Skip to main content
Survey Report | Insurer Insights

Quarterly InsurTech Briefing Q4 2020

2020 — The most important year for InsurTech to date

Insurance Consulting and Technology|Reinsurance

January 28, 2021

This briefing will focus on life, accident and health insurance as it relates to technology and InsurTech.

What a year. 2020 has arguably been the most interesting 12 months of InsurTech-related activity since the term was coined. We have observed a year of testing digital hypotheses and jumping into the digital unknown. It has also been a very difficult year for many firms and individuals who are looking to get to that “next step.” While InsurTech news is awash with billion-dollar initial public offerings (IPOs) and monumental raises, there are also those InsurTechs that should see surviving 2020 as a mark of success.

COVID-19 has created a situation few of us could have possibly imagined 12 months ago. From an operational perspective, no single firm or even industry initiative could have achieved what COVID-19 has forced many firms and individuals to do. The industry has shown that it can function digitally and has responded well to significant challenges.

Figure 1 shows that COVID-19 is the second largest paid loss event our industry has ever experienced, second only to Hurricane Katrina. The expected paid loss sum (to date) of COVID-19 is approximately US$55 billion.
Figure 1: Largest estimated paid (re)insurance losses per event (US$ billion)

Source: Swiss Re Sigma Report;

Against the backdrop of the dramatic operational changes we are undergoing, our industry has been forced to face a truly unique series of challenges. As far as paid losses go, COVID-19 is the second largest paid loss event our industry has ever experienced, second only to Hurricane Katrina. The expected paid loss sum (to date) of COVID-19 is approximately US$55 billion (see Figure 1). In addition to this monumental payout, (re)insurer investment returns have taken a significant hit as global markets have suffered from the global pandemic. It is estimated that the global lost investment revenue to our industry is in excess of US$150 billion, bringing the combined net loss of paid losses (through things like business interruption) and poor-performing investment returns to over US$200 billion.

Figure 2 shows that gross written premium in 2020 dropped in almost every single region of the globe (with the exception of China), in some cases as much as a 7% reduction in real GDP growth.
Figure 2: Real GDP growth by region

Source: Swiss Re Institute E = estimates; F = forecast

Gross written premium in 2020 dropped in almost every single region of the globe (with the exception of China), in some cases as much as a 7% reduction in real GDP growth (see Figure 2). It is predicted that the industry globally has seen a reduction of overall net income to the tune of 25.2% (relative to the prior year), with net underwriting income down and underwriting expenses up by 4.4% (see Table 1).

Table 1: U.S. P&C insurers underwriting results 2020
Source: Best’s Special Report
Measure % change vs. 2019
Overall net income -25.2
Net underwriting income -86
Underwriting expenses +4.4
Incurred losses and loss adjustment expenses +2.3
Pre-tax operation income -17.1

Not only has our industry been faced with direct costs and losses at historically unprecedented levels, but also the nature of the workplace has changed dramatically. Staff have, in many cases been unable to service client needs in person and have had to adapt to working remotely. The impact this has had on operating efficiency (at a human level) has been varied and unpredictable. Distribution of product and services has also been disturbed as brokerages and agencies that travel and rely on in-person offerings have been impacted. Finally, and possibly most important, (re)insurers are now facing the real challenge associated with changing risks. We have historical pricing for auto/motor, we have historical pricing for life insurance, but do we have enough data, expertise and understanding to price for a surge in remote work? Or a surge in the gig economy? Will the travel industry ever recover? It is fair to say that, while our industry has dealt with pandemics and systemic losses in the past of significant magnitude, never before has our industry been presented with so many challenges and pressures on capital and operations all at once at such a large scale.

There is a silver lining, however. While our industry is facing these extreme issues, we also have an unprecedented level of access to technology and technologists who can help us solve these problems. Technology, including a number of InsurTechs, is already showing itself to be the path through this time of great uncertainty. We are already observing technology’s role in remote working, remote operations and expense reduction. In the past this has not been an option for us, but perversely COVID-19 has created a situation that forces us to acknowledge the importance of technology.

