Insurtech globally passes US10bn investment threshold in Q3

By Joanna England & Derin Cag
The quarterly report by Willis Towers Watson shows global insurtech has experienced a record nine-month investment funding run

The global insurtech sector has surpassed US$10bn in investments in Q3 of 2021, according to data from the global advisory broking and solutions company, Willis Towers Watson.

The report shows that consolidated global investment in the insurtech sector is continuing to skyrocket. Capital invested in insurtech start-ups passed the US$10bn mark for the first time in any one year on record. 

Despite the global setbacks the pandemic has wrought, 2021 has now witnessed an unprecedented $10.5bn in raised funds in the first nine months of the year. It means that  2021 is now only $12mn shy of the total amount invested in insurtechs globally in 2018 and 2019 combined.

The total number of deals carried out also reached 421 - another annual record according to Willis Towers Watson’s report.

InsureTech companies are gaining steam around the globe due to their processes being able to bring improvements across different sectors including personal insurance, commercial P&C insurance, reinsurance solutions and more. This includes helping insurers reach underserved markets such as millennials or improving risk assessment capabilities through emerging technologies like big data analytics or machine learning.

How is artificial intelligence and automation impacting investments in the insurtech industry?

Artificial intelligence (AI) is another area that is seeing great potential in the insurance industry. This technology uses machines to learn, reason and gain insights from data-driven patterns or programs with minimal human input. Artificial intelligence can be applied across many services including underwriting, claims management, marketing operations for both agents and customers as well as risk analytics.

Although there are many benefits of AI to the InsurTech industry, it is still in its early stages. For example, some insurers might not understand how it can be applied to their business. There may also be problems with data security and privacy when customers submit claims or make payments through these firms' applications. Another challenge is around bias related to automated decision-making. Despite these setbacks, technology has become an integral part of modern life that cannot be ignored by insurers if they want to stay competitive for years to come.

Insurtech deals rising globally

Data reveals that the most recent third quarter saw 113 deals yielding over $3.1bn in investment funding. This figure marks a 23% increase over Q3, 2020 and is the second-largest funding quarter on record. 

Furthermore, although deal numbers have only risen 9% year-on-year, there were 11 mega-rounds of more than $100mn which accounted for more than half of total funding (down from nearly 70% in Q2, 2021, a quarter that broke nearly every record). Two of the three biggest deals were with cyber-related insurtechs, namely Coalition ($205mn) and At-Bay ($185mn).

Insurtech in the US

Investment in US insurtechs has risen sharply. The Willis Towers Watson report shows that the share of US-domiciled investment targets rebounded to nearly 46%. This is an increase of approximately seven points from the previous quarter.

Further afield, countries including Indonesia, Sweden, South Africa, Singapore, and the UAE saw quarter-on-quarter increases in deal activity. Early-stage startups raised a record-breaking $630mn, the report showed, while their average deal size expanded to nearly $12mn. 

Despite these findings, the share of seed and angel rounds dropped sharply to 19%, its lowest point since Q2, 2020. On the flipside, Series A deal count almost doubled to 31% of deals.

Insurtech investment pattern

While the news is good in terms of a general market escalation, the investment funding has not been evenly distributed. Figures show that as many as 95% of insurtechs have not experienced a rise in investor support, and the funding has been concentrated on a few core companies. 

Traditional insurance companies are seen as having a disadvantage because they take longer to complete transactions and handle claims. Customers are growingly preferring technology firms, which can improve the user experience and reduce the time it takes for them to purchase insurance policies and make claims.

The majority of the money was going to a few select companies. The ongoing increase in insurtech funding might look like venture capital is being spread evenly across the sector. However, investors have a low-risk appetite, so the bulk of their cash is flowing to the industry's most established firms.

Dr. Andrew Johnston, global head of InsurTech at Willis Towers Watson, explained, “The continuing escalation of Insurtech funding does not mean that venture and growth capital is available to most or even many InsurTechs. The growth of global InsurTech investment over the past decade has been significant, but the stark pattern is a concentration of the much for the few."

He continued, "For example, in the second quarter, more than two-thirds of the total capital raised went into 15 deals. Roughly 0.5% of the world’s InsurTechs shared $3.3bn, while $1.5bn was distributed between another 147. Funding was zero for the remaining 95%.”

Insurtech deep dive

The Willis Towers Watson report also lists insurtechs focused on the future of risk and those attempting to deliver innovations that ultimately lead to better insurance outcomes. They are; 

  • OTONOMI, a blockchain-enabled parametric MGA in the cargo space;
  • Corvus, an MGA with an AI-driven approach to commercial risk;
  • Arbol, a platform for parametric weather risk products;
  • Stable, which provides price risk management tools for the food and farming sectors;
  • Understory, a platform for hyperlocal climate-risk analysis;
  • Concirrus, which uses IoT data and AI to design and price digital insurance products;
  • Kettle, a reinsurance MGA that uses AI to assess perils, starting with California wildfires; and
  • Previsico, a flood modeler focused on surface water flooding.

Julian Roberts, managing director of Alternative Risk Transfer Solutions at Willis Towers Watson, responded to the findings, saying, “The interdependence of risk is now greater than ever, with almost every link in every supply chain reliant on functioning technology and connectivity.”

He added, “It’s both an emerging risk and a powerful solution. Enhanced data enabled by technology provides effective new risk insights and paves the way for boundless new creativity in insurance solutions.”

 

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