B2B insurtechs offer investors the best near-term opportunities - report

Less funded, highly engaging business-to-business (B2B) insurtechs offer investors the greatest near-term opportunity, according to a new report from investment banking firm Keefe, Bruyette & Woods.

The report, titled Spotlight on InsurTech: The New Old Thing, says that insurtech Investments can be broken down into three major categories: distribution (selling insurance without taking underwriting risk), B2B (providing services to insurance companies) and underwriting.

Distribution has taken up most of the investment dollars (41 percent), but KBW analysts find it may offer the least compelling opportunities given the lack of differentiation and the difficulty competing with established insurers and brokers who are also rapidly adopting state-of-the-art technological tools to better serve customers.

Underwriting has attracted the second-most investment dollars (33 percent), but KBW analysts believe this area will continue to be dominated by legacy companies. Less-funded, highly engaging B2B platforms (26 percent) appear to have strong customer engagement based on repeat website visitors.

Despite almost $4.5 billion in distribution-related insurtech investments (excluding actual mergers and acquisitions) since 2012, insurtech distributors still lag more mature online platforms in generating website traffic while also, on average, having weaker website engagement metrics (higher bounce rates and lower average visit duration) implying differentiation remains challenging.

Based on repeat website visitors that KBW analysts use to proxy B2B customer engagement, they think highly engaging, less funded/earlier round B2B platforms should be a worthwhile area for insurtech investors’ focus.

Property & Casualty (P&C) and health insurtech underwriters have generated persistent underwriting losses, which have recently started to improve. KBW analysts think underwriting profitability needs to be demonstrably positive and sustainable for insurtech underwriters to thrive in the public markets and trade at favourable price-to-book multiples.

KBW predicts that growing private equity funding should continue to boost insurtech investments with increased concentration among later-stage investments. However, KBW analysts expect private sales to comprise most transactions given higher multiples paid in private transactions versus publicly traded insurtechs.

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