Pandemic Economic Uncertainty Could See Insurers Buying, Partnering with Insurtechs

Insurance carriers could increasingly target insurtechs for acquisition and partnerships in the coming months due to pandemic-related economic uncertainty, according to a report.

“As insurers move toward late 2020 and into 2021, we believe there may be an increase in insurance carriers acquiring and partnering with insurtechs,” consultants at Deloitte said in a 2020 Insurance M&A Midyear Update.

The reasons: Carriers are attempting to respond quickly to pandemic-driven digital demands, and insurtechs are displaying flexibility about their futures during uncertain times.

“Insurtechs may have a greater willingness to partner or be acquired due to the uncertain economic outlook, and carriers seeking to quickly respond to a rapidly changing world (such as an increased need for virtual or touchless claims) may find insurtech investment a more appealing allocation of capital than investing in the current low-interest-rate environment,” the Deloitte report concluded.

The pandemic has raised the stakes. Carriers and agents need to be able to do much, if not all, of the following: market, sell, bind and service commercial lines insurance online.

For insurtechs, being acquired isn’t the only M&A option. Some insurtech have themselves already acquired small carriers. Hippo, a property/casualty insurance personal lines broker, bought the carrier Spinnaker in June for an undisclosed price. Another example is the workers’ compensation insurtech Pie Insurance, which raised $127 million in May and then earmarked most of the money to buy a licensed insurer or start a new one.

Deloitte said both companies show insurtechs could pursue acquisitions in the months ahead, but it’s unclear whether the trend will mushroom.

Insiders have speculated for months that the pandemic may accelerate insurtechs’ willingness to be acquired after forming collaborations with carriers.

The trend was already in play, but the coronavirus pandemic has accelerated it considerably, Martha Notaras, a managing partner at insurtech investor Brewer Lane Ventures, said during an interview that was part of Carrier Management’s InsurTech Virtual Summit in early May.

“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.

She also noted the pandemic-related fundraising challenges for some insurtech startups could also spur merger activity.

“I don’t think everyone will get funded,” Notaras said. “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.”

Deloitte’s report said that insurers in general are now pausing from M&A activity due to pandemic uncertainties, but longer-term disruption could increase M&A pressures.