Global InsurTech Data Highlights 2023
2022 began with a lot of uncertainty, with a number of macroeconomic factors (many not directly relating to reinsurance) impacting venture capital and the general bullishness in InsurTech industry of the impact that technology was actually having.
2022 has been a year of macro-realism (for many InsurTechs, investors and risk partners alike), and micro company hardship
While so much is made of the capital invested into InsurTechs, this feeling of constructive accreditation hit its highest point at the end of 2021, culminating the crescendo of a rise that at times seemed to have no end.
2022 has been the most important year for InsurTech
With the downturn of investment came the revision of company values and a rethinking of what ‘success’ should mean in a more conservative environment. As a direct result, the ability to leverage individual company equity for loss-propping risk capacity became increasingly difficult, and several InsurTechs had some very challenging decisions to make as they reviewed their own margins and likelihood of (near term) future rounds.
As mentioned in prior reports, some of the InsurTech company ‘restructuring’ is simply streamlining redundant positions (which is completely normal in a fast-paced business where some roles are no longer required), but it is also a sign of belt buckling, a pulling back on valuation peacocking (hiring lots of staff prior to an investment round can artificially increase a company’s ‘value’), and in many cases an unclear view on the next significant financial event (see How Insurers and InsurTechs Can Transform Insurance Platforms?).
It is estimated that from some of the largest and most established tech firms, approximately 120,000 layoffs across close to 800 companies has been recorded in the second half of 2022 (see How InsurTechs & Tech-Driven Innovation Changing the Insurance?).
The current risk capacity market is also applying pressure to the squeeze being felt by many (in terms of costs, margin returns and availability to support originated business from an ‘InsurTech player’ where so many incumbent risk partners have been historically burnt).
We are arguably in the hardest (re)insurance market since the tragic events of 9/11. In such environments, as rates go up/harden, (re)insurance capacity simply becomes a more expensive sought-after commodity, and frankly most InsurTechs were either ill-prepared for this scenario, or simply did not understand the industry well enough to model for it and respond appropriately.
With modelling uncertainty affecting a lot of incumbents’ written books, InsurTech capacity allocation is simply not a risk worth taking for a number of reinsurers (see TOP 50 Largest Global Reinsurance Groups in the World).
On the venture capital side of things, VCs are really drilling into the focus on profitability and well-understood, well-seasoned KPIs. It would appear that the investment capital is still available for the most part but it has two padlocks on it where it may have once had one (see InsurTechs Need to Keep Pace).
The numbers are still impressive in isolation, but there has been a dramatic drop from 2021. In fact 2022 is the first year since 2016 to observe a year on year downturn of InsurTech investment activity (and 2015 to 2016 was skewed by the enormous ZhongAn deal).
Whereas venture capital historically preceded risk capital commitments, VCs are now looking to see that (re)insurers are actually going to come to the table (first in some cases) before writing a cheque. Understandably this has created a chicken and egg type situation for a number of InsurTechs looking to raise money in this environment.
What is possibly the most significant feature of 2022 (as we review the ‘key events’ of each year leading up until this point) is that the narrative around ‘disruption’ seems to be truly over.
InsurTech Investments to Date and the Gartner Hype Cycle
2016 to 2019 was awash with InsurTechs telling the industry to brace itself for the cataclysmic revolutionary forces it was preparing to unfold, and 2020 and 2021 seemed to really focus on spectacular raises, IPO’ing and blessings of unicorns (see InsurTech Market Faces a Valuation Decline). Neither evolutionary cycle seemed to demonstrate much robustness en masse.
However, was the creation of a select number of individual businesses, associated with the label of ‘InsurTech’ who have done remarkably well. They all have one thing in common, however; they treat the industry as the community that it is, and realise that giving is equally (if not more) important than to simply take.
They are conscientious partners who understand our industry, and utilise technology as an enabling force, not just a product to masquerade bad business behind.
This reprieve may give InsurTech the chance to breathe and focus in on the real prize(s) that our industry has been hoping for — wider adoption of appropriate technology to make the entire process more efficient, more cost effective and ultimately better (see Biggest InsurTech Unicorn Startups in the World).
With the seeming inflection point of InsurTech upon us, it is interesting to see how the reality of InsurTech investment data stacks up against a well-understood model designed to represent the maturity, adoption and social application of specific technologies, the Gartner hype cycle.
The hype cycle attempts to provide a graphical and conceptual presentation of the maturity of emerging technologies through evolutionary phases from early-stage adoption, maxed-out expectations and then the long-term relevance/applicability and general acceptability over time. The model is in no way ‘complete’ but an interesting interpretation of events in any case.
There is also the distinct possibility that 2022 marks the beginning of an overall downward trend which continues to ebb away at the historically observed phenomena of significant investing into ‘InsurTech’. And finally, it is quite possible that we will see a revival in InsurTech investment and in fact what we are currently experiencing is nothing more than a temporal deviation away from the model itself. Only time will tell but it is certainly something that we will track (see Biggest FinTech Unicorns in the World).
Before jumping into the numbers and InsurTech data, there is one final aspect of all this that is worth revisiting.
$50 billion having been invested into InsurTech businesses since 2012
2021 saw the peak, and this most recent year (2022) has brought the reality of the issue back to down to earth somewhat. As the graph also shows, 40% of the total funding has gone into life, accident and health InsurTechs, with the other 60% being invested into InsurTechs focused on property and casualty.
If we break each InsurTech that has raised capital since 2012 until now into its respective business model, the pie chart to the right clearly shows that the significant majority, 50% in fact, of InsurTechs that have completed successful fundraises are focused on the model of ‘distribution’ whether that be as a lead generator, as a broker, or as an originator of risk (but no risk bearing functionality).
InsurTech Data Highlights
Quarterly InsurTech funding for Q4 fell to the lowest level since Q1 2020, decreasing 57.0% quarter on quarter from $2.35 billion in Q3 to $1.01 billion in Q4. InsurTech deals dropped to 106 in Q4, the lowest number of deals since Q4 2020.
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FULL Report — https://beinsure.com/global-insurtech-highlights-2023/
