Insurtech investment soars in Q2 driven by ‘mega’ funding rounds

Investments in insurtech ventures soared in the second quarter of 2020, after a slow start to the year largely because of the COVID-19 crisis, with several very large later-stage investments dominating the picture in the quarter.

Some $1.56 billion was raised by Insurtech firms in Q2. The total, up 71 percent over Q1, was driven in part by later-stage investments, including four ‘mega-rounds’ in excess of $100 million, according to the new Quarterly InsurTech Briefing from Willis Towers Watson.

At 74, deal count was down 23 percent from Q1, but many individual rounds were larger as investors continued to turn away from Seed and Angel deals in favour of support for more mature ventures. P&C sector investments predominated, accounting for 68 percent of funding, but the share of L&H sector investments was up 17 points to 32 percent, as the pandemic crisis continues to compound the value of technology, and particularly telehealth, in the segment.

Also notable was the initial public offering of Lemonade and the acquisition of two incumbent insurance companies by InsurTechs, Hippo and Buckle, the report noted.

Deals were struck in a record-breaking 25 countries, including newcomers such as Taiwan, Croatia, and Hungary. Seed and Series A financing hit a record low, at just 42 percent of deals. Series A deals were flat, but Series C deals accounted for 11 percent of deals, up from 6 percent the previous quarter. Distribution-focused start-ups saw an 11-point rise in deal share, while B2B companies reduced their share by nine points. New re/insurer partnerships reached a record high of 34 deals, up four from Q1 2020.

Dr Andrew Johnston, global head of Insurtech at Willis Re, said: “While Insurtech investment clearly rebounded in Q2, and the trend towards greater commitments to later-stage fundraisings continues, we should be cautious and not read too much into the general state of the global Insurtech market based on this quarter alone.

“In the short term, investment confidence will test the status quo, especially for highly leveraged Insurtechs. Similarly, certain risks and their associated vectors have changed fundamentally and so the impact of that is yet to be truly felt. It is quite possible that we will observe a general slowing down of Insurtech activity as a result.

“In the medium term, changing risk classes may be better understood alongside rising consumer optimism, but the true economic impact of COVID-19 probably won’t unfold until 2021 and 2022. This will undoubtedly impact many (re)insurers’ appetite to invest in or deploy technology. Survival may be a challenge for some InsurTechs, especially if their use-case has been lost forever due to underlying societal change following the lockdown. Equally, such changes will create opportunities for others. If the funding gap between Seed and later stages continues to widen then many InsurTechs will struggle to acquire the funds required for maturing growth.”