Aug 31, 2021
Fintech fundraising is on fire and insurtech is accelerating — Part 2.
Insurance is known as a slow-moving industry. Recently this traditional industry has become a very attractive sector for VCs and startups.
The global Insurtech market size is projected to grow by more than 34% per year until 2027. The strong innovation in the insurance industry has brought an abundance of capital to the sector.
Major factors driving the growth of Insurtech are:
● The growing demand for insurance service digitization. Insurtech aids in the simplification of the insurance purchasing and claims processes.
● Insurtech helps create new avenues that large insurance companies have less incentive to achieve, such as offering ultra-customized policies. These solutions use new streams of information from internet-enabled devices to price premiums.
● By lowering acquisition costs typically by providing customers with a digital interface and using a direct model Insurtech is much more cost-effective than the traditional model.
● Improved efficiency compared to the existing insurance model.
A handful of startups are moving rather rapidly from launch to exit to answer the growing demand, and investors are responding to the demands. In 2020, U.S. investors put a record $4.9 billion into insurance-related deals, per Crunchbase data.
And this momentum is growing in 2021.
So What’s happening?
There are 2 types of investors in the insurtech world: Corporate investors and VC.
Corporate investors (or CVCs) .
In 2010, there were just 15 deals in insurtech for a total value of $44 million. 5 years later, we had almost 150 deals for almost $3 billion.According to CB INSIGHTS, there were over 80 InsureTech deals in the first half of the year totaling over $1 billion.
Most of the larger insurance companies set up their own corporate venture capital arms in the past years. Recently, some of these companies started to focus on making “strategic” investments.
● AXA launched AXA STRATEGIC VENTURES with €200 million “dedicated to emerging strategic innovations relevant to insurance, asset management, financial technology and healthcare service industries.”
● Aviva launched AVIVA VENTURES committing £20 million per year to “assist Aviva in identifying new commercial opportunities; the development of innovative business models and new digital insurance services and products which make insurance easier for customers”.
● And more recently, MUNICH RE and SWISS RE, launched accelerators to address their innovation dilemma.
● Certain reinsurers offer insurtech access to treaty, program and capacity while also being involved in strategic investments. Amongst others: GreenlightRe, SCOR, Hudson, and many others.
AXA is right now the most active insurtech investors in corporate venture capital worldwide as of the first quarter of 2020. Via Statistica.
VCs
Venture capital will provide the necessary funding to grow a business. Another positive aspect about fundraising money from venture capital is that it opens up resources for a startup. The entrepreneur can tap into the VC firm’s resources, including the network of connections, mentors and expertise.
European and American VCs have been very active in the last years in the insurtech investment and fundraising.
● Astorya published a very complete study about the very active European investment scene in insurtech.
● Manchester: The Premier Early-Stage Independent Venture Capital Investor Focused on InsurTech.
● M-Tech Capital: MTech Capital is a venture capital firm with offices in Santa Monica and London investing in technology companies operating in the insurance industry.
● Pivot: Is an early Growth Equity investment firm focused on transformative financial technology companies.
● Arbor Ventures: Specialized in fintech/insurtech, partners with innovators to shape a smarter future.
Forbes published its list of the Top 50 startups in the fintech world where 6 startups in the insurance industry are presented, cumulating a funding of almost $2.2 billion.
Which partner to choose?
Obviously, the startup world can be seen as broken in 2 groups: the disruptors and the ones solving an existing problem with an innovative and technological solution.
The disruptors might not want a CVC as a partner as they might be seen as some kind of outsourced R&D. But if you are trying to solve a problem, a CVC might be the best way for a startup to have a fast onboarding process with some giant insurers. They can provide valuable industry expertise and a platform to test the technology.
Startups looking to create revenue streams will benefit from the partnership with a CVC.
CVC can provide competition to VCs money and of course an unparalleled level of expertise.
But Insurtech Is a Natural Fit for VCs
This excellent article from Deloitte explained that the pandemic showed the old ways of doing business are from the past. The insurance industry needs to embrace digitization , control distribution, and simplify how things are done for the end user. And that’s what VCs are investing in.
Stay safe.
-Team OTONOMI
OTONOMI is a parametric insurance solution for carriers. We are transforming the air cargo insurance process into a fast, transparent, and cost-efficient experience for both the policyholders and insurers. Powered by our proprietary technologies in data-activated triggers, smart contracts, and integrated digital wallets, we reduce claim resolution times from 45 days to 45 minutes, lowering admin costs by 90%.