As we have noted in prior briefings, InsurTechs do still need to survive the uncertainty of this unfamiliar operating (and social) environment in order to capitalize on this opportunity. While COVID-19 has created a platform for InsurTechs to shine, it has also created a temporary environment that has made access to funding difficult. COVID-19 has made the ability to run in-person proof of concepts difficult. And perhaps most important, COVID-19 has made the issue of vendor-client trust a very problematic hurdle to overcome.

Specifically relating to investment, 2020 began with a rude awakening for the InsurTech industry: We observed the lowest quarter of global InsurTech funding since the second quarter of 2018. In Q1 2020, US$912 million was invested, approximately half of what had been invested the prior quarter. This bucked a trend of big raises throughout all of 2019. It was clear that (re)insurers were preoccupied with COVID-19 given that the biggest reduction in activity came at the higher investment rounds where corporate venture capital firms typically invest.

The second quarter of 2020, however, bounced back with a very bullish three months of activity — most notably Lemonade’s IPO (as the first public InsurTech unicorn) and the acquisition of Spinnaker and Gateway by InsurTechs Hippo and Buckle, respectively. We also saw mega-rounds in the shape of Pie Insurance and States Title — a clear sign that the market was comfortable to continue on its long-term journey of investing into technology firms.

In the third quarter of 2020 any thoughts that the bubble mightburst in 2020 were dashed. We observed an unprecedented level of global funding into InsurTech businesses — both in terms of total U.S. dollar amount and transaction volume. In Q3 2020, InsurTech companies globally raised US$2.5 billion across 104 deals. This was predominantly driven by six megadeals (accounting for 70% of the total volume raised in the quarter).

Q4 data highlights: InsurTech funding finishes 2020 at a record high

Global InsurTech investment continued to grow amid a tumultuous year. In 2020, total annual InsurTech funding reached an all-time high of US$7.1 billion, inking 377 deals — the highest in any year to date. Compared with 2019, total funding increased by 12% while deal volume increased by 20%. In Q4 2020 specifically, InsurTechs raised US$2.1 billion across 103 deals. Property & casualty (P&C) InsurTechs continued the pattern of raising more funding and deals than life & health (L&H) InsurTechs, attracting 67% of total funding and 73% of all deals in Q4 2020. L&H InsurTech saw a modest 1.6-percentage-point decrease in its share of deals with a pronounced 8.4-percentage-point decrease in total funding compared with the prior quarter, Q3 2020.

Later-stage companies — including Hippo, Unqork, Waterdrop, Oscar Health, Bind Benefits and Newfront Insurance — each received in excess of the US$100-million-dollar “mega-round” funding mark, creating six mega-rounds for the quarter. These six rounds combined totaled US$1.1 billion in funding. The share of early-stage deals declined to 47% compared with 57% in Q3 2020, a 10-percentage-point decrease. Mid-stage deals, however, saw a significant uptick with 29% of deals at the Series B or C stage. We reported an increasing dearth of relative investment activity in these rounds, particularly Series C, in our prior Quarterly Briefing. It will be interesting to see if Q4 2020’s revelatory results are the beginning of a new trend or a temporary bucking of the continual gap-widening process we have observed over the past few years.

In Q4 2020, we observed InsurTechs from 23 countries raise investor capital compared with 26 in the prior quarter. Of particular note, there has been modest funding activity in previously dormant geographies, including Hong Kong, Brazil and Switzerland.

Home InsurTechs continued to attract investment

Direct-to-consumer home insurance players continue to raise funding, including Hippo, which raised the quarter’s largest round — a US$350 million Series F — and Paris-based Luko, which also provides sensor-based D2C home insurance, which raised a sizable US$60 million Series B. Hedvig, which raised US$9 million Series A-II, has brought the D2C model to Sweden as well. In Q4 2020, a few InsurTechs targeting more segments of home insurance raised funding, including Openly, which focuses on helping independent agents quote coverage for high-end homeowners. Matic, a digital insurance agency focused on reducing the friction of home insurance in mortgage lending, raised a US$24.5 million Series C.

