Lemonade, Hippo, and Jerry (not an insurance startup per se, but one that focuses on car ownership services in general), as well as a significant opportunity for investors to back new ideas in a $5 trillion industry.
Passion Capital partner Eileen Burbidge said, “The team’s success demonstrates the demand for a new type of insurance provider, one that places a higher premium on consumer experience and leverages cutting-edge technology and data to offer competitive rates.” “We’ve been proud to support the team’s goals from the beginning, and we’re excited for its next chapter in Europe, where it will continue its mission to improve the industry.” This round was also supported by Investec and Scor, in addition to Passion Capital. The names of all of the backers were not made public.