For the last eight years, InsurTech has had an incredible run. Capital has poured into privately-held companies tackling opportunities across the industry. Every quarter seemed to attract more and more dollars being put to work across the industry: auto and life, distribution and underwriting. A handful of companies—primarily those distributing insurance products, rather than those building enabling technologies—finally reached the ultimate goal for venture-backed companies: going public.
Executive SummaryEven if early stockholders are disappointed, stakeholders in the still emerging InsurTech ecosystem should seize the opportunity to extract lessons from the struggles of the first group of InsurTechs that tested the public markets, writes Matthew Jones, the principal of fintech venture firm Anthemis and author of CM's VC Viewpoint series. Here, Jones describes InsurTech problems of IPOing too early, when they are too far from profitability, haven't yet achieved a level of scale to withstand volatility, and the hype-reality gap he's seen among startups that falsely claim to have an underwriting edge. Editor's Note: This article was authored in February and the stock prices of InsurTechs mentioned in the article are from February
There were moments of celebration, even of relief. Without question, however, as we move deeper into 2022, InsurTech faces its biggest test yet: survival.
Vast quantities of capital from venture capital investors has contributed to the InsurTech boom. According to data from CB Insights and Gallagher Re, the aggregate amount invested between 2015 and 2017 was approximately $2-$3 billion per year, before a jump to $6.3 billion in 2019 and then a whopping $15.8 billion in 2021. Those amounts are admittedly minimal compared to the total premiums of the insurance industry, but they do represent a 65 percent 2013-2022 annual growth rate of capital flowing into a sector that by and large grows with GDP.
InsurTech faces a fight for survival in large part because of what we are currently seeing in the public markets. Over the last 18 months or so, a handful of InsurTech companies have gone public, including (in no particular order) Doma, Hippo, Lemonade, Metromile, Oscar, Porch and Root. In the last three months alone, these companies’ stock prices have dropped between 40 percent and 65 percent. In some cases, stock prices are down 80 percent from when they joined the public markets. Even in a broader market sell-off, we are seeing a remarkable erosion of stockholder value in a very short period of time.