Insurance innovation is on a roll. Insurtech investing in the fourth quarter of 2019 increased again to almost US$2.0 billion ($1.99 billion), as noted in Willis Towers Watson’s recent Quarterly InsurTech Briefing Q4 2019. As important, the number of funding deals increased 10% to 75. Distribution, including MGAs, accounted for 57% of the deals in Q4 2019, and over 50% of the deals since 2014.
There was also a shift to larger deals in the fourth quarter 0f 2019, which is consistent with our prior post on large funding rounds in 2019 (see here). Q4 2019 deals included four rounds in excess of US$100.0 million each, and another seven in excess of US$40.0 million.
Unlike traditional venture capital, which supports many companies with smaller amounts of Seed and A round funding, Insurtech may be seeing more concentrated support of larger deals. Whether this is a good thing or not is an open issue.
Industry corporate venture capital vehicles are backing (relatively) fewer but clearly successful InsurTechs in later rounds… The industry simply does not need (and cannot afford) to support hundreds of companies that all either do essentially the same thing or do it to a lesser standard than does their peer group. The standards are rising – and rising quickly.
There may not be enough commercial support for hundreds of new entrants in narrow insurance segments, and scale appears to be becoming more important. The briefing estimates that 184 Insurtechs have closed their doors over the last three years (this excludes Insurtechs that never raised capital) and notes the importance of getting traction early:
InsurTechs operating in obscurity have very short shelf lives if the capital injected at an early level fails to support commercial germination.
In insurance, shutting down can cause significant disruption to customers and other trading partners:
In some instances, some real damage has been done where businesses have been injected with quick capital but not properly supported in the market… this has arguably been very irresponsible.
The briefing notes that the adoption of technology in insurance is dependent on each organization’s application of technology:
…the relative successes and failures in utilizing technology from burgeoning vendors was (and continues to be) highly specific at an individual business level. This was (and continues to be) further amplified at the individual regulatory environment level. Depending on your own position, perspective and geographic jurisdiction within the value chain, InsurTech’s relative applicability remains either an opportunity, a threat or irrelevant.
The briefing asks whether more Insurtech investment is needed:
Are we actually investing enough now into these companies that might make a difference to our businesses in the long term? Are we investing enough into our own businesses to support these solutions internally?
We may in fact not be investing enough on relevant technology, or enough into the likely winners of the InsurTech arms race… The winners of the InsurTech race are slowly starting to show themselves, and as such, we are at the crossroads of a massive opportunity.
Participating in insurance innovation is available to all insurance organizations. The majority of Insurtech organizations are focused on enabling technologies that integrate into the insurance value chain.
the availability and willingness of InsurTechs to work with our industry makes technologically supported solutions an opportunity for all to partake.
Insurance innovation is beginning to move fast. Not only is there the opportunity to participate in insurance innovation, it is now becoming an imperative for all insurance organizations.
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