The InsurTech investment landscape
InsurTech firms raised a record $15.4 billion in funding in 2021 — nearly double 2020’s levels — with 566 deals completed, according to CB Insights.¹ Most investment activity was in the P&C space, which accounted for 73% of InsurTech deals through the third quarter of 2021.²
As the space matures, valuations are increasing. In 2021, the average funding was $33 million, compared with $21 million in 2020. More than one-third of overall money raised in 2021 went to mid- or late-stage deals that garnered anywhere from $100 million to $1.2 billion.³
Funding profiles are changing, as well. Insurance companies invested in 17% of InsurTech deals through the third quarter of 2021, down from 25% in 2020 and 42% in 2019.⁴
Most of the funding came from PE firms and other strategic investors, as interest in the insurance industry remains at an all-time high. Investors are attracted to the growth prospects of InsurTechs, their ability to scale into new markets, and robust exit activity.
In 2021, a record 58 InsurTechs were acquired by investors, while four InsurTechs launched IPOs and another four entered deals with special purpose acquisition companies (SPACs).⁵
Four technology themes to monitor
Digital technologies pioneered by InsurTechs are helping the industry deliver better customer experiences and improve efficiencies. Many firms are embracing embedded insurance and platform-based business models, leaning on data-driven insights to help facilitate customers’ digital journeys.
Four key technology themes that are shaping the industry include:
1. Artificial intelligence
Leveraging AI-based platforms to boost the effectiveness and efficiency of critical functions has become a strategic imperative. Already, automation is being used to streamline the claims journey from first notice of loss (FNOL) to adjustment and settlement. Increased automation is resulting in significant savings for P&C and life carriers, a trend that is likely to continue.
2. Big data
Using big data from third parties and carriers’ own systems to improve underwriting processes, mitigate losses and enhance customer personalization has emerged as a new frontier for competitiveness. Data collected from wearable devices is helping life and health insurers make smarter underwriting decisions. P&C carriers are leveraging sensors in homes, vehicles and buildings to proactively reduce losses in areas like non-weather-related water damage.
3. Embedded insurance
Using open application programming interfaces (APIs) to seamlessly integrate insurance products and solutions into customers’ digital journeys has become an important avenue of growth. For banks, vehicle manufacturers and other partners, adding insurance products to their ecosystems can increase revenue and improve value propositions, resulting in a win-win for insurers and distributors.
Carriers and InsurTechs are using cloud-based platforms and as-a-service business models to integrate components of AI, big data and open APIs in pursuit of greater speed and efficiency across their value chains. Cloud native core platforms are being used more often to rapidly develop and deploy new products.