DIGITAL TRANSFORMATION DRIVING INVESTMENT DEALS IN INSURTECH
The COVID-19 pandemic accelerated digital adoption across sectors but has provided really strong tailwinds for the FinTech space. Digitization of employee experience (EX) and customer experience (CX) workflows is driving this shift to digital. Enterprises are increasingly adopting solutions that leverage automation, Artificial Intelligence (AI), Machine Learning (ML), and data analytics to reduce costs, processing times, and errors while meaningfully improving the availability and reliability of products and services. Data is optimized to improve ROI, abate fraud, improve decision-making, and enhance engagement with customers and employees alike.
InsurTech is one of the sub-sectors of FinTech that is rapidly gaining traction in an otherwise staid industry because of shifting expectations. InsurTechs offering solutions that complement existing players are particularly seeing faster adoption than solutions targeting total disruption. Specifically, InsurTechs that focus on enhancing the underwriting and claims process and delighting customers are gaining the most traction. Increasing use of automation and AI/ML solutions across the insurance value chain is redefining how insurance is priced, sold, and serviced. Digital distribution and embedded and usage-based insurance (UBI) are rapidly gaining traction as customers get more comfortable buying financial products online or via digital-only channels. Cover Genius is one of the companies leading the charge in offering embedded insurance; these companies see numerous opportunities for online businesses and insurance carriers to offer real-time solutions that manage risk effectively.
As billions of consumers worldwide are moving to digital to work, learn, and shop, their expectations regarding frictionless customer experiences are rising, putting more pressure on legacy insurers to adapt and keep up. To respond to these market demands, many insurers are turning to “Open Insurance” solutions (similar to Open Banking) that enable insurers to leverage Open APIs to share and access data and services with third parties, including InsurTechs and financial institutions and organizations that possess useful data points that can help insurers gauge risk and develop personalized coverage. For legacy insurers facing competition from digital-first InsurTechs, Open Insurance offers an interesting opportunity to shore up their competitive position while retaining their incumbency advantage.
All these market trends and activities are also driving convergence between non-insurance and insurance players—similar to convergence in other FinTech areas. Payments, for instance, is virtually getting integrated with all other solutions to provide a more seamless user experience. Some notable examples include Walmart launching insurance brokerage services and Ford teaming up with Metromile to offer UBI insurance options. Similarly, many insurance companies are venturing outside of traditional insurance, with several recent examples of investments in WealthTech, Payments, and Energy Efficiency solutions.
As per reports, InsurTech capital raising is continuing at a record pace. H1 2021 set a new record, with companies raising ~$20 billion across 450+ deals globally—an increase of over 200% from H1 2020. Several large deals including Oscar, Bright Health, wefox, Bought By Many, and Clearcover fueled this massive increase in capital raising. IPOs and M&A deals continue to increase significantly across the entire InsurTech value chain.
According to Marlin & Associates’ latest market update on the InsurTech sector, market values of publicly traded firms continue to be robust and transaction activity for financing and M&A continues to grow rapidly.
Anup Agarwal is a Senior Managing Director at Marlin & Associates, where he specializes in working with enterprise software and services companies. Anup has deep expertise in workflow automation, AI, and data and analytics technologies as applied to Banking, Insurance, Financial Services, and Healthcare verticals. Anup’s work experience includes advising public and private companies and private equity firms on numerous M&A and capital raising transactions.