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Quarterly InsurTech Briefing Q1 2020

A new decade, a new epoch for InsurTech

Insurance Consulting and Technology|Reinsurance
Insurer Solutions||COVID 19 Coronavirus

May 4, 2020

This briefing will focus on the global auto space as it relates to technology and InsurTech. Auto is the dominant line of business in P&C/non-life, accounting for a third of global sector premiums.

Ten years ago, the term “InsurTech” was coined, referencing a mass emergence of “nontraditional” start-ups engaging with the insurance industry. “The rest is history,” as they say. At the older end, as almost 10-year-olds, some InsurTech are now set to leave middle school and be propelled into the more unforgiving realms of high school and beyond. The grown-ups are going to want results, and the system has a lot less patience for play time. While many InsurTechs themselves may still be in their infancy as start-up businesses, our industry’s relationship with InsurTech is maturing. Industry incumbents are becoming increasingly adept at knowing what they want, and the small number of InsurTechs that have started to pull away from the pack as winners are doing a good job of providing innovative solutions.

Isn’t it funny how day by day nothing changes, but when you look back everything is different?”

C.S. Lewis

If the Gartner Hype Cycle below (which offers a view of how a technology or application will evolve over time) is anything to go by, this new decade could possibly oversee the migration away from the “peak of inflated expectations” where we currently are through the “trough of disillusionment,” before achieving some state of equilibrium between expectations and true output at an individual company level.

Gartner Hype Cycle
Gartner Hype Cycle
The Gartner Hype Cycle offers a view of how a technology or application will evolve over time. This new decade could possibly oversee the migration away from the “peak of inflated expectations” where we currently are, through the “trough of disillusionment,” before achieving some state of equilibrium between expectations and true output at an individual company level.

One of the major challenges we face when judging the respective successes and condition of InsurTech is that, despite robust definitions, there is simply no one such true thing or experience of what InsurTech is at an individually localized level that can then be reapplied back to the masses (as that one thing). As a term it refers to so many things, including the entire InsurTech “ecosystem” (which in its broadest sense can include those parts of incumbents that are focused on InsurTech and the investment community), individual InsurTech businesses, a cultural renaissance reawakening in our industry of the value of technology and a nontraditional entrepreneurial cultural phenomenon, to name but a few distinctive things that the term tends to encapsulate.

Within each of the tenets mentioned previously, the ability to assess “success” is nuanced further. For example, within an incumbent’s InsurTech business model, is InsurTech purely an opportunity to diversify an investment portfolio (and therefore only realized in later rounds of investment or M&A)? Is it the ability to leverage technology to reduce expenses and improve efficiency? Do InsurTechs offer the opportunity to improve the top line? Or more abstractively, can InsurTech be successful irrespective of what incumbents choose to do? Can InsurTech be considered a success if incumbents suffer as a result? These questions represent just a fraction of which factors could be deemed metrics of success or failure.

Since 2010, we predict that at least 2,000 “InsurTech” start-ups have been conceived.

Since 2010, we predict that at least 2,000 “InsurTech” start-ups have been conceived. Circa 2010 itself, there were already a number of firms in existence that were also able to adopt the term over time, so the total number of InsurTechs that have ever existed could well be nearer the 3,000 mark. We know that of the total number of InsurTechs that were conceived post-2010 approximately 760 have raised capital in various forms, and over the past 10 years a few hundred have shut their doors. We also know that of those InsurTechs conceived after 2010 a very small percentage have been able to generate any meaningful revenue, let alone net profit.

We report on investment and noteworthy individual companies on a quarterly basis and make predictions on an annual basis. Now, we can make some broader observations looking back at the first 10 years of InsurTech’s existence as well as some predictions for the next 10 years that could largely apply to the majority of InsurTech companies. Before we jump into these predictions, we would first like to show you this quarter’s data highlights.

This quarter’s data highlights

Perhaps unsurprisingly, this quarter has bucked the recent trend of quarter-on-quarter growth; in fact, this is arguably the most interesting data set we have ever released during the history of our InsurTech Quarterly Briefing. While not entirely responsible, COVID-19 has had an enormous impact on global markets and global InsurTech investments. Investor optimism and consumer confidence is (at least) on pause, and (re)insurers have lots of unprecedented issues to deal with in the short term, which has shifted many firms’ focus. Consequently, we are reporting a 54% drop in total funding for this quarter when compared with the record highs of last quarter.

Globally, InsurTech companies managed to raise US$912 million across 96 deals in Q1.

Globally, InsurTech companies did still manage to raise US$912 million across 96 deals in Q1, but most of this was captured and completed at the beginning of the quarter. The year 2020 began on the same trajectory on which the previous year concluded. By January 3, almost US$82 million had been raised; by February 6, that figure was just over US$450 million. But it took until the end of March — the rest of the quarter — to double that amount. In short, almost half of the total amount raised in Q1 was raised in the first 35 days of a 91-day quarter. From March 10 to quarter-end, “only” an additional US$108 million was raised. Again, in short, the first three days of Q1 saw almost the same amount of money raised as the last three weeks of Q1.

