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Survey Report | Insurer Insights

Quarterly InsurTech Briefing Q2 2021

Back to the future?

Insurance Consulting and Technology|Reinsurance

July 29, 2021

This briefing explores the InsurTechs, InsurTech initiatives and thought leaders focused on the future of distribution and delivery.

In certain parts of the globe, the efficacy of comprehensive vaccination rollout plans are starting to have the desired effect Consequently people and businesses alike are starting to make plans to “return to normal.” These plans are rightly being met with a plea to take the best of what COVID-19 has forced our society and industry to appreciate and accomplish, and blend it with our desire to reengage with the tactile world. This new normal will be technologically enabled but hopefully retain those things that can only be accomplished by the human touch. Done correctly, we will go back to the future.

At a social level, it is clear that people want to go back to traveling again, they want to go on holiday again, they want to take risks, they want to start new businesses and do many of the things that have been very tricky to accomplish since the beginning of 2020 Similarly, the world has also moved on; the gig economy continues to grow, and we continue to muddy the water between home and work, personal and professional/commercial. Irrespective of COVID-19, issues such as climate change and cyber continue to present our world (and our industry specifically) with many unprecedented challenges. A surging demand for electric vehicles, automated processes, and increasing expectation for instantaneous service and results are also fueling the fires for change.

As our lives are changing at a micro level, a collective society at a macro level demands an insurance community to support its changing behavior.

From a product, service, distribution and underlying risk perspective, we — as a society and as an industry — are moving at an unprecedented speed to match expectations with reality, largely powered by harnessed appropriate technology and digital strategy. As our lives are changing at a micro level, a collective society at a macro level demands an insurance community to support its changing behavior. With so much retail choice, those (re)insurance providers that fail to respond to the changes that the back-to-the-future model are creating will fall away over time. We have a fantastic opportunity ahead to rid ourselves of obsolete legacy and redefine what it means to serve and be served in the contemporary shared risk pool that is technologically enabled (re)insurance.

Building on the astronomically high level of InsurTech investment we observed in the first quarter of this year, we will once again be announcing another record-breaking quarter in Q2. This means one thing is still abundantly clear: There is still more investment capital looking for a home than there is grey matter itself. This has led to some grossly overvalued businesses that our industry is looking to in order to help drive some of the technological evolution and social change that we have just described. In particular, as many risk-originating InsurTechs are maturing and looking to go public, we are seeing the initial public offering (IPO) trajectory for some businesses happening earlier and earlier in the funding cycle. An optimist could look to this as a sign of great businesses coming through the investment journey that do not need to cede unnecessary percentage points of equity or go through another round of pilots/proof of concepts. A cynic may well see this as a rushed move to make the most of the bullish investment landscape, which is likely to turn tide before long.

Globally, markets are shifting; the investment landscape is moving to a more conservative stance, and “tech” firms that are financial services-focused are increasingly playing in very volatile markets. Furthermore, in a very real sense, the (re)insurance markets are hardening. The future of the global economy remains uncertain, as the pandemic, climate change, increased catastrophic events and other systemic events that continue against the backdrop of these volatile markets. These events have begun to force the (re) insurance market away from over a decade of “soft”(er) conditions to a situation that will be a lot less forgiving for new risk-originating entrants (technologically enabled or not).

The speeding up of going public (or going too early) might ultimately seal the fate at an industry-wide level for the type of overvaluation that we have seen in the past couple of years, as even the most optimistic short-term investors may have to reevaluate the true value of many InsurTechs over the long-term.

It would be remiss, however, not to acknowledge that some InsurTechs that have gone public, or plan to go public, are performing very well; for example, Doma (formerly States Title) announced in March it was going public through a special purpose acquisition company with Capitol Investment Corp. At that time Doma reported financial results and key operating data for the quarter ended March 31, 2021, boasting total revenues of US$128 million, up 80% from Q1 2020 and a gross profit of $26 million, up 98% from Q1 2020.

