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Banks have recently been disrupted by the rise of fintech, or startup companies that provide payment and other services that enhance or replace what traditional financial institutions offer. Travel companies have been affected, such as Booking Holdings’ debut this month of a fintech division. Insurance companies are the next sector to get disrupted, this time by startups in “insurtech.” This change impacts travel brands that seek profits from upselling customers on trip insurance.

Exhibit A for the trend is Setoo, a startup that helps travel companies sell customized and creative travel insurance products as upsells. The company said on Thursday it had agreed to a merger with Pattern Insurance Services, an insurtech founded in 2020, Skift has learned. The joint company will be based in Palo Alto, California, and operate across Europe and the U.S. under the name of Pattern.

The companies didn’t disclose the terms of the deal. The two startups have together raised $25 million in funding from investors that include Kamet Ventures, Comcast Ventures, MS&AD Ventures, Foundation Capital, FinTLV, TechAviv Founder Partners, Kli Capital, and Abstract Ventures.

New startup Pattern, led by CEO Meitav Harpaz, is one of the tech players making a claim on the travel insurance industry. It’s just one small startup whose fate is uncertain in a sea of rivals and established players. But it’s worth using the company as an example to understand the broader insurtech trend it represents along with the potential impact on travel upselling. Setoo’s and Pattern’s customers have included LastMinute.com, Oyo, Omio, and Amadeus.

The travel sector’s hope for “insurtech” is that, by offering greater efficiency and creativity, travel brands can upsell consumers on more types of insurance more often. The travel insurance sector has broadly been ripe for disruption, given that brokers and underwriters often still offer a limited set of timeworn policies and require consumers to file claims using manual processes, often involving paper documents. The pandemic has also persuaded many consumers of the potential value of trip insurance, meaning that the upselling of such policies could hit $45 billion worldwide by 2017.

Pattern is a so-called “embedded insurance” company, in that it collects policies underwritten by insurers such as AXA, Spinnaker Insurance Company, and Wakam and makes it easier for travel brands to insert the policies their online booking flows. It handles both front-end customer interactions and back-office matters.

“If you look at the e-commerce and online booking travel specifically, the category has advanced a very long way in the last 20 years,” said Noam Shapira, Setoo’s co-CEO. “But the sales of insurance as an ancillary product hasn’t kept pace.”

“What’s happening now is that everything about how travel brands are selling insurance is catching up in sophistication with the help of new partners,” Shapira said. “You also see more creativity in the product.”

Pattern also develops “parametric insurance,” meaning it potentially unlocks more upselling by creating more tailored insurance policies. It gives customers the ability to guard against the damage or loss for specific types of trips, providing a direct, immediate payment if a verifiable event occurs, irrespective of actual loss.

For example, if a travel brand sells camping trips, they can embed parametric insurance from Pattern that guards against cold or rainy weather. The policy upsells the customer while also helping to persuade nervous shoppers that it’s worthwhile to book a trip.

A parametric policy typically skips manual processes. If you book a camping vacation plus insurance from French online travel agency Campings.com, and, at least three days before your vacation, the forecast says it will rain at your destination during a trip, Pattern will send you a text asking if you want to cancel. If you say yes, it will refund you straight away.

Suppose a policyholders’ flight has been delayed for more than 2 hours. In that case, the company can detect the delay electronically from airline databases and text or email a message to the customer with an offer of payment. The startup won’t wait for the consumer to file a claim or require that they prove an incident occurred.

Automation like that could boost sales of trip insurance — which as a category traditionally has a perceived hassle factor when it comes to filing claims. Liknoss, a global distribution system for ferries, trains, and intercity buses, sells the startup’s ferry-delay insurance. Linknoss served 26 million ferry tickets in the pre-pandemic year of 2019. The product promises a default refund of the full value of a ticket if a passenger’s arrival time exceeds two hours from the scheduled arrival time.

The startup Pattern also sells traditional policies, like trip cancelation and medical assistance, some of which require documentation of treatment and the customary multi-step claim process.

Travel brands choose which type of policies to use.

Setoo has operated as a so-called managing general agent (MGA) in the European Union and the UK, meaning it is a licensed broker that takes on many of the tasks more traditionally done by the insurer, including underwriting, pricing, binding cover, and claims settlement. Pattern expects to be able to sell as an MGA in the U.S. shortly.

Amadeus Experiments With Trip Insurance Upselling

The travel technology giant Amadeus has been running a few experiments with Pattern.

“It’s a B2B2B2C model,” Shapira said. “We’re providing their customers, such as travel agencies and suppliers like airlines and hotels, more interesting, commissionable insurance products to sell.”

To be sure, the startup hardly has a monopoly on innovation and other insurtech startups and traditional insurers promise to offer cheap and easy ways to sell more trip insurance.

Grab, a super app in Asia, turned this month to Chubb to help it upsell customers with insurance. Icelandair has partnered with Cover Genius for pandemic-related insurance. Some online travel agencies in Europe, such as Ulysse, use the startup Koala to sell “cancel-for-any-reason” trip insurance policies.

But change is in the works from many fronts.

“Noam and Eyal [Gluska] have created a company in Setoo that truly caters to the needs of the modern consumer and with this merger,” said Michael Niddam, co-founder and managing director of Kamet Ventures, the venture builder where Setoo was incubated. “Pattern is in a prime position to become the leading choice for embedded insurance products around the globe.”

Photo Credit: The advanced TrainLab is an experimental vehicle of Deutsche Bahn, in which innovative technologies can be tested, shown here in 2019. Pattern, an embedded insurance pioneer, lets travel brants test distinctive policy upsells. Think rain cancellation policies for camping trips. Deutsche Bahn