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A robust supply of capital combined with growing ranks of new investors is driving record investment into the insurtech sector.
Funding for insurtech ventures continues to grow, with many technology companies favoring partnerships with incumbent insurers and brokers over the previous trend of new entrants seeking to operate as disrupters, observers say.
In addition, the COVID-19 pandemic has spurred change and investment.
Thomas Mason, senior research analyst in Charlottesville, Virginia, for S&P Global Market Intelligence, a division of S&P Global Inc., said the insurtech sector provides an attractive alternative for investors.
“There is tons of private venture capital floating around in the system and it has to go to work somewhere,” he said.
“There is no shortage of capital looking for a home in the insurtech space,” said Andrew Johnston, Nashville, Tennessee-based global head of insurtech at Willis Re, a unit of Willis Towers Watson PLC. In addition to established insurtech investors, the sector continues to attract growing numbers of new investors, he said.
According to Willis Towers Watson data, in 2012 an estimated 153 venture investors put capital into businesses that self-identified with the label “insurtech,” he said. By 2014, the number had nearly doubled to 278 venture investors, by 2016 it nearly doubled again to 511, and so far in 2021 an estimated 1,118 venture investors have invested in insurtech, which is almost 7.5 times the 2012 estimate.
“There is a growing number of nontraditional investors looking at insurtech every single year,” Mr. Johnston said. “There are more and more non-industry investors looking at this space as an opportunity.”
Venture capital investors have increasingly moved into the insurtech sector, according to Marie Carr, principal of global growth strategy and U.S. financial services practice in Chicago at PricewaterhouseCoopers LLP. “The nature of the supply is bringing some other types of players to the table in a larger number,” she said.
Venture capital funding for U.S. insurtech companies increased to $1.97 billion in the first half of this year compared with $1.75 billion in the same period of 2020, according to a recent report from S&P Global Market Intelligence.
Investors are also drawn by the nascent stage of insurtech development.
“Investors see the opportunity in digitally transforming the insurance sector,” said Jeffery Williams, senior analyst at Forrester Research Inc. in Richmond, Virginia, as digital maturity across the broader sector is in its early days.
“We are still in the early innings of market penetration,” said Emmalyn Shaw, managing partner with Flourish Ventures, a venture capital firm with interests including insurtech and data and analytics, in San Francisco. “A combination of the overall market potential for transformation and incumbent interest on a strategic basis for new insurtech innovation is what continues to drive interest.”
Two recent reports show 2021 will see record insurtech investment, with the bulk of funding going to U.S.-based ventures.
Third-quarter insurtech investment reached $3.13 billion, which was down from $4.82 billion in the second quarter but up from $2.54 billion in the third quarter of 2020, according to Willis Towers Watson.
Year-to-date investment in insurance technology through September topped the $10 billion mark for the first time in any one year, with 2021 already seeing $10.5 billion raised, Willis said.
A report from Forrester said approximately 70% of third-quarter 2021 insurtech funding, or $3.77 billion, went to U.S.-based insurtechs, followed by the United Kingdom at $330 million and India at $259 million.
As the insurtech sector continues to draw more funding, it has to some degree shed its “disruptor” label.
“Vendors see value in partnering with insurers, and incumbents are investing in insurtech as a result,” Mr. Williams said, noting that among insurtech investors during the quarter were familiar names, including Munich Re Ventures, part of Munich Reinsurance Co., and Japan’s Sompo Holdings Inc.
The COVID-19 pandemic also helped spur insurtech investment as lockdowns created the need to do business remotely, which was facilitated by increased use of technology.
“Things that many leaders felt fairly comfortable were in the 15-year horizon or better, suddenly got accelerated to the five-to-seven-year horizon. The rate at which insurance companies have to incorporate and build new capabilities has dramatically changed,” Ms. Carr said.
“The rapid digital adoption driven by COVID will continue into the recovery. Insurtech was one of many sectors that directly benefitted from such a transformation,” Ms. Shaw said, adding that COVID-19 has reinforced both insurers’ and reinsurers’ “sense of urgency” to become more deeply invested in technology.
“The change insurance is going through is here to stay. Insurtech investment is here to stay,” Ms. Carr said. “People aren’t going to go back to manual anymore.”
Global insurtech funding reached a record $7.4 billion in the first half of this year, exceeding full-year totals for any previous year, according to Willis Tower Watson PLC’s quarterly InsurTech Briefing released Thursday.