This graph illustrates a 54% drop in total funding for Q1 2020 when compared with the record highs of last quarter. Globally, InsurTech companies did still manage to raise US$912 million in Q1, but most of this was captured and completed at the beginning of the quarter. By January 3, almost US$82 million had been raised; by February 6, that figure just over US$450 million. But it took until the end of March — the rest of the quarter — to double that amount. In short, almost half of the total amount raised in Q1 was raised in the first 35 days of a 91-day quarter. From March 10 to quarter-end, “only” an additional US$108 million was raised.

The observed slowdown in March coincided with several major event cancellations and sporting season suspensions amid climbing rates of COVID-19 infection. Entire cities and nation states have now been shut down or put into isolation, which has led, and in some instances forced, the (re)insurance industry into a brave new world: What was a clearly defined sold insurance risk (e.g., auto) in January was not necessarily the case in March. That being said, the InsurTech landscape is still growing against other metrics, as over 50% of deals this quarter went to early-stage companies, with this quarter having the highest number of total deals ever recorded (in a quarter) and a 28% increase from Q4 2019.

Property and casualty (P&C) InsurTechs widened their share of total and early-stage funding to over 80% compared with life and health (L&H) InsurTechs. This quarter, P&C InsurTechs raised 83% of total funding. The investment split between P&C and L&H InsurTech funding is the largest we have observed since Q3 2016. This trend persists in early stages as P&C InsurTechs raised 81% of funding at this stage, including Insurify’s sizable US$23 million Series A. Insurance-as-a-service start-ups saw notable investor interest as well with Instanda and Boost Insurance raising a Series A worth US$19.5 million and US$14 million, respectively. One could argue that, again, COVID-19 is a likely culprit for this stark disparity between P&C and L&H.

Start-ups with a focus on policy distribution raised the largest rounds in Q1 2020. As insurance moves increasingly online, companies that are able to match customers to policies are increasingly valuable. Insurance comparison platform PolicyGenius raised the quarter’s sole US$100 million megaround, followed by Digit, which raised a US$84 million Series C. While Digit is a direct insurer, it strategically partners with car dealerships and e-commerce sites to distribute policies for auto and electronics at the point of sale. Clearcover and Gabi raised US$50 million and US$27 million, respectively.

Tech-enabled claim management oversaw significant traction in an active auto insurance market. This quarter oversaw significant activity from auto manufacturers and insurers partnering to enable usage-based insurance in the U.S. We mention some of the notable ones further down in the introduction. Against this backdrop, companies improving claim management saw significant funding. London-based disaster recovery platform Tractable raised a US$25 million Series C after a successful pilot with Ageas. Another London-based start-up, Concirrus, which leverages cutting-edge technology to understand driver behavior and mitigate claim losses, raised a US$20 million Series B as it plans for international expansion and segment diversification. We feature this particular raise in greater detail in this briefing’s Transaction Spotlight.

As COVID-19 challenged investor confidence, we saw a softening of deals in countries outside core InsurTech markets.

More than half of start-ups that raised investment capital this quarter were U.S.-based. As COVID-19 challenged investor confidence, we saw a softening of deals in countries outside core InsurTech markets. Whereas last quarter, deals to the rest of the world (not including the U.S.) were just over 50% across 20 countries, in Q1 2020 we saw investment concentrated to the U.S., which absorbed 57% of deals, and the U.K., with 10% of deals. China recorded a six-percentage-point drop in the number of deals this quarter from Q4 2019, and a 13-percentage-point drop was recorded across Asia Pacific from Q4 2019.

The U.S. dominance this quarter is quite possibly a reflection of the delayed impact that COVID-19 has had in the U.S. until mid- to late March. It is therefore likely that the U.S.’s dominance could be dramatically lessened in Q2 and Q3 of this year when the U.S. markets begin to feel COVID-19’s impact more strongly. Similarly, we might observe an uptick in the Chinese and European markets as the impact of COVID-19 (hopefully) lessens over time, ahead of the U.S.’s uptick. As such, we are seeing a stagnated delay of the impact felt in regional markets as it relates to InsurTech investment.

Finally, when compared with Q3 2019, investment from (re)insurers (and their associated corporate venture capital [CVC] vehicles) dropped an enormous 49% in Q1 2020. This generally supports the hypothesis that Seed rounds and Series A rounds are increasingly (as a participation percentage) being done by traditional investors (e.g., venture capital, private equity funds).

These funds are placing a number of smaller bets across a much wider portfolio when compared with industry investors that are investing in fewer deals but at much later stages (which are typically much larger in terms of U.S. dollars raised). This is in general driven by industry investors’ desire to support proven businesses that offer a solution that supports their core business model or a model they wish to grow into. It is increasingly less about the speculative exits of InsurTechs as it relates to industry investors. With COVID-19 creating issues that are distracting (re) insurers away from InsurTech in this quarter, the manifestation of this decreased investment activity would suggest that the case is as we have described.

