Insurtech investments hit quarterly high after 2020 slump
The global insurtech industry is bouncing back following an increase in investments globally and has hit a new quarterly high according to a recent report.
The first quarter of 2021 has also seen the number of ‘mega-rounds’ increase, as total funding grew by 180% compared to the same period in 2020.
The pandemic resulted in a steep decline in investments at the beginning of 2020, but data now points to new investment being driven by P&C-focused companies, which saw a resurrection in investment back in the last quarter of 2020.
Big insurtech investment in 2021
According to the report, eight companies accounted for more than US$1.13bn in funding during Q1, 44% of the total raised, which is a new quarterly record for the number of mega-round fundraisings of US$100 million or more.
Mega round participants included Next Insurance, Coalition, Zego, Sidecar Health, Pie Insurance, Clarify Health, Corvus Insurance Agency, and TyTap, all of which met or passed the billion-plus “unicorn” status threshold.
The report also showed a 13% spike in early-stage deals over Q4 2020 along with a geographically diverse set of startup investments including activity in Brazil, Nigeria, Estonia, the UAE and Bangladesh.
Speaking about the increased activity, Andrew Johnson, global head of insurtech at Willis Towers Watson said, “The record level of activity this quarter reflects our industry’s ever more widespread willingness to engage and adopt technology, which continues to grow at an unprecedented rate.
“Technological innovation gains ground only when a community emerges to support it, and COVID-19, more than any other factor, has rapidly accelerated the change that was already well under way. COVID-19 has helped strengthen the narrative, and demonstrably illustrate the results technology can deliver, which are not being achieved at scale.”
Johnson explained that the offerings provided by insurtechs need to prioritise intellectual and commercial sense to appeal better to their target market. He went on to say that although technology and innovation is essential, it is practical mechanisms that are driving the industry forwards in the consumer marketplace.
“For them, the technology itself is the least interesting part of the initiatives,” he said. “Unfortunately, a failure to understand these realities, in addition to the general difficulty of entering our industry as a nascent business, means that many insurtechs will most likely never achieve the grandeur of their aspirations.”
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.