For many InsurTechs, the past 18 months have been a struggle COVID-19, among other things, has presented our industry and most mature markets with some real uncertainty, which is leading to varying degrees of volatility. For those InsurTechs that have already gone public, it is clear that (perceived) volatility has had a broad effect on stock prices; we observe this in a recent trend for most InsurTech stock (and for that matter, most tech stock) to converge and move together, almost regardless of how the businesses themselves are performing. This would suggest that at present the market does not really know how to treat InsurTech stock (and this trend could last a while). Currently, most public InsurTech stock is experiencing a downward trend, as is so often the case with relatively exciting new investment opportunities during periods of volatility and uncertainty. This is not to suggest, however, that there will not be a positive future for many InsurTechs that can survive this uncertainty, and to this point, some individual businesses are demonstrating some impressive resilience already.

Over time, we predict that as the label of InsurTech becomes increasingly less important, and the market becomes more comfortable with certain individual businesses, there will most likely be a natural push to drive individual InsurTech business stock prices to find their proper place on their own (and reflect the businesses they represent). At what point the typical share value of most InsurTechs will reach stability remains to be seen. In the short term, however, these tech-oriented stocks are feeling the brunt of a market that is changing. One thing is clear: For those InsurTechs that are able to weather the storm and bring a truly differentiated business to our industry, these changes could create untold long- term opportunities.

While the pathways to success are in reality very nuanced, InsurTechs should be thinking about our industry’s success criteria in a clear manner (as it relates to their own offerings). Perhaps drawing a parallel to that of a fire triangle (requiring oxygen, fue and heat made true with combustion), our industry requires risk capital and operational efficiency to drive itself, within the context of a shared risk pool, a highly regulated industry and capped market size. If an InsurTech can truly bring a differentiated risk (offering), open up differentiated streams of liquidity or offer our industry a truly differentiated series of processes that can motor our industry, then it has a fantastic chance of success. In reality, we are seeing many businesses rehashing tried and tested products and processes that can, at best, add marginal value around the edges (but do not often justify the cost of disruption of their usage).

Figure 1: The graph above shows the stock prices over time of some of the global InsurTechs that have gone public. - Description Below

In order to create a graph of stock price change relativity, we pegged S&P 500 and six InsurTechs at zero for the beginning of the year (Metromile and Oscar are introduced at the point of going public with the same peg) to illustrate relative performance over the same time period. While this is extremely crude, what we are attempting to The graph above shows annual InsurTech funding ($ million) against the number of InsurTech deals. The number of deals in H1 2021 has already surpassed the entirety of 2018 and the years that preceded 2018.

The graph above shows the annual InsurTech funding totals ($ million). H1 2021 has already surpassed the total funding realized in the entirety of 2020.

Data sourced from S&P Global Market Intelligence present is the convergence that we previously touched on. Not only have these six InsurTechs’ prices experienced a general downward trend during H1 , their movement is highly correlated with one another, which would suggest that the market might view them as one animal rather than six individual businesses. We will continue to track performances to see if our hypotheses on this are correct.

Figure 1: Relative/comparable InsurTech stock price changes over time pegged to zero beginning January 2021, including S&P 500 to benchmark

Data sourced from S&P Global Market Intelligence

The graph above shows the stock prices over time of some of the global InsurTechs that have gone public. In order to create a graph of stock price change relativity, we pegged S&P 500 and six InsurTechs at zero for the beginning of the year (Metromile and Oscar are introduced at the point of going public with the same peg) to illustrate relative performance over the same time period. While this is extremely crude, what we are attempting to present is the convergence that we previously touched on. Not only have these six InsurTechs’ prices experienced a general downward trend during H1, their movement is highly correlated with one another, which would suggest that the market might view them as one animal rather than six individual businesses. We will continue to track performances to see if our hypotheses on this are correct.

As mentioned, changing market conditions do present some InsurTechs with an opportunity to take advantage of shifting plates as competition becomes fiercer and restraints on capital require increased efficiency, but frankly most InsurTechs are just not up to standard to survive a possible decade of stringent and volatile market conditions. This does not mean that the investment into InsurTechs pre-M&A/going public will dry up in the short term, but their ability to deliver on their commercial promises is going to be extremely difficult in the long term. Thankfully we are seeing a drying up of InsurTechs trying to sell their technology as the product they ultimately wish to offer. Technology is simply a mechanism to attain success against a series of commercial metrics. The mechanism being “blockchain-based” or “powered by AI” is meaningless if it has no net positive impact on risk, capital or operational efficiency.