In the shadow of P&C InsurTechs, L&H startups are quietly maturing

While the vast majority of the first wave of InsurTech IPOs were P&C-focused, more L&H InsurTechs are readying themselves for public debuts. Midwest Holdings, which provides technology enabled and services-oriented solutions to distributors and reinsurers of annuity and life insurance products in the U.S., closed its IPO in December 2020. Despite the fact that L&H InsurTechs represented just 27% of total deals this quarter, they represented 50% of later-stage mega-round deals in the past two quarters. In particular, Oscar Health, a digital health provider, raised a US$140 million Series F and confidentially filed its S-1 in December 2020 for an expected public debut in 2021. Waterdrop, a China-based crowdfunded mutual aid insurance platform that received a US$150 million follow-on investment from Tencent in consecutive quarters, is already working with investment banks to go public through an IPO. Bind Benefits, an administrator of self-funded and fully insured employer health care plans, raised a large US$105 million Series B to expand its fully insured product in Florida into new U.S. markets. D2C life insurer Bestow also raised a large US$70 million Series C as the pandemic reframes the value of coverage.

Life and health-focused InsurTechs see geographic diversity

L&H InsurTech in 13 countries raised funding in Q4 2020, more than in any other quarter since we started recording. Australia, Switzerland, Israel and South Korea, which have historically had little activity in L&H InsurTech, received funding as InsurTech models gain application in new geographies. There was modest but notable funding activity on the African continent, including South Africa, Kenya and Nigeria. For example, the investment in Curacel, which offers fraud management for health care claims, was the first recorded Nigeria-based L&H deal. Others included South Africa-based life insurance provider OneSpark Insurance and Kenya-based Turaco, which offers simplified health insurance. Chile, which saw its first L&H InsurTech investment in Q3 2020, received its second investment this quarter when Betterfly, a Santiago-based InsurTech that increases life insurance coverage based on good habits, raised a US$9 million Series A-II from QED Investors.

Another interesting feature of 2020, and perhaps less obvious, is the bifurcation of the Gartner Hype Cycle; it is becoming more obvious that viewing the evolution of InsurTech as one continuous line that peaks and troughs can cloud what is actually going on in reality. It is undoubtedly true that in the earlier days of InsurTech, a lot of commentators, industry participants and InsurTechs themselves were distracted with the underlying technology itself and not its application as it related to traditional business models (and, more important, success criteria). As a result, a lot of InsurTech businesses and initiatives came and went, creating graveyard mound of technology behind them.

What we experienced was a concurrent overvaluation of latest-tech terminology. In reality, what impact has blockchain had on our industry? Has 3D printing revolutionized the way we work? Has artificial intelligence transformed the value chain of (re)insurance? In most cases, the impact has been isolated and parochial. Artificial intelligence is certainly playing a role in certain parts of the value chain, but only where it is supporting sound business mechanics. In certain cases, the overestimation of these terms and their nebulous application to procuring customers, underwriting risks, managing policies, lowering operating expenses and settling claims temporarily elevated certain InsurTechs to levels of great promise that have simply not materialized. In accordance with this promise, certain InsurTechs have been wildly overvalued by investors (both traditional and nontraditional). A very small number of these firms have even gone public through an IPO and are now scrambling to translate this promise into reality — by meeting traditional success criteria. In the reimagined Gartner Hype Cycle, these companies (both past and present) are best represented as being drivers of expectations in the peak labeled 1 in Figure 3.

Figure 3 - In the reimagined Gartner Hype Cycle, we illustrate InsurTechs that have been wildly overvalued by investors. Description below.

With a successful delivery of their promises, a handful of InsurTechs in the peak will translate into long-standing technology options for our industry, which is labeled 1 in Figure 3. The majority, that have not — or do not — deliver on these promises, however, will be the principal drivers of the downward slope into the “trough of disillusionment.” What is unlikely to happen is that any of these businesses will bounce back or have ancillary phoenixes reborn in their embers to support the steady climb of “realistic expectations, which is labeled 2 in Figure 3.

