This year of the pandemic will forever be known for its effect on the way we work and interact. Although our “new normal” will be temporary, the digital transformation it brought about will prove lasting. Amid the chaos, insurtechs, with their digital-first business models, have benefited as their funding has continued to improve. In Q3, insurtech funding increased 31% to $1.7 billion from $1.3 billion in Q2 2020. Investors and insurers continued to fund insurtech startups that digitize the customer journey and the insurance value chain. Although 2020 started off slow, it is on track to be the third highest year for insurtech funding since tracking began in 2010. This quarter, we found that:
- Investors focused heavily on mature startups. Investments in late-stage companies fueled the bulk of insurtech funding. About 70% of investment in Q3 went to them. Early-stage startups constituted about 18% of funding, with the balance going to seed-stage startups. Historically, most insurtech funding has gone to early-stage investments. But as the magnitude of recovery in the global economy remains uncertain, investors continued the second quarter’s trend of investing in late-stage startups with mature products and offerings.
- Digital insurers remained the drivers of funding. Consistent with previous quarters, digital insurers such as Bright Health (employer-offered insurance provider) were the primary recipients of insurtech capital during Q3. About 90% of funding went to these startups. Investor interests in these companies remained strong, particularly given the success of many recent fintech and insurtech IPOs. Enablers of operational improvements like Eden Health (virtual primary care platform) and insurance comparison websites/marketplaces such as Policybazaar (property, life, and health insurance) received roughly 10% of this quarter’s funding.
- Digital insurance platforms garnered interest. Insurance platforms provide carriers with end-to-end digital capabilities to quickly build digital-first solutions. During Q3, insurance platform provider Breathe Life raised about $8.7 million from several investors and insurers, including National Bank of Canada. National Bank of Canada’s investment in Breathe Life highlights investor interest in not only funding but also working closely with insurtechs to speed the development of digital distribution capabilities across multiple insurance lines. In 2018, the bank’s subsidiary, National Bank Insurance, partnered with Breathe Life to develop a direct online insurance distribution solution that the insurer used to quickly develop its digital life insurance capabilities.
As this year has progressed, investors and insurers have increased their investments in insurtech in the new normal. Investors see the upside potential in digitizing the customer journey. Insurers see the benefits of using insurtech to streamline their operations across the value chain. COVID-19, despite its disruption, has accelerated the pace of digital change. Customers have shifted to digital-first interactions, changing their engagement with insurers and brokers at least in the near term. I believe insurers should continue to monitor the insurtech marketplace to evaluate competitive threats and transformative opportunities.
To read the Q3 2020 insurtech report, click here.
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