Insurtech deal volumes could grow 33% CAGR to $10.6bn by 2030
Deals in the global InsurTech space could hit $159 billion by 2030 on 33% average annual growth this decade as insurer demand for digital solutions to ongoing challenges overcome growing pains and market turbulence in the sector, analysts at the Drake Star investment bank have suggested in a report.
Near-term, the industry could end up torn between conflicting needs: geopolitical and macroeconomic uncertainties have both changed investment patterns and driven down valuations, but at the same time made the need for digitization throughout the insurance process ever more clear, analysts suggest.
The time would have been right for a continued deal explosion. Some 85% of insurers see digitization as their number one strategic priority, the report indicates. Economic hurdles, ESG concerns, evolving customer trends and more all cry out for digital approaches.
“During the past few years, traditional insurance carriers understood the importance of transitioning to digital business models, and InsurTechs understood the complexities surrounding insurance businesses,” analysts wrote of the state of play.
Geopolitics and constrained economics may have bolstered those basic drivers, but have also altered the market dynamics.
“While deployable capital remains ample, investors have grown increasingly wary given the current global political and economic climate,” analysts noted of a take-down in market excitement in 2022.
It’s not just markets, but the directions markets force from players: the days of the cost-blind go-for-growth unicorn hunter may have passed. “The deteriorating macroeconomic environment in early 2022 shifted investor focus back on profitability rather than growth.”
Those opposing forces are proving visible in the fund raising volumes secured by the sector.
A rocket course in 2021 saw funding more than double year on year to $10.5 billion after a ca. 20% CAGR rate over the prior five years. But Q1 2022 funding levels of $2.2 billion leaves the industry well off the prior year track.
But the decline in money-terms in early 2022 may reflect more on deal valuations than volumes. The Q1 2022 deal count of 143 is more than its fair share of the 379 in full-year 2021.
M&A activity has also been up, but again might not be on track to match a peak achieved in 2021.
“Deal activity skyrocketed in 2021 as market players became more mature and use cases could prove their effectiveness in real world,” analysts wrote. “The pandemic even more set the focus on digital business models and online touchpoints.”
“In early 2022, the fear of recession and the war in Ukraine slowed down overall M&A activity and set the focus on established profitable businesses. However, we expect a high level of activity in 2022 which will be strongly driven by market consolidation.”
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