Figure 2: The graph above shows annual InsurTech funding ($ million) against the number of InsurTech deals. - Description Below
The number of deals in H1 2021 has already surpassed the entirety of 2018 and the years that preceded 2018.
Figure 2: Annual InsurTech funding trends, including transaction volume and dollar amount, 2012 – H1 2021

Before moving on to this quarter's data, we also want to check in on another very real part of the overall InsurTech story that gets a lot less attention than big fundraises and valuations: individual InsurTech business closing. Just over a year ago, we estimated that some 184 InsurTech businesses had ceased trading. We yet again are trying to calculate what the updated rate of global InsurTech deaths has been/is. Running an analysis on InsurTech companies that might be “closed,” the following metrics, although crude, were dialed; those businesses that have raised less than US$10 million overall, have not exited (IPO and/or M&A), have not raised any capital in over 24 months and are outside the top 25 percentile in CBInsights’ platform Mosaic Score (a predictor of individual company health). The results of this show that approximately 456 InsurTech businesses fit these criteria. As noted, this is an extremely crude exercise but illuminating, nonetheless. While the actual number of InsurTechs that have ceased trading could be drastically different, our sense is that it is probably at least this many businesses if we consider 2010 our starting point.

Figure 3 : The graph above shows the annual InsurTech funding totals ($ million). - Description below
H1 2021 has already surpassed the total funding realized in the entirety of 2020
Figure 3: Annual InsurTech funding totals, 2012 – H1 2021

Q2 data highlights

Global InsurTech funding reaches an emphatic record; the first half of 2021 already exceeds the full year of 2020 funding.

Global InsurTech funding reaches an emphatic record; the first half of 2021 already exceeds the full year of 2020 funding.

In Q2 2021, we witnessed the largest quarter-on-quarter funding increase since Q3 2018. Specifically, global InsurTech funding ballooned to over $4.8 billion, representing an 89% increase from Q1 2021 and a 210% increase compared with the same period last year.

Mega-rounds provide rocket fuel for Q2

In the first half of 2021, InsurTechs have raised $7.4 billion – surpassing the $7.1 billion raised for all of 2020 by more than $300 million. While overall deal activity grew to 162 deals, up 11% compared with last quarter, a major driver of funding was the growth in mega-rounds ($100 million-plus funding), up to 15 deals.

Collectively, the 15 funding rounds represented nearly $3.3 billion or 67% of total funding, as these predominantly late-stage players seek expansion. Companies ranging from Germany-based digital insurer wefox, which raised $650 million, one of the largest Series C on record, to U.K.-based pet insurance managing general agent (MGA) Bought By Many, which raised a hefty $350 million Series D. Other major funding rounds went to companies like Collective Health ($280 million Series F), Extend ($260 million Series C), Alan ($223 million Series D), Shift Technology ($220 million Series D) and others.

Early-and mid-stage InsurTechs deals grew

While other stages contracted modestly, early-and mid-stage pipeline remains healthy. Deal activity was driven by mid-stage (Series B and C) deal share, which increased by 6% to 23%. The pipeline for early-stage InsurTech continues to remain healthy with early-stage deals growing by over 9% from the prior quarter and rebounding by 200% from the peak of the pandemic in Q2 2020. As a percentage of overall deals, early-stage activity fell slightly to 57% of deals versus 58% in Q1 2021.

InsurTech geographic diversity continues to grow

As opportunities to leverage technology in insurance transcend borders, InsurTech value propositions are resonating with more countries as entrepreneurs chase opportunities to innovate insurance in new regions. Geographic diversity among global InsurTechs continues to grow, with InsurTechs from 35 distinct countries securing investments, compared with 26 countries in Q1 2021.

Geographic diversity among global InsurTechs continues to grow, with InsurTechs from 35 distinct countries securing investments, compared with 26 countries in Q1 2021.

For the first time, we observed activity in InsurTechs based in such countries as Botswana, Mali, Romania, Saudi Arabia and Turkey, and saw recent activity from less active regions, such as Vietnam, Philippines, Romania and Greece.

