Q1 Insurtech Fundraising Drops 54% on COVID-19 Disruption: Willis Towers Watson

Overall funding for insurtech investments decreased by 54% during the first quarter as a result of the COVID-19 crisis, compared to a record high in Q1 last year, according to a report from Willis Towers Watson.

Nevertheless, insurtech companies still were able to raise US$912 million, but most of the funding was captured and completed at the beginning of the quarter, said WTW’s Quarterly InsurTech Briefing.

Deal count, at 96, was up 28% over the fourth quarter of 2019 and 10% more than the first quarter of 2019. WTW said this is the highest number of investment rounds by transactional volume ever recorded by its quarterly insurtech report.

“While not entirely responsible, COVID-19 has had an enormous impact on global markets and global insurtech investments. Investor optimism and consumer confidence is (at least) on pause, and re/insurers have lots of unprecedented issues to deal with in the short term, which has shifted many firms’ focus,” said the report.

Other Q1 findings in the report include:

• Property and casualty (P&C) insurtechs widened their share of total and early-stage funding to 83%, compared with life and health (L&H) insurtechs. The report argued that COVID-19 is the likely culprit for the disparity
• Startups with a focus on policy distribution raised the largest rounds in Q1 2020. “As insurance moves increasingly online, companies that are able to match customers to policies are increasingly valuable,” said the report.
• The US recorded 57% of deals and the UK recorded 10%. China recorded a 6% drop in deal numbers from Q4 2019.
• B2B-focused companies accounted for 55% of recorded deals in Q1 2020, a 121% increase from Q4 2019.
• The value of strategic insurtech investments by re/insurers fell 8% from Q4 2019 and 43% from its highest point, reached in Q3 2019.

The report noted that the vast majority of insurtechs that successfully raised money in Q1 are predominantly early-stage firms, “and at an aggregate level at least, the amount raised is still substantial.” This shows that the COVID-19 crisis did not have “a material impact on the respective valuations of insurtech businesses.”

However, this trend suggests that the major impact of the COVID-19 crisis has been on the upper echelons of investments – affecting later-stage insurtechs that are looking to raise capital from industry players or insurtechs and want to use re/insurers’ balance sheets, said the WTW report, explaining that re/insurers participate more in later stage investments.

“This has been a particularly interesting quarter for global insurtech. It is clear that COVID-19 has had a material impact on later-stage investments, and re/insurers are holding back,” commented Dr. Andrew Johnston, global head of InsurTech at Willis Re, in a statement accompanying the report.

“Despite the very large percentage drop this quarter when compared with the last, we are still seeing a huge amount of activity in early-stage funding rounds, across a very large number of deals,” Johnston continued.

He said that COVID-19 is the likely culprit for less engagement from re/insurers, which have their attention focused “on other, perhaps more pressing issues.”

In the report, Johnston noted that the term “insurtech” was coined 10 years ago. Since then, he said, at least 2,000 insurtech startups have been conceived. As there were already a number of firms in existence in 2010, the total number of insurtechs that have ever existed could be nearer the 3,000 mark, Johnston added.

“We know that of the total number of insurtechs that were conceived post-2010, approximately 760 have raised capital in various forms, and over the past 10 years, a few hundred have shut their doors,” he affirmed. “We also know that of those insurtechs conceived after 2010, a very small percentage have been able to generate any meaningful revenue, let alone net profit.”

Source: WIllis Towers Watson