Figure 3: The Gartner Hype Cycle reimagined

With a successful delivery of these promises, a handful of InsurTechs in the peak will translate into long-standing technology options for our industry, helping to lower expenses and drive business-ready innovations. The majority, that have not — or do not— deliver on these promises, however, will be the principal drivers of the downward slope into the “trough of disillusionment.” What is unlikely to happen is that any of these businesses will bounce back or have ancillary phoenixes reborn in their embers to support the steady climb of “realistic expectations,” which is labeled 2 in Figure 3.

The good news is there is a very healthy evolution of activity located in the background (or shadow of peak 1). Over the past three to four years, a number of InsurTechs have done an excellent job of learning from the mistakes of others. They have acknowledged that the underlying technology is innovative and has great potential, but they have not lost sight of the end goal: delivering business outcomes for themselves and their partners. Furthermore, many of these firms have acquired (re)insurance DNA through smart hires and have made great strides in building partnerships with the existing landscape rather than assuming the industry is fundamentally flawed and therefore “ripe for disruption.” The hubris surrounding this narrative has, thankfully, started to dry up, as have the unhelpful quotes from Henry Ford and “Field of Dreams.”

We are already seeing a number of companies delivering on their business promises before being burdened with unsustainable valuations. A useful reminder to InsurTechs is to fall in love with the problem you are trying to solve for others, not the technology you have built for yourselves. Those InsurTechs that are driving the sloping upward gradient towards the “Slope of Enlightenment” will do extremely well in our industry. The valuation and expectations of their business will be in line with reality. As such, group 1 (those relying on overvalued terminology) will be relatively short-lived if they cannot morph into group 2, and those firmly already in group 2 will do well over the long term.

Overall, 2020 has been a fascinating year for InsurTech; anyone who doubted the value and role that technology might play in our industry from an operational perspective has been silenced. Similarly, anyone who doubted the market appetite for gig economy products and small business products has most likely been silenced also. Investment has polarized between numerous small checks and a handful of enormous raises, split between non-industry investors and industry investors, respectively. And to reiterate a consistent message from us throughout the year, many InsurTechs probably feel vindicated that our industry has been forced to realize the value of technology; their issue now, however, as small nascent businesses, is to survive months (possibly years) of market uncertainty.

From a global investment perspective, 2020 began slowly and has rebounded to record US$7.1 billion total investment into InsurTech. As Figure 4 shows, both deal flow volume and total investment volume are at the highest levels recorded.

So what is in store for 2021? We anticipate there will be another cluster of IPOs from firms looking to make the most of the public market’s appetite to invest in new technology firms. It would be remiss not to acknowledge 2020’s IPOs with Lemonade, Duck Creek, Root and Midwest Holding all choosing the path to float publicly. In some cases, InsurTechs have entered the market at a valuation many multiples in excess of their current book value. For example, Lemonade’s entry valuation was more than 40 times its book value. Metromile, who is set to float publicly imminently is being priced at 120 times its own book value. With average customer acquisition costs at the US$300 mark, and combined ratios that are far from flattering, it is fair to say that these valuations are, at least in part, being propped up by a degree of hype and public optimism. Consequently, it could be argued that, from a public investment perspective at least, the convergence of true valuation could temporarily accelerate the downward slope of peak 1 (per our prior comments on the Gartner Hype Cycle). If certain unfavorable drivers can be turned around, however, perhaps certain InsurTechs can morph into profitable businesses that do not damage the long-term integrity of technology in our industry.

Figure 7 - From a global investment perspective, 2020 began slowly and has rebounded to record US $7.1 billion total investment into InsurTech.

Both deal flow volume and total investment volume are at the highest levels recorded.

Figure 4: Annual InsurTech funding trends including transaction volume and dollar amount, 2012 – 2020

Certain InsurTech firms have fared better than others in the time since they chose the option to go public.

