The purpose of this article and the following one is to review several key developments in the rapidly growing Insurance Technology ("InsurTech") market. The global InsurTech sector is estimated to be $9.4 billion in 2020 and is expected to grow at 32.7% CAGR to $158.9 billion by 2030, while the overall FinTech sector will expand from $110.6 billion in 2020 to $698.5 billion by 2030 at 20.3% CAGR.
Just like any other industry, the insurance industry is facing a wide range of unprecedented challenges in a fast-changing environment. To name just a few of those challenges – the use of big data through digitization, mobilization of customer touchpoints, increasing demand gap between multi-generational customer bases, untapped gig economy, developing customer-centric products and services etc. And as so often, technology i.e. InsurTech, plays a key role in helping insurance companies to overcome many of those challenges.
Here are several topics we believe you should be aware of based on the latest developments in InsurTech:
VC Activities in InsurTech
Technology Developments Along the Insurance Value Chain
Big Tech Invading
Embedded Insurance
Microinsurance
Risk Prevention Using IoT
This newsletter will cover VC activities in InsurTech, and the next newsletter will cover the remaining topics. This article is also available on LinkedIn.
Venture Capital Activities in InsurTech
We would like to begin by comparing InsurTech with FinTech. InsurTech appears to be relatively small when compared with the overall FinTech sector, but we should not forget that FinTech has several sub-sectors, including one called InsurTech. It is necessary to compare InsurTech with the other subsectors of the overall FinTech sector in order to ensure likes are compared with likes.
In CB Insights research report for 3Q 2022, it estimates that venture capital investments into the overall FinTech was around $11 billion in 3Q 2022, among which $3.9 billion was in Payments and $2.3 billion in InsurTech, respectively, as shown in Graph 1. InsurTech is second only to payments among FinTech sub-sectors.
With $1.1 billion, the United States attracts with nearly 50% the largest portion of the world's InsurTech investments. The global share of InsurTech investments in Europe and Asia are 29% and 25%, respectively. This is illustrated in Graph 2.
Looking at the investments into InsurTech depending on the size of the company, the non-mega-round funding share increased to 66% in 3Q 2022, a 24% quarterly increase, indicating that VC investors have become cautious when funding mega deals at very high valuations during the current market turmoil. There were 46 M&A exits in 1H 2022, exceeding 2021's total for the full year by 79%. As a final point, lower valuations have prompted more M&A activities in the InsurTech sector.
Graph 3 shows the VC Investments over the last 10 years. According to PitchBook Data, over the last decade global InsurTech funding grew substantially and reached a record high in 2021 with a total deal value of $14.2 billion and a total deal count of 705. 2022 was slower i.e. in the first half of 2022, VC investments in InsurTech companies totalled $5.4 billion across 304 transactions.
Within the InsurTech value chain as shown in Graph 4, most of the investments go into Marketing and Distribution with 35%, and 30% in Product Design and Development. The remaining 35% are going into Policy Admin, Collection, Disbursement, Pricing and Underwriting and Claim Management. It's surprising how little VC investment goes to Claim Management, only $201 million or 2.9% among InsurTech investments.
Technology-wise, more than 60% of investments are directed towards frontend, including Cloud, Mobile, and Applications. Big Data and Artificial Intelligence each attract around 20% of investments. This is illustrated in Graph 5.
According to a Drake Star survey, insurance companies place a high priority on investing in technology, and 85% of insurers rank digitization as their highest strategic priority. An insurance company's ability to utilize new technologies to maintain its competitive edge depends on the ability to communicate efficiently with clients and collect, store, and use their data effectively.
QIDS Venture Partners is dedicated to supporting and catalysing the developments in FinTech by sharing with our audience FinTech trends and interesting FinTech business ideas. You may forward this article to other investors who are interested in FinTech as well. If you need more information or would like to arrange a meeting with us, please feel free to contact our Managing Partner Edward Shen via LinkedIn or email.
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