With a few months left to round up 2021, the year has witnessed a record-breaking $10.5 billion investment in the insurance technology start-ups, surpassing the $10 billion mark for the first time in any one year during the first three quarters.
This is according to the new Quarterly Insurtech Briefing from Willis Towers Watson PLC on Wednesday.
For many InsurTechs, 2021 has been a great improvement from 2020 which was plagued by the challenges of the COVID-19 pandemic, among other things, which presented the industry and most mature markets with some real uncertainty.
Key highlights of the report
The third-quarter insurtech investment reached $3.13 billion, depicting only $12 million short of the total investment into insurtechs globally in 2018 and 2019 combined – when compared to the $4.82 billion in second-quarter 2021 – but up from $2.54 billion in third-quarter 2020.
In number terms, the third quarter’s 113 transactions were off from second quarter’s 161 deals but up from the 104 deals in third-quarter 2020; a significant increase over the third quarter of 2020.
Also, the number of mega-rounds of more than $100 million in funding reached 11 and accounted for more than half of total funding; with two of the largest deals accounting for cyber-related insurtechs.
As average deal size grew to nearly $12 million, early-staged startups raised a record-breaking $630 million while the share of seed and angel round fell to just 19 percent, its lowest point since Q2, 2020 and Series A deal count nearly doubled to 31 percent of deals.
Investment by regions and sectors
As the region dominating the list, the US accounted for 46% of deal count; an increase of roughly seven points from the previous quarter, followed by the UK with 8%, China with 5%, India with 4%, and a few countries at 3% while 18% of the deals are part of ‘other jurisdiction’
In terms of sectorial distribution, 49% of deals were classified in the distribution sector, 42% in the business to business area, and only 9% in the insurance sector.
Points to note
Over the past decades, the global insurtech investment has grown significantly but the stark pattern is a concentration of ‘the much for the few’. This means that while the sector continues to rise, not all insurtechs are benefitting as much of the funding is focused on a relatively few startups.
Commenting on the report, Andrew Johnston, global head of Insurtech at Willis Re noted that the continuing escalation of InsurTech funding does not mean that venture and growth capital is available to most or even many InsurTechs.
Similarly, the report stated, “Generally speaking, deal count and volume continue to rise consistently on a quarterly basis; however, this is possibly where the good news for the majority of insurtech businesses ends. If we scratch away at the figures a little more, we can quite clearly see that a significant amount of the capital raised on a quarterly basis is arriving at the doorsteps of the few,”
To further break this down, the report stressed that there were four insurtech unicorns created in 2018, five in 2019, five in 2020 and eight so far in 2021. Thus in total, there could be 24 insurtech unicorns in existence now.
What’s the situation in Africa?
It is no news that insurance in Africa; compared to other continents of the world, is nothing to write home about. A Mckinsey study in 2018 shows that the market stands at a 3% penetration rate with South Africa and Kenya accounting for the major weights. If the South African market is excluded, the study shows the number would drop immensely to a 1.12%.
Mckinsey added that the rise in demand for digital solutions; such as smartphones and affordable internets penetration, has provided opportunities for insurtechs to step in and offer innovative products that allow customer-centricism, micro-payments, flexible sign-ups as well as access to a wide range of services through mobile phones in recent times, thereby attracting investment in different insurtech businesses.
A point in view is Kenya’s Griffin Insurance, allowing clients to access all services through its mobile app, pay for car coverage in installments and also pause coverage when they travel overseas and also, Lami, technologies which recently raised $1.8 million to scale its API insurance platform across Africa.
Bima, a mobile-first platform that provides life and health insurance policies with telemedicine that complement their core insurance businesses raised $30 billion last year to build micro-insurance and healthcare services targeting the emerging markets.
Insurtech opportunities in sectors such as agriculture are also developing, with startups such as Oko (which operates in Mali and Uganda) which provides automated insurance products based on satellite data and mobile payments, raising $1.2 million earlier this year to further help to derisk farmers affected by extreme weather events like drought and floods.
Nigerian Curacel also secured a $450,000 pre-seed funding in March to further its aim of becoming the continent’s premier provider of embedded finance technology for insurance and towards product development.
These among a few others are spearheading the efforts to push insurance to a much more significant position in the continent.
A cursory look at the latest analysis from Willis Towers Watson notes that many of the most highly valued insurtechs are risk-originating businesses while those that are focused on distribution and business-to-business (B2B) software may not achieve the type of elevated company valuations that other carrier-model insurtechs are commanding. Hence, industry analysts have raised the question; ‘Is the current trend of overvalued business going public a blessing or bane?’