Insurtech funding reaches record high in Q3
Investor confidence in insurtech is at an all-time high, according to broker Willis Towers Watson’s (WTW) Quarterly Insurtech Briefing.
A record $2.5bn was raised during insurtech funding rounds in Q3 2020, representing a 61% leap on the previous quarter. The capital was raised over 104 deals, 41% more than Q2.
Six major funding rounds accounted for more than two thirds (69%) of the total amount raised. Bright Health and Ki both drew $500m, while Hippo, Next Insurance, Waterdrop and PolicyBazaar all secured between $130-250m.
Investors were also seeking the next big thing. More than half of insurtechs with a Q3 Series A were raising funds for the first time and on average pocketed $10.9m. Those in Series B and C rounds, however, were the worst affected, seeing their deal share shrink by 9%.
WTW noted the pattern was a version of the barbell strategy: investors are more willing to take low-cost, high-risk punts on startups in the seed stage, or inversely, high-cost, low-risk stakes in growing established companies, than they are insurtechs in the middle of their journey. At the venture stage, investors have proven they are currently unwilling to fund firms that are testing markets, building use cases and seeking capital for growth.
“That means the lifeblood of budding InsurTechs who rely on Series B and Series C rounds to scale up has, relatively speaking, disappeared,” says Andrew Johnson, Global Head of InsurTech at Willis Re, WTW’s broking reinsurance arm.
India overtakes China
Globally, India pulled ahead of China for the first time in three years. Six insurtech companies in India secured funding during the quarter, ahead of five in China. You need only look at Razorpay, which earlier this month became India's fifth fintech unicorn, to see that appetite in the country is on an upward trajectory. But the US remains the biggest and most important market for investors, sweeping up 42% of funding rounds, followed by the UK with 9%.
Richard Clarkson, Head of London Market Consulting at WTW, noted: “Algorithmic-follow disruptors – those underwriting entities that use technology and analytics to take a share of business offered under the terms and rates of a lead underwriter – are set to claim to a bigger slice of the insurance market, especially as the evolving Lloyd’s business model shifts to make it easier for them to do so.
“Many of the component parts required to create systems to implement this model have actually been around for a while. This will make trading faster and more responsive, and open new attractive avenues for alternative capital.”