Before the coronavirus pandemic, observers were expecting InsurTech startups to begin a consolidation process as they matured and looked at long-term viability. In the COVID-19 era, mergers and acquisitions will only accelerate in the months ahead due to multiple pressures, according to Martha Notaras, managing partner at InsurTech investor Brewer Lane Ventures.
“As I looked at the end of last year, I absolutely expected the ecosystem to really mature in a couple of different ways,” said Notaras, who was most recently a partner at XL Innovate, investing in InsurTech startups including Lemonade, Cape Analytics and Slice Labs, among others. “Right now I see that InsurTechs are being forced to grow up really quickly, and I think the changing circumstances are really highlighting which of the management teams are going to be up to the challenge of a completely unexpected market.” [ijtv id=”18414″ width=”340″ float=”right”]
COVID-19 aside, there are other factors spurring consolidation pressures, Notaras said during a session for Carrier Management’s InsurTech Virtual Summit on May 6. She explained the current collaborative dynamic between InsurTechs and older “incumbent” insurers, for example, will likely fuel the trend as well.
“Maybe five years ago,…I think that the incumbent insurers weren’t quite sure whether they should try to wipe out the InsurTechs and do it all themselves or whether they could learn from the InsurTechs and work with them,” she said. “What we’ve seen over the past five years is really an evolution to a much more interconnected ecosystem so that there are a lot of InsurTechs that are working with incumbent insurers, providing services to them, taking investment from their venture arms.”
Notaras said that these collaborations and strategic partnerships will lead in the near future to insurers buying up some of their InsurTech partners.
“Some of the strategic relationships that have forged over time may result in actual insurers acquiring [companies from] some of the close relationships that they’ve had,” Notaras said. “Rather than necessarily infusing additional venture funds, you might actually just have buying in…”
There were some acquisitions before the pandemic, such as Aon’s purchase of CoverWallet “in a deal that all of us aspire to,” Notaras said. Some of these purchases should continue, she said, as well as InsurTech acquisitions of other InsurTechs as startups seek to build strength around risk mitigation and other sensible areas.
At the same time, Notaras acknowledges that the pandemic has spurred a deep slowdown in venture funding, which itself could create consolidation pressures of its own.
“One of the things that is without a doubt is this is a cruel environment if you happened to have planned to start your fundraising at the end of Q1 [2020] or in Q2 this year,” Notaras said. “It is going to be hard, and I don’t think everyone will get funded. I think some of those people will have to make tough decisions as to whether they are going to close down or whether they are able to find a home.”
*Carrier Management’s InsurTech Virtual Summit is still available on demand. For more information, click here.