Some insights into insurtech funding, from MAPFRE, NN Group, Generali and others;
Venture capital funding in technology start-ups applied to insurance (insurtech) has fallen to 2018 levels, closing the first half of 2023 with an investment of $2.4 billion. This figure represents a 45% drop from the same period in 2022 and a similar figure from 5 years ago ($1.8 billion).
Against the tougher economic backdrop, start-ups with a higher degree of maturity (Series C) record the highest drop (62% compared to their historical peak). In the case of start-ups in Series B rounds, the drop stands at 43%. Early-stage companies (seed or Series A) have been the most successful in mitigating the decline, stabilizing at around 29%.
These are some of the main findings from ‘The State of Global Insurtech’ report, prepared by Dealroom.co, Mundi Ventures, MAPFRE, NN Group, and Generali. This is the third edition of a report that analyzes the state of the insurtech industry, providing transparency through qualitative data and insights on trends and the current state of the sector.
A $7 trillion market opportunity
Despite representing a $7 trillion market opportunity, the insurance industry is not able to attract the same level of investment as other sectors, such as food and health. For example, mobility and financial services, even with less opportunity space, have received 5 and 10 times more funding, respectively.
Insurtech has also focused heavily on the casualty insurance market, which has attracted more than 60% of funding in recent years, mostly thanks to cyber insurance and commercial, home, and auto insurance. Life insurance has seen particularly low levels of investment compared to health and casualty insurance. As for the valuation of insurtech start-ups, this figure stands at $281 billion, with private companies accounting for a larger percentage of the sector (85%).
The valuation of listed companies plummeted in 2021-2022 (-59%) and is only now starting to recover, albeit slightly. Meanwhile, private companies grew significantly in the 2021-2022 period (+19%). Since then, growth has slowed, as can be seen in the first quarter of 2023 (+1% year-on-year).
Changes for operational efficiency
Operational efficiency is a necessity for all players in the industry, who are working actively to achieve it. Insurtech start-ups are precisely those offering such efficiency across the value chain (distribution, claims automation, fraud management, payments, and product and underwriting) by opening up new possibilities through innovation.
Embedded insurance is entering a consolidation phase thanks to heavy investment and a large number of infrastructure providers. Open insurance has proven beneficial for both consumers and insurers, but it needs standardization, including standardized data flows, to build a truly transparent industry.
Technologies such as AI have been used in the industry for some time and have had impact across different areas (claims automation, marketing, contract and policy management, among others). Generative AI tools, such as ChatGPT, also open new doors, although it is still unknown which processes will be most affected by them. The most immediate use cases for these AI tools are customer-facing processes (lead generation opportunities, enhanced agents, customer portal, etc.). Other applications may be useful in claims automation and fraud detection.
Insurance plays a key role in both climate change mitigation and adaptation, the most serious global risks today. When it comes to other emerging risks, such as cyber protection, cyber insurance is a crucial factor in the cybersecurity ecosystem and an opportunity for insurtech start-ups.
The United States leads investment in 2023, and LATAM gains strength
When analyzed by geography, the United States is the leading region in terms of investment in insurtech in 2023, with $1.2 billion to date. Looking at the territories with the highest growth, Asia leads the ranking, with 58% growth in the first half of 2023 compared to the same period in 2022.
In Europe, the United Kingdom ($178 million), Germany ($61 million), and France ($34 million) attract 80% of the financing (4/5 of the total). Italy, the Netherlands, and Estonia lead the way in growth of early-stage start-up funding rounds; Spain, meanwhile, has funded more than 40 start-ups, investing $156 million since 2020, and has a 0.7-point growth in early-stage venture capital investment.
Regarding the Latin American insurtech ecosystem, the first half of 2023 shows a partial rebound in funding ($79 million in H1 investment), although nowhere close to the peak reached a year ago. This region brought in an investment of $239 million in 2022.
Latin American customers expect a digital customer experience, in addition to a human touch. They are characterized by two aspects: highly digitized users who need to be approached through alternative channels (social networks, WhatsApp, or fintech and e-commerce platforms); due to the diversity of culture at the local level (region and country), there is some resistance to traditional intermediaries, although these can add value by humanizing the digital journey.
Joan Cuscó, Global Head of Transformation, MAPFRE, said: “Although investment has cooled across the VC landscape in general, “good” start-ups are continuing to close significant fundraising rounds.
It should also be noted that insurers still have a lot of room to adopt insurtech solutions that are ready to be deployed at scale. This creates a huge opportunity up to grab for insurtech start-ups providing solutions from claims automation and payments to underwriting and pricing. The only way is up – the transformation of the industry is unstoppable”.
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