Insurtechs take whopping $3.1bn in Q3 as VC continues to flood sector

Global funding into insurtech sector of $3.13 billion in the third quarter of 2021 has pushed total year-to-date funding above the $10 billion mark, which is double the prior year period total as venture capital (VC) investors continue to flood the zone, a fresh quarterly insurtech briefing from  Willis Towers Watson has shown.

The Q3 tally, while down from a one-off peak of $4.82 billion in the prior quarter, still represents a strong gain on all prior periods in a visible growth streak dating back to at least 2018.

Deal numbers rose only 9 percent year-on-year to 113, but the number of mega-rounds above $100 million rose to 11 to account for more than half of total funding (down from nearly 70 percent in the record Q2, 2021).

"The growth of global insurtech investment over the past decade has been significant, but the stark pattern is a concentration of the much for the few," Willis Re's global head of insurtech Andrew Johnston was quoted saying. Plenty of start-ups are left unfunded, he indicates.

But, early-stage funding is growing at a faster pace. A record $630 million in Q3 on 113 deals brings the nine-month year-to-date tally to $1.52 billion, a 118 percent increase on the prior year period and even a 73 percent increase over full-year 2020. Average early round deal size shot up to nearly $12 million in part as seed and angel rounds slip to a low dating back to Q2 2020.

VC investors may be driving the run-up in deals and their accompanying hefty valuations, report authors say of "staggering" presence for VC, corporate venture, super angels and growth equity in the deal mix.

The current stage of the VC funding cycle and Insurgency’s rising star status is helping to render "certain valuations that might otherwise be considered irrational (relative to business performance on traditional re/insurance metrics)."

"Undoubtedly, one of the biggest drivers of overvalued valuations for businesses in this space is the continued prevalence of venture capital (VC) investors who have turned to insurtechs to expand their portfolios and make the most of relatively buoyant markets," authors say.

Much of the valuation frenzy appears focused on the risk-originating side of the business, given VC tastes for business volume growth, authors say.

Start-ups with a focus in distribution and business-to-business (B2B) software vendor models are plentiful, but are "unlikely to achieve the types of elevated company valuations that their carrier-model InsurTech cousins are commanding," authors say.

Some 1118 venture investors may now have their attention "firmly set" on the sector, almost 7.5 times the number estimated from 2012, authors write.

Of the three largest rounds this quarter, two of the start-ups were focused on offering cyber insurance, including Coalition, which raised $205 million, and At-Bay, which raised $185 million.

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