Insurtech investors pull back in H1’20 amid storm of challenges

Venture capital (VC) investment in insurtech dropped significantly in H1’20 as a number of factors combined. Even before COVID-19 slowed down the deal pipeline globally, the insurtech sector saw pullback from corporate investors due to frothy valuations and from traditional VC firms due to the lack of significant exits outside of a few large acquisitions. 

US leading global insurtech drive

The US continued to be the dominant insurtech center globally, accounting for seven of the top 10 insurtech deals in H1’20, including six US$100 million+ funding rounds (i.e., Duck Creek Technologies, Oscar, Zing Health, Pie Insurance, States Title and Policygenius).

However, opportunities for insurtechs are increasing in Europe and Asia, as evidenced by the US$81 million PE investment in India-based Digit insurance, the partial buyout of Hungary-based Netrisk for US$61 million and the US$53 million funding round by Alan Health Insurance in France. 

Total global investment activity in Insurtech: chart

We’ve always thought of insurtechs as the acquisition targets. Now we’re starting to see the trend where insurtechs are becoming the acquirers. I think this is a very important distinction and is why some are able to raise so much money.

Gary Plotkin
Global Insurtech Leader, KPMG International
Insurance Management Consulting Lead, KPMG in the US

Traditional VC investors rewarding insurtech challengers

Recently, a significant proportion of VC funding in the insurtech sector has gone to companies looking to grow by becoming a full stack carrier, such as Lemonade or Metro Miles, or by looking to write on someone else’s paper. In H1’20, several MGA-model insurtechs attracted large deals, including US-based workers compensation focused Pie Insurance, UK-based pet insurer Bought by Many1 and US-based cyber insurtech Coalition. Insurtech investors are increasingly focusing on profitability, investing in companies with scalable business models that are able to grow their topline revenue and expand their offerings into new markets. 

US-based insurtechs making acquisitions in bid for growth

In the US, a number of mature insurtechs have realized that between COVID-19 uncertainty, growing valuations and the difficulty corporates have experienced integrating acquired insurtechs that an M&A exit might not deliver the desired ROI to investors. This has led some to take growth into their own hands in order to attract additional investment and make a future IPO more appealing. For example, digital title company States Title acquired title underwriter North American Title in early 2019 as part of an acquisition strategy that saw it significantly increase its transaction volume2. In H1’20, States Title raised a US$123 million funding round.

Trends to watch for in insurance

Insurtech unicorn Lemonade, which has made a name for itself digitizing homeowners and renters insurance, went public in July 2020. The firm’s stock price shot up initially before pulling back somewhat over the following month.  The overall success of the IPO may well open the door to a bevy of insurtechs looking to raise money in the public markets.