Investment in insurtech over the past year has yielded some healthy figures, with a record $10.5bn of investments raised in the first three quarters of the year.
However, although the industry is growing and expanding at a healthy rate, data also reveals that the vast majority of the investments have been concentrated in just a few areas, which means many startups are still struggling to scale in a thriving space.
According to a recent report by Pine Bridge Investments, the insurance industry is becoming increasingly complex, with new trends, low asset yields, unstable economic climates and a constantly shifting ecosystem. Mergers and acquisitions are now commonplace. Strategic tie-ups are expanding the sectors in response to demands for diversification and a move away from income yields via traditional insurance routes.
Added to this is the increasingly innovative technologies that are opening up new possibilities, products, and services on almost a daily basis, thus reducing the predictability of the space.
Rising interest rates and inflation
Data suggests that due to higher interest rates, and Covid-19 and policy-related shocks, insurers are adding floating-rate products, real assets, and semi-liquid strategies. Results show that floating-rate assets such as direct lending, commercial mortgage loans, and collateralized loan obligations are well-positioned in a scaling environment.
Technology and industry adoption
Automation is a gamechanger, as is the increased adoption of mobile technologies globally. 2022 will also see greater rollouts of 5G, which will enable faster services, a greater uptake and aggregation of data, along with real-time risk-related analytics.
Insurtechs are leveraging the latest insurance technologies to reduce costs for both customers and insurers, improve operational efficiency, and improve the entire customer experience.
The digital ecosystem
Insurtechs and incumbents alike are partnering and merging to scale at speed. These moves essentially expand company footprints, enhance products and services, and can double a customer base in one just one deal. Therefore, the insurtech market is swiftly evolving and changing, making it an opportunistic bet for investors, but also an unstable environment, as the desire to partner with other companies can create its own complications.
Many PE firms have chased partnerships through partial or full ownership of insurance companies, particularly annuity writers. The Pine Investments report states, “For PE managers, the attraction is the long-term stable capital that comes with affiliated insurance assets.
According to the Capital Markets Bureau of the National Association of Insurance Commissioners (NAIC), 177 US insurers were owned or controlled by private equity firms with total cash and invested assets of approximately $487bn in 2020. That was up by about 200% from 89 insurers and 42% from $344bn in 2019. The proliferation of the PE activity has caught the NAIC’s attention regarding its potential impact on the industry.”
ESG and the investment impact
The drive towards net zero and ESG looks set to be a huge disrupting force within the insurtech industry, as well as for industries across the board. Investors are concentrating on companies that can prove they are ESG compliant and are partnered with companies and initiatives that support the 2030 zero-emissions agenda.
Climate change is PC reinsurers due to their underwriting exposure to natural crises and social risks. As asset owners, insurers look to integrate holistic ESG policies into their investment decisions, they join a robust number of investors who are requiring their asset managers to report portfolio data related to carbon emissions.