Investment in the insurtech space in the 2Q of 2022 increased by 8.3% from the opening quarter of the year to $2.41 bn, as a rise in the average deal size masked a decline in the overall number of deals.
InsurTech ecosystem, by Beinsure Reporthas met a very interesting juncture; at a macro-level, be swept up in the downgrading of public value, or represent a viable investment alternative to an investor’s portfolio that is otherwise being dragged into generalised bearishness, and at a micro-level; either capitalise on the availability of lower-priced assets or struggle to survive.
InsurTech, but is particularly pronounced in any technological boom where valuations have been especially frothy — which for InsurTechs this has certainly been the case. The speed of gravitational pull back to reality has been very real for a number of InsurTechs in the last six plus months.
The global market saw overall growth of 15.4%, even with the COVID-19 pandemic, 2020 grew by 6.9%, and 2021 grew by 18.7%. 2022, however, to date has shrunk by 8.6%. Over that same time period, global investments into InsurTechs recorded a growth rate of 52% in 2019, a 12% growth rate in 2020 and an incredible growth rate of 122% in 2021.
The ‘muted’ growth rate in 2020 was undoubtedly related to COVID-19 — H1 contributed just 35% of the total recorded funding in 2020. All this to say, until now investments into InsurTechs (as a respective rate of growth) have outpaced relative overall growth in the global stock market.
Again, this is not something specific to InsurTech but it is worth having these figures in mind when we begin to evaluate what the future might have in store for InsurTechs in general.
Market dropped down further still another 3.5%, global investment into InsurTechs during that month was $679 million, and during March, the market actually picked up 2.3% growth. In that same month, investment into InsurTechs rose back up to $795 million.
While we should not read too much into these parallels, it is interesting to consider the perception of true value held in these businesses as stand-alone companies, versus the potential for quick equity returns when the markets are otherwise bullish.
It certainly would strengthen the view that individual InsurTech performances are not being factored into their overall public value, and are in fact being treated as a group with little distinction between them. It is not unusual for early-stage technology firms to be hit hard in periods of uncertainty, but what this does tell us is there is also a huge opportunity for discerning investors who are prepared to take the time to decipher which of these firms (at an individual level) is likely to bounce back with the most vigour — especially with some values getting close to pennies on the dollar (as it stands). As the market recovers, so too may a number or all of these businesses.
Relative/comparable InsurTech stock price changes
As we have discussed, the global markets have struggled since the beginning of the year. In particular, market participants are nervous about overall global economic growth, largely thanks to high oil prices, the war in Ukraine and a spike in Chinese COVID-19 cases. It is also still reeling from other longer-term COVID-19-related impacts, notably a rethinking of businesses of the future, the acceleration of unbridling reliance on fossil fuels, and state debts and grants made during the height of the pandemic.
This overarching nervousness has undoubtedly affected much of the market with even the most robust stock valuations taking a beating. The most confident of investors will view this current climate as an opportunity.
According to InsurTech`s evolution and investment landscapein our midst are a number of InsurTechs who will undoubtedly change the face of (parts of) our industry (and in some cases most are already doing so). As the markets begin to recover and individual businesses are released from the bog of generalised scepticism, those InsurTechs should raise to the surface with the utmost buoyancy.
If nothing else, the same conditions that are in part responsible for this most recent dip are actually validating and vindicating what a number of InsurTechs are looking to remedy, improve and even solve. For example, as mentioned, there is now an accelerated shift towards renewable energy.
In the wake of any Schumpeterian gale of disruption, those displaced, or at least on the wrong side of victory, will present a further opportunity for (relatively) well-priced asset capture — whether that be human capital, technological assets or assumed market share.
This most recent downgrading of company values could well usher in conversations of M&A or divestitures that might have seemed unlikely even six months’ ago. Historic shifts in the market do create bergschrund fissures for some industries and our own industry will almost certainly see cases of dislocation (we already are).
Relative Development of Regions (excl. 2022 Q1) — Total Funding
As a region in focus, EMEA has actually experienced the greatest amount of relative growth (from the starting point of 2012), up until the end of 2021 in terms of funding volume. Per the graph above, from 2012, to the end of 2021, EMEA observed a relative increase change in funding volume by 1,127.1 times.
Without meaning to mislead the reader, we will now reveal that in 2012 only $3.13 million had been invested, and in 2021 $1.1 billion was invested into EMEA — whereas the Americas recorded $344.6 million in 2012, and reached $9.9 billion in 2021.
Relative Development of Regions (excl. 2022 Q1) — Total Deal Count
Specifically in the EMEA region, the UK tops the chart with total deal count and total amount of capital raised/invested. By the end of 2022 Q2, the UK had overseen 217 deals, which in total raised $3 billion. On both fronts this is second only to the United States (covered in our Q1 report). The UK also leads the EMEA pack with regards to mega-round deals, with six $100+ million deals completed by the end of 2022 Q2.
We have commented at length on the state of the market, the impact on InsurTechs, and the potential view(s) held by traditional investors. One final mention should be made to the existential pressure put upon our industry more broadly that could also affect the fate of InsurTech as a social phenomenon, and at an individual company level — that of incumbent investment returns.
With many (re)insurer market returns performing below expectations, (re)insurers have understandably had to focus their attention on underwriting, distribution, capital restructuring, and belt-buckling.