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InsurTech investment surpasses $10bn mark for first time

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InsurTechs have raised a record-breaking $10.5bn of investment during the first three quarters of 2021, a year in which insurance technology firms are poised to secure more than the combined total for both 2018 and 2019.

The latest Quarterly InsurTech Briefing from Willis Towers Watson depicted the continued pattern of a red-hot market for capital injections into InsurTechs, while detailing how the largest deals are concentrated into a small pool of companies.

The number of mega-rounds where InsurTechs raised $100mn or more was just 11 out of 113 total deals completed in Q3.

The 11 larger raises accounted for more than half of the total invested during the third quarter, indicating that a small group of InsurTechs are still winning the lion’s share of quarterly investments.

Dr Andrew Johnston, global head of InsurTech at Willis Re and editor of the briefing, said: “The continuing escalation of InsurTech funding does not mean venture and growth capital is available to most or even many InsurTechs.

“The growth of global InsurTech investment over the past decade has been significant, but the stark pattern is a concentration of the much for the few.

“For example, in the second quarter, more than two thirds of the total capital raised went into 15 deals. Roughly 0.5% of the world’s InsurTechs shared $3.3bn, while $1.5bn was distributed between another 147. Funding was zero for the remaining 95%.”

While the total deal count so far this year is 421, also an annual record, in the third quarter 113 deals generated more than $3.1bn in investment, a 23% increase over the same period in 2020.

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Willis’ report shows that, by the end of September, 2021 was already only $12mn short of the entirety of what was invested into InsurTechs across the globe in 2018 and 2019 combined.

Two of the three largest deals during Q3 were agreed by the cyber MGAs Coalition ($205mn) and At-Bay ($185mn), two firms described as InsurTechs in the report.

Funding levels raised in Q3 didn’t quite match those seen in Q2, but the numbers in Q2 were the largest ever. A staggering $7.4bn was raised in 183 days during the first half of 2021, with $4.8bn amassed in Q2.

To put this into perspective, the report stated that, if the investment total for H1 were spread equally over the number of days in this time period, on average, $40mn was invested into InsurTechs around the globe every day.

Although Q3 fell marginally short of the huge top-line investment figures during Q2, it was still the second-largest funding quarter on record.

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VCs and over-valuations

The report referenced some of the drivers of InsurTechs’ over-valuations, including the prevalence of venture capital (VC) investors turning to these companies to expand their portfolios in buoyant conditions.

Johnston estimated that, in 2021, 153 venture investors across the world put their capital to work into businesses that deem themselves InsurTechs.

Two years later, in 2014, that number had nearly doubled to 278. Two years after that, in 2016, it was on the road to doubling again to 511. So far in 2021, Johnston estimates that 1,118 venture investors have set their sights on InsurTechs.

The report also pointed out that VC investors’ motivations are relatively short-term focused, with greater emphasis placed on volume and inbound growth than sustainable losses – and therefore combined ratios.

“This venture investment cycle is self-perpetuating on the way up,” the report added. “Venture capitalists are looking to drive valuations up, and this, in turn, attracts other venture capitalists who are attracted to these new areas of growth.”

Going public

The Willis briefing also depicted share price trajectories of listed InsurTechs.

To create a graph of share change relativity, the briefing pegged S&P 500 and eight InsurTechs at zero for the beginning of the year, while Metromile, Oscar, Bright Health and Hippo are shown at the point they went public.

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The report argued that the highly correlated behaviour of the InsurTech “pack” seen in the chart is possibly a reflection of how the market views InsurTech, in general, “as a single animal, and not just a reflection of individual business performance”.

Unicorns proliferate

Before going public, many InsurTechs embark on a big fundraise to bolster their company value, and with it create unicorn status.

Johnston’s research found a notable recent increase in the formation of InsurTech unicorns, with four created in 2018, five in 2019, another five in 2020 and eight so far in 2021.

It could be argued that there are now 24 InsurTech unicorns in existence, the report claimed. One of those within this group is Marshmallow, the UK motor insurer now valued at more than $1.25bn, having raised $85m in a Series B funding round in September, with backers including Passion Capital, Investec and Scor.

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