From a pure public investment standpoint, it remains to be seen what the stoicism of public optimism will be for investing in InsurTech long term. Certain InsurTech firms have fared better than others in the time since they chose the option to go public. It is certainly not an option for all InsurTechs and should not be seen as the pinnacle of success. For example, the acquisition of Risk Genius by Bold Penguin should be seen as a win-win for both parties (especially given the most recent announcement). Similarly, securing big industry partnerships has also proved to be another successful option, for example, Ki (partnering with Brit). We also anticipate that the big tech firms will continue to see our industry as an opportunity to capitalize, whether through a distribution play, an investment opportunity, sales and marketing, or technological leveraging (most likely a combination of all). And finally referencing Figure 4, it is clear that there is a linear gradient in the number of deals being done year-on-year. Continuing on this same gradient, it is quite possible that we will see over 400 InsurTech deals done in 2021.

Puzzle piece – This figure illustrates the four major lines of business of insurance products sold: auto/motor, personal property/assets, commercial insurance and life, accident and health.
Four major lines of (re)insurance business

This quarterly briefing’s contents

Our 2020 series of briefings set out to focus on the four major lines of business of insurance products sold; auto/motor, personal property/assets and commercial insurance formed the themes of our first three briefings. This Quarterly InsurTech Briefing, the last in the 2020 series, will focus on life, accident and health. We will be using the term life, accident and health, or LAH insurance, interchangeably when referring to this area of (re)insurance more generally. Where we specifically mean to highlight life insurance or health insurance, we will be specific. In this particular briefing, we will be featuring the following InsurTechs:

  • Afficiency, a U.S.-based digital life insurance platform that allows new products to be digitized and made available for distribution rapidly
  • Inclusivity Solutions, a South Africa-based company that addresses the protection gap in emerging markets through digital insurance solutions
  • Decent Health, a U.S.-based company that offers affordable health insurance for groups underserved by the current health insurance carrier landscape
  • dacadoo, a Switzerland-based comprehensive digital health engagement platform to motivate users to achieve and maintain healthy lifestyle habits
  • Player’s Health, a U.S.-based sports services organization that provides digital risk management services and reporting tools to sports organizations
  • Abi Health, an Ireland-based medical micro-consultation service that gives people secure and compliant access to real doctors via chat apps
  • Global IQX, a Canada-based provider of artificial intelligence-driven employee benefit technology

Investor perspective

In this quarter’s The Art of the Possible, we speak to Stephen Goldstein, Vice President, Client Experience Lead at RGAX, the investment arm of L&H reinsurer, RGA. Stephen discusses RGAX’s investment mandate and the changes he has witnessed in the LAH InsurTech space.

Incumbent corner

In this quarter’s Incumbent Corner section, we are delighted to feature two companies that are both doing extremely innovative things with technology. First, we talk with Adrian Gore, the founder of Discovery, about Discovery’s Vitality program and his observations of the impact of COVID-19. Our second interview in this feature is with Santosh Gon, Aviva Singapore’s chief information officer to hear his perspective on the impact of Aviva Singapore’s innovation strategy, role of technology and their recent merger with Singlife.

Thought leadership

This quarter’s Thought Leadership comes from Willis Towers Watson’s Ryan Jessell who discusses the movement to electronic enrollment and the new role of agents and brokers. Ryan is joined by John Jevin at Aetna to discuss Aetna’s technological progress and the role of innovation.

Transaction spotlight

In this quarter’s Transaction Spotlight, we speak to Hong Kong-based InsurTech Coherent about its recent US$14 million Series A raise. Coherent is a provider of digital platforms to insurers. Among other things, the raised capital will be used to expand the company's Asian presence and increase customer reach and scale of its business.

Technology spotlight

We will also be featuring in our Technology Spotlight section Willis Towers Watson’s latest technology offering, Optimum SAA, a web-based platform for strategic asset allocation that helps users find their optimal asset allocations and achieve better risk management and investment return.

As ever, we thank you for your continued support.

Title File Type File Size
Quarterly InsurTech Briefing Q4 2020 PDF 9.5 MB

Andrew Johnston
Global Head of InsurTech, Willis Re

Haggie Partners

Contact Us