InsurTechs focused on distribution accounted for nearly 55% of all deal activity

A 7% increase from the prior quarter, InsurTechs driving efficiency in insurance distribution continues to be a major priority for investors. This quarter, 55% of deals involved start-ups focused on distribution (i.e., digital brokers, MGAs and lead generation) In addition, 10 of the 15 InsurTechs that raised mega-rounds this quarter focused on improving insurance distribution, with varying approaches.

The majority of companies focus on tech-enabled distribution in an attempt to minimize the dependence on agent channels, including embedded product warranty platform Extend, price comparison site The Zebra and commission-less life insurer Ethos Life. wefox, however, has taken a different approach. wefox, the Germany- based digital insurer, relies heavily on local agents for policy distribution but has built efficiency in other ways by automating nearly 80% of administrative processes, according to the company. Though approaches may vary, technology will continue to play an essential role in driving better, cheaper and more transparent insurance experiences.

The figure shows that the 2021 Quarterly InsurTech Briefing series will examine the depths of the future of our industry.
The Q2 edition focuses on the future of distribution and delivery
The future of distribution and delivery

This quarterly briefing’s contents

This Quarterly InsurTech Briefing, the second in the 2021 series, will focus on InsurTechs, InsurTech initiatives and thought leaders focused on the future of distribution and delivery — a very pertinent topic given the total amount of investment activity that occurred this quarter focused on InsurTechs that specialize in this space. In this particular briefing, we will be featuring the following InsurTechs:

  1. 01

    bolttech

    Hong-Kong-based bolttech is a global digital protection and insurance business that connects insurers, distribution partners and customers to make it easier and more efficient to buy and sell protection and insurance.

  2. 02

    Semsee

    U.S.-based Semsee provides an easy-to-use, cloud-based platform for quoting small commercial insurance.

  3. 03

    Uncharted

    Singapore-based Uncharted provides an insurance platform-as-a-service (iPaaS) that can embed digital distribution and servicing solutions for the global insurance marketplace.

  4. 04

    Breathe Life

    North American-based Breathe Life is a unified digital distribution platform for life insurance carriers.

  5. 05

    Bindable

    U.S.-based Bindable provides a platform that brings together its agent software, a digital marketplace and a full suite of support services to offer flexible, market-ready solutions that connect insurance providers, trusted brands and consumers.

  6. 06

    Penni.io

    Denmark-based Penni.io enables insurance products to be embedded at any digital customer touchpoint.

  7. 07

    Talage

    U.S.-based Talage is a provider of digital distribution software solutions for commercial insurance

The Art of the Possible

In this quarter’s The Art of the Possible, we speak to Adrian Jones, managing director at HSCM Ventures. Adrian discusses the InsurTech venture capital market, how HSCM Ventures supports entrepreneurs, and the HSCM Public InsurTech Index (HPIX). The HPIX is a market cap weighted index of 18 U.S. insurance-sector stocks with novel business models differentiated by technology. (The HPIX values will not necessarily correspond to Figure 1).

Incumbent Corner

In this quarter’s Incumbent Corner, we speak to Sean Ringsted, chief digital officer at Chubb, to discuss Chubb Studio, Chubb's engagement with technology and innovation, and the company's long-term technological innovation plan.

Thought Leadership

This quarter’s Thought Leadership comes from Willis Towers Watson’s Clyde Bernstein, head of broking, Great Britain and global leader of data and technology broking strategy. Clyde shares his thoughts on why our current insurance distribution methods have led insurers and consumers to a crossroads and the needed response from insurers to realize continued relevance.

Transaction Spotlight

This quarter’s Transaction Spotlight highlights Ethos on its $200 million Series D round, Bought By Many on its $350 million Series D and Shift Technology on its $220 million Series D.

Technology Spotlight

Our Technology Spotlight this quarter features Willis Towers Watson’s Radar Workbench. Radar Workbench is the latest product in the Radar suite, building on existing foundations and capabilities in delivering insurance-specific technologies to commercial lines insurers.

As ever, we thank you for your continued support.

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Contacts

Andrew Johnston
Global Head of InsurTech, Willis Re

Haggie Partners

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