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Technology investment in the insurance sector continued at a record pace last year, with two recent reports showing insurtech funding breaking records.
While there were signs of slowing in the first quarter of 2022, experts say interest in the sector remains buoyant (see related story below).
Investment interest in insurtech comes from the venture capital sector, hedge funds and private equity capital, as well as established property/casualty insurers, or “incumbents.”
“You can certainly say for 2021 there remains continued interest in insurtech,” said Emmalyn Shaw, managing partner with Flourish Ventures, a venture capital firm with interests including insurtech and data and analytics, in San Francisco.
“Opportunities for innovation in the insurance sector will continue to attract venture capital,” said David Hoffman, Westfield, New Jersey-based vice president and research director at Forrester Research Inc.
“We’ve been predicting the pace of investment would continue due to the opportunities to transform the industry. The disruptive technologies in the industry continue to attract interest from investors,” Mr. Hoffman said.
Incumbent insurers’ interest in insurtech helps mark out the sector from other technology investments, said Ms. Shaw.
“The composition of investors specifically for insurtech is slightly different than technology at large because of the number of incumbents that are actively involved and looking strategically at insurtech. They’re an important contributor to the funding,” Ms. Shaw said.
Andrew Johnston, Nashville, Tennessee-based global head of insurtech at Gallagher Re, a unit of Arthur J. Gallagher & Co., said that the incumbent community is supporting the technology and looking to integrate it into their business through partnerships.
“We’re seeing traditional players acquire startups. They see the opportunity to accelerate their own technology initiatives, both customer-facing or more mundane, like cloud-based rating, quoting, and issuance technologies” Mr. Hoffman said.
“There’s a greater openness from the incumbents to open up new technologies,” said Parker Beauchamp, founder and managing partner in Boulder, Colorado of Markd VC LLC a new venture capital firm focused on insurtech that recently launched a $100 million investment fund. Consumers are also open to technology, he said.
Insurtech investing reached $19.8 billion in 2021, up 176% from the prior year, according to a recent report from Forrester, with a fourth-quarter funding record of $4.3 billion.
A report from Gallagher Re shows insurtech funding at a record $15.8 billion in 2021, more than the combined $13.4 billion in 2020 and 2019, with more than half of total funding, some $9.4 billion, invested in property/casualty insurtechs.
Differing methodologies account for the differences but both reports show massive increases in capital flowing to the sector.
In addition to incumbent insurers, funding is coming from a variety of sources, including traditional venture capital firms as well as hedge funds and private equity money, which are “coming into venture and playing an active role in insurtech as well,” according to Ms. Shaw.
Through the end of 2021, more than 1,200 non-industry investors were participating in the insurtech sector, Mr. Johnston said.
Technologies being funded and acquired range from customer-facing innovations to back-office tools and automation. Mr. Johnston said the most successful will be “those with ubiquitous solutions that can be sold multiple times to multiple carriers.”
Tampa, Florida-based insurtech Coherent Capital Advisors Ltd. in late April announced it had secured $75 million in a Series B early-stage funding round, bringing its total funding to $89 million.
Coherent supplies web-based software that can convert spreadsheets into code so data may be shared and used quickly between parties.
“We’re acting as a translator between the business and the Excel files to help speed processes,” said John Brisco, CEO and co-founder of Coherent. The information in the spreadsheet is placed into an application programming interface, he said.
Mr. Brisco is a property/casualty veteran, having served as chief information officer and chief operating officer for Asia and Latin America for Australian insurer QBE Insurance Group Ltd.
“The space is evolving from a human capital standpoint as well,” said Mr. Beauchamp, who is also a veteran of the insurance business, mainly in distribution, he said. “There’s more people like me,” providing both avenues for capital and access to startup founders, as well as more and more industry veterans gravitating toward the space seeking opportunity, he said.
The first quarter of 2022 showed a substantial decline in the level of investment in the insurtech sector on a quarterly basis, although the decline was less dramatic when viewed year over year.
A recent insurtech report from Gallagher Re, a unit of Arthur J. Gallagher & Co., shows first-quarter 2022 funding at $2.23 billion, a steep drop from $5.3 billion in the fourth quarter of last year, but the decline was less pronounced when compared with $2.55 billion in the first quarter of 2021.
It is unclear whether the increase in the inflation rate and volatility in the stock market will affect future funding levels.
“As you look forward a bit, you are seeing that there is a slowdown,” said Emmalyn Shaw, managing partner with Flourish Ventures, a San Francisco-based venture capital firm with interests including insurtech and data and analytics. She cautioned, however, against drawing conclusions from a single quarter and added that investors cyclically optimize and alter investment portfolios.
Andrew Johnston, Nashville, Tennessee-based global head of insurtech at Gallagher Re, said he encourages observers against reading too much into one quarter and that it’s “more about looking for trends.”
“I’m not too caught up in a low quarter or a high quarter. … There’s up and down quarters, but when I look at insurtech funding on average there’s more,” said Parker Beauchamp, founder and managing partner in Boulder, Colorado, of Markd VC LLC, a new venture capital firm focused on insurtech.
Mr. Beauchamp said he is confident about the prospects for the sector and doesn’t fear a slowdown. He added that inflation, even when combined with geopolitical instability and other macro factors, is not likely to slow investment over the long term.