InsurTech funding levels, reaching almost $4.4 billion in worldwide funding commitments through three quarters of the year, has already surpassed the 2018 full-year total, Willis Towers Watson announced Wednesday.
According to the new Quarterly InsurTech Briefing published by the global advisory, broking and solutions company, the $4.4 billion total deployed to InsurTech companies across 239 transactions, marks a 5 percent increase from the total dollar amount of investment in all of 2018.
In addition, global funding eclipsed $1.2 billion for the fifth consecutive quarter during the third-quarter of 2019, Willis Towers Watson reported.
In the quarter, 83 deals with a total value of $1.5 billion were announced, up 6 percent over second-quarter 2019. Among the biggest deals, were “three “mammoth deals backing Root Insurance, Hippo, and PolicyBazaar,” the report said, highlighting continued interest in the property/casualty insurance sector. The report includes a “Transaction Spotlight” section, which examines recent fundraising rounds by Hippo, the California-based home insurance provider, and Root, the American app-based motor insurer.
Also contained in the report are counts of deals by type. With the overall deal count of 83 representing a 20 percent jump over second-quarter 2019 and a 46 percent leap above third-quarter 2018, the report also notes that while funding dollars are still largely going to digital distribution and full-stack carrier startups, Willis Towers Watson is increasingly counting deals that they classify as “B2B startups”—tech startups that sell software and technology to reinsurers or brokers. In fact, in the third quarter, half of all P/C deals were for B2B startups.
Separating Hype From Reality
The text of the report begins with some commentary on the use of the term “unicorn” to describe startups in the software or technology industry that are valued in excess of $1 billion. “If some market reports are to be believed, there could be dozens of InsurTechs making unicorn status in the next 12 months,” the report states. “This begs the question, when something is no longer rare or even uncommon, at what point does the term ‘unicorn’ become misleading?”
“Rare as they are in the mythical world, we seem to be finding hordes of them roaming around in the InsurTech world,” commented Dr. Andrew Johnston, Global Head of InsurTech at Willis Re, on a video introducing the report, which raise questions about the terms “unicorn” and “InsurTech” within its pages.
“An increasing number of InsurTechs are amassing substantial valuations, and yet we are seeing relatively little value being added to our industry at scale, across the board,” Johnston wrote in the foreward of the report. He went on to question whether “a future herd of InsurTech unicorns” will represent “a stellar cast of InsurTech businesses, or an industry that is overvalued by transient capital [and] driven by a naivety of the potential impact of certain technologies.”
In short, he’s asks whether “we may well observe a widespread InsurTech bust before long.”
Turning to question about the term “InsurTech,” Johnston said that a rigorous definition might require a company to employ “technology designed to squeeze out savings and efficiencies from an existing insurance model” in order to be called an InsurTech. By that measure, many of the 2,500 now typically counted among InsurTechs would not meet the criteria.
Turning to another metaphor, he said that the insurance industry now has “a serious case of magpie syndrome,” referencing a definition that associates chattering crows with individuals who collect indiscriminately. In short, he says, the industry is “chasing anything that glitters [and] not calling out poor InsurTech businesses when we see them.”
“What we must…understand is that InsurTech as it is today is as much about hype and entrepreneurial culture as it is about appropriate technology for the (re)insurance industry,” he wrote.
Grasping at technology offerings to protect the insurance industry from the threat of disruption from the likes of Google and Amazon, carriers need to recognize that “a part of self-protection lies in us not confusing some technology with all technology,” he wrote. (Emphasis added.)
“Approximately $16.8 billion has been invested into ‘InsurTech’ in the past seven years. Who can honestly say that we have seen at least $16.8 billion worth of value created?” he asked.
Beyond the Numbers
This quarter’s Briefing report also focuses on policy administration and central management systems, and features profiles of three InsurTechs: RiskGenius, which uses AI techniques to understand the contents of an insurance policy; the Canadian InsurTech ProNavigator, an AI platform to automate workflows that deploys natural language processing; and Britecore, a cloud-native administration platform delivered through Amazon Web Services.
Jason Rodriguez, Data Science Lead at Willis Towers Watson’s Insurance Consulting and Technology Americas, contributes a chapter devoted to the value of policy administration for all insurers.
Writes Rodriguez: “Policy administration systems form the backbone of policy issuance. Over time, the process has become increasingly automated. With InsurTech innovations, insurers are able to achieve a complex, bespoke information technology solution that fits their businesses by abandoning one-size-fits-all systems in favor of a mix-and-match approach. This allows them to shop for value in one functional area while investing in a best-in-class solution in another.”
The Quarterly InsurTech Briefing is a collaboration between Willis Re, Willis Towers Watson Insurance Consulting and Technology and CB Insights.
Source: Willis Towers Watson