Insurtech fundraising jump 63% in Q3 but ‘funding gap’ widens

Investments in insurtech ventures surged 63 percent, reaching a record $2.5 billion across 104 deals, in the third quarter of 2020, but the ‘funding gap’ widened due to the current COVID-19-induced recession, according to a new report by Willis Towers Watson (WTW).

WTW found a "solid investor appetite" for new and mature opportunities in the insurtech sector as firms raised a total of $2.5 billion during Q3.

Deals included two $500 million rounds, and six mega-rounds of $100 million or more, which accounted for more than two thirds of total funding, including Bright Health, Ki, Next Insurance, Waterdrop, Hippo, and PolicyBazaar.

According to the report, early-stage deal share grew to 57 percent, up 15 points to pre-COVID-19 levels, bolstered specifically by property and casualty (P&C) start-ups. More than half of insurtechs with a Q3 Series A round were raising capital for the first time and raised on average $10.9 million.

However, WTW noted that appetite for investment in the $20 million to $50 million range widened during the quarter as insurtech companies seeking mid-tier Series B and C investments saw deal share shrink by almost 9 percentage points.

Overall, non-industry investors including venture capital and private equity predominated in the smaller rounds, and re/insurers in the larger end.

The report also observed that P&C sector investments predominated in Q3, but the share of life and health (L&H) sector investments rose 3 points to 30 percent. This was driven by a disproportionate amount of L&H funding in the mega-rounds, accounting for three of the six deals, and 49 percent of total Q3 mega-round funding.

“With everyone working from home, never has the true value of technology been more real and manifest in our industry. But most re/insurers are looking either to accelerate, conclude, or temporarily slow down their ancillary technological endeavours and focus instead on ensuring their core business functions operate efficiently in the new digital, remote environment," said Andrew Johnston, global head of insurtech at Willis Re.

"Consequently, their appetite to support well-established InsurTechs is much greater than for those who still have things to prove. That means the lifeblood of budding InsurTechs who rely on Series B and Series C rounds to scale up has, relatively speaking, disappeared,” Johnston added.

Richard Clarkson, head of London market consulting at Willis Towers Watson, added: “Algorithmic-follow disruptors – those underwriting entities that use technology and analytics to take a share of business offered under the terms and rates of a lead underwriter – are set to claim to a bigger slice of the insurance market, especially as the evolving Lloyd’s business model shifts to make it easier for them to do so.

"Many of the component parts required to create systems to implement this model have actually been around for a while. This will make trading faster and more responsive, and open new attractive avenues for alternative capital.”