Scooping up the New Geckos — Who Buys Insurtech Companies? (3/3)
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The best kept secret in insurtech is that the exit landscape is very, very nascent and there are few examples available to carve out clean and neat exit scenarios. However, there have been a few big splashes (e.g. Climate Corp, Guidewire) and smaller acquisitions across the space if one digs deep enough.
Insurers might buy/invest their way into new products and enable/supplement existing lines of insurance (e.g. AllState buying SquareTrade for $1.4B). Globally, insurers spend ~$185B/year on IT, but much of this is maintenance work as opposed to R&D. The insurtech ecosystem provides a natural source of outsourced R&D without all the risk. It also allows them to leverage their balance sheet (lots and lots of cash premium) to provide scale and capital to MGAs in search of those things. Look no further than the explosion of strategic investments by corporate VC arms and (re)insurers.
In distribution, we expect them to snatch up new digitized distribution and agent-enabling digital technologies.
Startups improving core services, claims handling, and general administration could provide a potential massive competitive advantage (imagine shaving 10% off claims and claims handling).
Brokers and Agencies are likely to buy to remain relevant in their marketplaces (virtual or otherwise), whether it’s taking captive a new product, or buying previously licensed software services or agent tools.
For example, the large broker/consultant Towers Watson has made numerous splashy acquisitions (e.g. Extend Health for $435M and Liazon for $215M).
Software providers (e.g. Guidewire, Verisk) to the insurance industry would naturally buy competitors innovating in a specific area/product, and convert them into complementary solutions. General technology companies are likely to buy for data, technology, or human capital reasons.
For example, Guidewire has made 3 moderately-sized acquisitions in just the last year (EagleEye Analytics, FirstBest, and ISCS) for a total of ~$240M.
Financial Services firms view insurance as a cross-selling opportunity, and as an acquisition tool. Insurance also represents access to data sets to inform their building of a 360-degree, holistic consumer image.
Other Corporate Buyers are likely to purchase for idiosyncratic reasons. The best example of this is Monsanto buying Climate Corp. for their data and algorithms at a purchase price of $1.1B (and then spinning out the insurance business a few years later). SiriusXM recently purchased Automatic for $115M, and EagleView acquired OmniEarth, after being acquired itself by the private equity firm Vista Equity.
Private equity will play across the space looking to find synergies and/or efficiency they can generate and then flip to other aforementioned buyers.
Companies building back-office solutions, claims innovations, and/or predictive analytics have the broadest potential set of acquirers, including carriers/insurers and existing technology providers, while new insurance brands really only have one natural acquirer (a bigger insurer/carrier).
How do you think this all shakes out? Let us know in the comments.
This post was written by Prashant Shukla and Peter Johnson from Jump Capital. Prashant focuses on insurtech at Jump Capital, and was an early employee at Metromile. Peter leads fintech and insurtech investing at Jump Capital. We both thank all those who contributed to these posts.
Note: The above analysis employed information, insights, and data from Company websites, press releases, CBInsights, Towers Watson, Thomvest, Mintel Group, TechCrunch, Dig-In.com, WordStream, III.org, IBISWorld, E&Y, Coverager, Statista, Vertafore, WSJ, and InsuranceJournal.