It is also worth noting that COVID-19 does not seem to have had a material impact on the respective valuations of InsurTech businesses. The vast majority of the InsurTechs that successfully raised money in Q1 are predominately early-stage firms, and at an aggregate level at least, the amount raised is still substantial. This would suggest that the major impact has been at the upper echelons of the investment ladder — later-stage InsurTechs looking to raise capital from industry players or InsurTechs that are looking to use (re)insurer’s balance sheets in a significant way.

It is too early to tell what long-term impact COVID-19 might have on the global InsurTech community. It would be very easy to suggest that this is the beginning of the downward slope described by us, referencing in respect of Gartner’s Hype Cycle. Our view, however, is that the downward slope is going to happen naturally irrespective of factors such as COVID-19. While COVID-19 might speed up thisprocess, it is too early, looking only at Q1 data, to say for certain that the process has now started (and will continue) without the foresight of what the rest of the year will look like.

If COVID-19 does persist for the rest of the year, we may simply observe a pushing back of what was naturally going to occur anyway. We may even see another peak of investment when “normality” resumes, before the natural slope downwards begins.

It is clear that InsurTechs as businesses will be affected by COVID-19, as most businesses will be. For those InsurTechs that are thinly capitalized, looking to raise money shortly, and dependent on other businesses to distribute product or services,the next few months could be challenging. It is quite possible that COVID-19 will hasten the closing of another cohort of InsurTech firms; however, if we ever needed a reminder as an industry of the importance of technology, remote functionality, online interaction and digital processes, it is this current environment in which many of us find ourselves.

The evolution of the Quarterly InsurTech Briefing series

In 2019, we chose to perform a year-long view of the insurance functional chain to create a lens through which we would take a look at some InsurTechs and technological innovations that related to each core competency of the series. This “business application first” model helped us to deliver our long-standing message that technology is an enabler that, without a business application to support, has relatively little intrinsic value. It also allowed us to focus with some kind of precision on what is otherwise a very chaotic space.

In our 2020 series, we will be evolving this focus one step further by applying these functional chain principles to the four major lines of (re)insurance business: auto (motor); property; commercial; and life, accident and health. The first three briefings will therefore be property and casualty-focused (P&C/non-life), and the final briefing will be life and health-focused.

This graphic illustrates the four major lines
of (re)insurance business: auto (motor); property; commercial; and life, accident and health.
Four major lines of (re)insurance business

According to a report conducted by Swiss Re in 2019, total global direct premiums registered in excess of US$5 trillion. Of that total, P&C insurance accounted for 44% (with US$2.4 billion total global direct premiums written) and life insurance accounted for 56% (with US$2.8 billion total global direct premiums written).

Auto and motor markets in focus

This particular briefing will focus on the global auto space as it relates to technology and InsurTech. Auto is the dominant line of business in P&C/non-life, accounting for a third of global sector premiums. Throughout the rest of this briefing, “auto” and “motor” will be used interchangeably.

InsurTechs in focus

This quarter, we will be featuring Buckle, a personal and commercial transportation network provider (TNC) insurance company; By Miles, a pay-per-mile insurer; and Octo, an auto telematics insight provider.

Investor perspective

As a new feature for the 2020 Quarterly InsurTech Briefing series, we will be speaking to an investor directly engaged in the InsurTech investment space.

As a new feature for the 2020 Quarterly InsurTech Briefing series, we will be speaking to an investor directly engaged in the InsurTech investment space. Each quarter we will be interviewing a different investor, asking about his or her perspectives on the industry and predictions for the future. We kick this off with Matthew Jones from Anthemis, a global venture capital fund focusing on Pre-Seed to Series C funding rounds. Matthew discusses what incumbents and InsurTechs can learn from one and other, why the industry as a whole should look to the broader technology ecosystem for insights, and how technology and liability may intersect.

Incumbent corner

In this quarter’s Incumbent Corner, Willis Re talks with Ping An and Zhong An. These two Chinese companies – an incumbent and an InsurTech, respectively – are leading the way in insurance innovation in China. The piece considers the role of technology in the insurance industry and how the customer remains integral to both companies’ technological developments.

Thought leadership

This quarter’s Thought Leadership comes from Stephen Jones, Willis Towers Watson’s U.K. Property and Casualty Insurance lead in the Insurance Consulting and Technology business. Stephen considers whether new is always better and how the auto insurance industry has responded to technological innovation. We will also feature Willis Towers Watson’s own software, Radar Live.

Transaction spotlight

Our Transaction Spotlight examines the Series B funding round of US$20 million into Concirrus, a U.K.-based specialty lines (marine, cargo, aviation) and automotive-focused start-up. Finally, we conclude the report with a review of InsurTech market trends and transactions in the InsurTech Data Center.

While we do not have a history in this report on mentioning non- InsurTech-related current affairs, we feel it would be remiss not to acknowledge the current global pandemic we are all experiencing at a human level. While we have taken time to discuss the current, and future, impact of COVID-19 at a business level, we recognize this indiscriminate virus is creating unprecedented levels of uncertainty and concern for all of us and the broader global community. We hope that this briefing finds you and your loved ones in good health. Please stay safe and conscious of doing your utmost to curb further contagion and outbreaks.

As ever, we thank you for your continued support.

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