Total insurtech funding in the first quarter of 2017 was down, but the drop-off could be a result of the significant investments in 2016 now reaching the product launch phase, according to a report by Willis Towers Watson Securities.
The report, compiled in collaboration with CB Insights, found $283 million was invested in insurtechs in all insurance lines globally in the first quarter of this year—a slight (four percent) bump over the fourth quarter of last year but a 64 percent drop from funding in the first quarter 2016. More than half of the volume was in life/health and the U.S. share of insurtech funding has dropped below 50 percent.
There were 23 property/casualty startups funded in the first quarter of this year, down from 42 in Q1 2016.
Among the startups that received funding in previous years but have recently launched include Lemonade, Root, Trov, Embroker and Next Insurance.
An increasing percentage (74 percent) of P/C investments are going into insurtechs focused on distribution including digital lead generation, brokerage and managing general agency platforms, according to the Willis Towers Watson analysis.
Among the startups receiving funding in the first quarter were Converge (drone management); Swyfft (homeowners); Sure (on-demand insurance); EverQuote (auto insurance); Weather Analytics (climate data); and Neosurance (mobile technology for insurers).
In addition to investing, insurers and reinsurers are continuing to form technology partnerships. Among the carrier-insurtech partnerships recently announced are American Family working with True Motion and Automatic on a driver safety app; Nationwide Insurance distributing renters insurance via Sure; Markel underwriting products for Next Insurance and Generali supplying Google Nest thermostats to its policyholders.
The Quarterly InsurTech Briefing highlights the activity and potential for insurtech disruption in the small business insurance market. A number of carriers—AIG and Hamilton (Attune), Berkshire Hathaway (CoverHound, Biberk), Chubb (CoverHound), Hiscox (Next Insurance, CoverHound, Bunker), Liberty Mutual (Next Insurance, CoverHound), Markel (Next Insurance), Munich Re (Slice, Next Insurance) have already made investments in the digital small business sector. Also in the first quarter, Travelers acquired Simply Business, a small business digital broker in the UK, for $490 million.
Those ventures are in addition to coverwallet, decisley and Embroker that also target the small business sector.
According to Willis Towers Watson Securities, the small business insurance sector could begin to look more like the personal lines insurance market, where direct-to-consumer carriers like GEICO, Allstate and Progressive have gained increasing market share over the past 20 years on the strength of their technology.
“Similarities between personal lines and small business insurance customers suggest that the small business insurance market, an approximately $100 billion premium opportunity, is poised to experience similar digital disruption,” says the report. Whereas today only about six percent of this market is written by the largest carriers, the report projects that up to 25 percent could be digitally and directly underwritten by 2020. It also says that by 2020, more than 60 percent of business will be owned by Millennials and GenXers who are more likely to favor digital insurance options.
Rafal Walkiewicz, chief executive officer, Willis Towers Watson Securities, said the report recognizes the need for incumbents who need to become more comfortable with insurtech to come together with the new entrants who may have little understanding of the insurance market.
“As incumbents face pressure from entrepreneurial businesses targeting friction costs within the traditional insurance value chain and the continued influx of alternative capital into the (re)insurance sector, it is important for industry leaders to demonstrate an open mind, embrace innovation and invest in potential applications,” Walkiewicz said.
“(Re)insurance market participants must also not be afraid to “fail fast” if they are going to identify technologies that will help them adapt their existing business models in order to position themselves for success in a streamlined insurance industry that is likely to look much different in the future than it does today.”
A recent report by KPMG said investor interest in insurtech is expected “to remain hot across all regions of the world” during 2017, following strong growth in 2016.
In the coming year, most insurtech investments likely will focus on companies specializing in individual components of the value chain, such as distribution, underwriting, claims and customer service, said the report titled “The Pulse of Fintech Q4 2016 – Global analysis of investment in fintech.”
According to ta separate analysis of CB Insights data by Accenture, investing in technology-oriented insurtech is clearly a global trend and almost half of all the money being poured into them globally is going into artificial intelligence and internet of things startups.
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