Insurtech Funding Roundup, Q1 2020: Investors Reduce Risk As The COVID-19-Induced Downturn Settles In
Insurtechs have brought innovation across the insurance value chain. Incumbents can’t stand still, especially as these nimble, digitally conscious startups disrupt insurance or bring capabilities that drive business efficiency. Incumbents should stay informed on insurtech trends and vigorously monitor the insurtech marketplace to evaluate investment opportunities. To this end, Forrester regularly reviews startup funding through its partnership with Venture Scanner to show you which insurtech startups are getting attention, where the money is going, and what to do next. Below, we highlight key takeaways for Q1 2020.
Insurtech Funding Contracted In Q1 2020
The adverse effects of COVID-19 were immediately felt in the insurtech marketplace as investors and insurers curtailed investments amid economic uncertainty and market volatility. During the first quarter of 2020, insurtech funding reached almost $760 million, a marked decline from almost $1.7 billion in the same period a year ago. On a month-by-month basis, insurtech funding also declined as coronavirus angst accelerated — in January 2020, nine startups raised about $450 million, declining to about $45 million (five startups) in March 2020. The bulk of funding — about 70% — was for US-based insurtechs, 20% for Europe-based insurtechs, and 10% for an Asia-based insurtech. During the period, Chinese firms were notably absent. While Chinese insurtechs don’t have a huge quarterly presence generally, they usually receive a healthy amount of funding. China was the first country to close businesses in response to the coronavirus, however, and the only company that closed a round there, Waterdrop, did not disclose how much funding it received.
Most Funding Went Toward “Disruptors”
In what has been the norm, most insurtech investment went to digital insurers like UK-based insurtech Laka and comparison marketplaces such as US-based Policygenius, with about 75% of funds raised going into those two categories. These digital insurers and comparison marketplaces hold disruptive appeal, and I expect this trend to persist in the coming quarters. The enablers of operational improvements are also getting funding — about 25% of investments accrued to this category. These enablers are leveraging emerging capabilities such as artificial intelligence and machine learning to improve insurance business processes, such as helping insurers reduce insurance fraud or pay claims faster. For example, Germany-based omni:us, an insurtech that applies a combination of computer vision, natural language processing, and artificial intelligence to reduce paperwork and speed up claims settlement, raised $13 million in Series A funding from investors in Q1.
The Near-Term Outlook Is For Constrained Fundraising
Looking ahead to the next two quarters, I expect that insurtech funding will continue to wane as the near-term economic picture remains uncertain, which will drive investors and insurers alike to deploy capital preservation strategies. For insurers, however, it’s important that you continue to invest in digital capabilities that will elevate customer experience and drive operational improvements. Your customers want to transact using a variety of touchpoints, and as COVID-19 has shown us, having a digital infrastructure (online-, mobile-, and agency-optimized) can help you provide the digital experiences your customers expect. But it’s not just your customers that benefit. Your employees and distribution partners will benefit from digital apparatus and workflow automation that enables them to provide the swift, connected experiences your customers require (e.g., faster policy issuance and claims settlement). You can, of course, build these capabilities or leverage established vendors or some combination in between. But don’t forget about insurtech — it has been a great force in bringing innovation across insurers’ value chains and your customers’ buying journey.
As we work through COVID-19, the road will be bumpy. However, I believe that carriers should remain steadfast in investing in digital — you should use insurtech to accelerate your digital roadmaps and use these challenging times to find value in the marketplace.
To read our recent research on insurtech trends in Q1 2020, click here.
As always, if you would like to speak with me about this post or any of my research, please schedule an inquiry.