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Library: BCG – The pandemic pushed insurtech funding to an all-time high

JUNE 2021 featured report:

With losses of around US$55 billion, 2020 was a disastrous year for insurance as an industry. That huge sum was the second highest loss of all time, behind Hurricane Katrina.

 The Digital Insurer reviews BCG’s Report on The Pandemic Pushed Insurtech Funding to an All-Time High

Despite COVID, insurtech funding broke all records in 2020

But as COVID-19 forced people to shift to remote working, incumbent insurers had to rapidly ramp up their tech capabilities.

As a result, insuretech’s equity financing experienced a bumper year in 2020. The demand for new technology in insurance dragged the industry at least five years into the future in terms of digital transformation.

This leap forward increased demand across every aspect of the value chain from quote issuance through to claim settlement.

The market is growing up fast

This report looks at the development of the insuretech space in terms of product, investment maturity and geography.

It identifies five key moments from 2020:

  • the record year of cumulative equity funding peaked at 7.5. US dollars billion;
  • the reason for increased spend is because insure tech is maturing and this requires more committed and sizeable investment from insurance;
  • it was a busy time for M&A deals with insuretech, with seven key IPOs during the year;
  • every region experienced record breaking funding flows; and
  • the impact of COVID shook up the industry, sending ripples through different risk pools, and changing them.

The record funding of $7.5 billion is significant. It is 21% increase on the previous year. Despite the fact the world was under lockdown for much of the year, property and casualty (P&C) was the highest funded sector at $3.4 billion, or 45% of the total.

Next came health insurance with $2.1 billion, or 29%, then multiline insurance at $1.6 billion (22%) and life insurance $300 million on 4%.

The insuretech ecosystem expanded by more than a third (35%) in in 2020. This was largely driven by P&C insurance, which experienced a compound annual growth rate of 38%. Multiline insurance saw growth of 35%.

Though below the industry average, health and life insurance showed strong growth of around 31%.

Big money

Funding in 2020 included 20 mega rounds – a new record – and a sevenfold increase over the past five years. That same period has seen the mega round more than double from 27% of total funding in 2016 to 55% in 2020.

Insurtechs are maturing and because they’ve proved their business models, global investors are backing them with significant funds. Of particular attraction are US based full stack digital insurance in the P&C and health insurance space.

Among the three largest rounds were series E rounds for Bright Health, a US healthcare provider ($500 million) and US-based Hippo, a digital insurance provider for homeowners, smart home devices and homecare services ($350 million).

However, another $500 million private equity round was for UK-based Ki Insurance, a fully digital and algorithmically driven insurance syndicate incubated by Brit, Google and University College London. It offers low touch capacity instantly to brokers at Lloyds of London, evaluating risk in real time. Late stage VC funding amounted to $4.1 billion, an increase of 27%., driven by 15 mega rounds worth $3.2 billion.

VC still leading the charge

Venture capital firms have been the most active over the past five years with around 2,700 contributions, of which 75% were insurtechs in the P&C and health insurance sectors.  Re-insurance increased its investments by about 10%, also largely in P&C. These are considered safer investments due to the maturity of the company’s operating within that space, But overall, average participation rates were down 2%

COVID-19 had a number of effects on the industry. It affected demand, claims and loss patterns. However, claims patterns and risk exposures shifted across business lines as some rose and others fell as lockdowns around the world forced changes on individuals’ lifestyles and businesses their operating models.

See pages 7 and 8 of the report for details of the M&A and IPO deals. Digital insurers and managing general agents (MGAs) were the most exposed as they carry risk on their balance sheet.

A shift in risk

Remote working had an impact on home and motor P&C, as demand dropped with people working from home. However, pet insurance increased with ownership levels.

Commercial P&C also saw a falling demand for workers compensation as fewer people were being more staff plus commercial property insurance as they rationalised their real estate. Business interruption and liability saw an increase in number of claims and losses, particularly after a number of litigations in different regions. But health and life sectors capitalised on changes.

Insurance has become a priority

Consumer awareness has increased and so has demand. Insurance is being prioritised as an essential product, particularly if distributed via a digital channel.

China-based ZhongAn registered a 115% year on year increase in premium income in the first half of 2020, a total of more than 3 billion yuan or $468.8 million.

The pandemic has also delivered innovation, such as Cover Genius teaming up with Skyscanner to launch parametric travel insurance products to offer medical trip cancellation and airline insolvency.  Digit an Indian multiline insurer launches a product for pre/post hospitalisation expenses, ambulance charges and a second medical opinion covering eight viral diseases including COVID-19 and dengue.

2020 has shown the major role insurtech now plays in the industry today. It is time for incumbents to accelerate their digital transformation.

Insuretechs will assist them in adapting to – and surviving – this post COVID world.

For more, see the full report.

Link to Full Article:: click here

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