InsurTech venture financing held its own in the first half of 2020, essentially matching robust levels reached over the same period last year despite economic shocks created by the coronavirus pandemic, according to the Deloitte Center for Financial Services latest Venture Scanner analysis.
At the same time, there’s a catch: Most of the money went to a “relative handful” of InsurTechs, leaving many others struggling to raise money unless they can show practical utility in the current market.
It’s widely known that funding plunged in the first quarter, dropping by half, according to some estimates. But as the Venture Scanner analysis noted, it grew by 40 percent in the second quarter compared to Q2 2019, representing a fierce rebound.
In the end, H1 2020 produced about $2.2 billion in funding despite all the pandemic/economic troubles, essentially on par with 2019 funding over a similar period.
What Deloitte/Venture Scanner Found, however, was that “the top 10 InsurTechs received the lion’s share of available capital, leaving the rest of the InsurTech community to compete for about one-third of total funds invested.”
In addition, authors of the analysis interviewed venture capital and private equity senior executives, and what they heard suggested that smaller or newer InsurTechs may struggle to raise money for months to come. They learned that remaining financing will likely go to startups that meet pressing, rather than aspirational needs.
“The consensus from the interviews was that most InsurTechs may struggle to raise additional rounds of financing well into next year,” according to the report. “Interviewees added that priority will likely be given to those addressing the most pressing digitization and operational efficiency challenges faced by insurers hurriedly adjusting to the post-pandemic world, both internally and externally.”
According to the report, those InsurTech offerings include automated underwriting, online distribution via digital managing general agencies and direct sales, as well as virtual claims management. On the health insurance side, telemedicine is drawing interest, which the report explained “is helping bolster workers’ compensation claims management, from diagnosis to treatment to status monitoring.
In other words, the report sees venture capital firms in “triage” mode, determining which of their portfolio companies can best help insurers adjust to the post-pandemic world. For the rest, investors are helping the others to manage cash reserves until insurers can address other less pressing needs. But current investment pressure on their survival could lead to InsurTech sales or mergers to eliminate market duplication, according to the analysis.
Other report highlights:
- 75 percent of funding raised in the 2020 first half went to U.S. companies.
- The top 4 InsurTechs raised 44 percent of total funding, compared to a year ago, when the top 10 held 53 percent of funding. This trend is expected to continue well into 2021.
Deloitte’s full report is “COVID-19 pandemic shifts InsurTech investment priorities.
Source: Deloitte/Venture Scanner