The sixth edition of the world report «Insurtech Global Outlook 2022«from NTT DATA, analyzes the main trends in the insurtech ecosystem and the impact that advanced technologies and new business models have had throughout 2021.
On this occasion, the research has been expanded to delve into the four Accelerating Forces of Liquid Insurance Ecosystems to those entities of their own nature whose movements affect the evolution of ecosystems, speeding up or slowing down the course of the insurance industry: insurtech; insurance companies and their digital garages; new entrants and tech giants and regulations.
This edition addresses the analysis of the market taking into account the rehabilitation experienced after a 2020 marked by the pandemic and the strengthening of the sector in 2021. The grouped analysis of all these elements throws a realistic photo of the sector, the preferences of investors and the technology that sets the trend that is redrawing the insurance universe in the new digital age.
In the insurtech part, the study delves into aspects as diverse as the investment received by or the positioning of insurers, which stood out in 2021 in terms of relevant investment in startups. It also analyzes the role of new entrants, who have shown in 2021 their high interest in monetizing their internal technologies through investment or association with startups.
Bruno April, Partner NTT DATA EMEAL Insurance, explains it this way: «the experience we have developed over the last six years allows us to better understand the current challenges of the insurance industry. Knowing the impact of these four forces translates into real and valuable knowledge so that Insurance executives can anticipate trends and opportunities and make decisions with as much information as possible in the short and medium term«.
Greater investment, market maturity and technology as a base
Global investments in Insurtech reached 10.1 billion dollars. This represents an increase of 38% compared to 2020, marking a new historical ascent and a clear consolidation of the market. In fact, the Insurtech have received 50% of its historical funding just in the last two years. Regarding the number of closed operations, there is a slight downward trend compared to 2019, the year in which the record of 393 operations was broken.
The growth in investment is also a reflection of the insurance companies’ commitment to the Insurtech environment, since the number of investments, as well as the amount itself in 2021 has grown exponentially. The big difference in figures is a jump of 175% compared to the previous year.
In 2021, thanks to the crucial role of vaccination and the recovery of the economy after COVID-19, the average deal size grew to reach the highest historical average per deal: 41 million dollars. Investors, for their part, maintained a clear interest in Insurtech and increased their investments once the recovery from COVID-19 began with exponential growth from 2020 to 2021.
As for technology trends, AI, IoT and predictive analytics have seen increased investor interest in recent years and have attracted large sums of investment from relevant insurers, tech giants and industry giants. 61% of insurers are using the IoT, enabling new business opportunities, integrating new data sets to improve current risk level and risk prevention, tracking customer behavior and incentivizing changes in behavior.
Europe, that excels in financing, has finally reduced its gap with North America, which, although it maintains the general leadership, does not concentrate the companies with the highest financing, but rather the European area that experienced the highest growth rate during 2021 thanks to large deals. This year has shown a much more diverse picture in terms of the regions where funding has grown. Growth has occurred in all three main areas: Asia, Europe and North America.
A) Yes, USA it continued to be the region that accumulated the most investment, including 5 mega deals. However, Europe’s faster pace of growth means that it has finally closed some of the gap with the US market in 2021. By contrast, Asia’s growth has been flatter than that experienced by the other two regions.
Regarding the presence of investors, Venture Capital stands out, showing growth in all regions. During 2021, the presence of venture capital in Europe grew to 3.3 times the size it had in 2015.
The dilemma of disruption; Market maturity or bubble?
Taking an in-depth look at funding growth, the study reveals some interesting patterns that could confirm, or question, the real maturity of these new models. One of these analyzes is the comparison of the valuation growth in the last three years of the main financed companies that were founded between 2013-2015 and between 2016-2018. When buying both groups of companies, it can be seen that the younger ones are increasing their valuation faster than the rest. This is especially true for those that operated in the US market.
Accelerating company value may be due in part to an increased presence of venture capital firms in the industry, combined with market maturity and a growing drive to create new industry leaders. However, there could also be a risk that a new bubble is being created in this market.
Typology of insurtech
The number of companies that have received more than 100M dollars of financing (unicorns) it has quintupled since 2017. However, Insurtech startups have seen a steady decline over the same period, possibly indicating a shrinking space for innovation. In this scenario, the great established leaders drain funds in a movement towards maturity in the “first” wave of innovation. In the sample used to carry out this report, Insurtech companies have been classified into 3 main categories: startups, scale ups and outliers or unicorns.
In the report, those Insurtech founded less than 3 years ago and with a maximum amount of total funding received of 5 million dollars are classified as startups. In relation to the scale ups, These are those Insurtech that have received a total amount of financing between $5M and $100M, a maximum of 2 years between financing rounds.
Finally, the outliers or unicorns are those Insurtech that have received more than 100 million dollars in financing and have a valuation of more than 1,000 million dollars. It is interesting to note that the outliers, which represent only 10% of the Insurtech in the sample, concentrate 75% of the financing in 2021. It is also worth noting that the startups, 45% of the sample, represent only 2% of the total amount of financing.
The Insurtech Global Outlook 2022 NTT DATA has also identified some interesting trends by establishing comparisons between Insurtech and Fintech companies.
Fintechs appeared before Insurtechs, in line with banking’s advantage in digitization compared to the insurance sector. In general, its growth has been slower but sustained.
Insurtechs have shorter IPO times compared to Fintechs which, in turn, are in line with the IPO times of startups in general.
Although Insurtechs generate more revenue per client, Fintechs have a much larger number of clients.
The market perceives that the value created by Fintechs is much greater than that generated by Insurtechs, which is reflected in the large difference in market capitalization.
When considering the global impact each has had, funding may not paint a complete picture, and insurtech’s limited market capture suggests it’s too early to make a definitive judgement. When comparing the stock market results of fintech and insurtech, a clear difference is observed. The investment boom and the market shock are not aligned. While the price of Fintech shares is growing more than the S&P index, the price of all Insurtech shares has decreased by more than 60%.
Maturity of the Insurtech, is there room for innovation?
Among the main findings, it has been verified that there is a strong decrease in the creation of new Insurtech companies. Likewise, it is interesting to note that between 2020 and 2021, a large gap is observed. The market behaves in terms of maturity and it could be said that there is less innovation. Top three relevant Insurtech categories that were hot topics during 2021 they are definitely Marketplaces, Pets and Wellness.
In the case of marketplaces, their popularity in 2021 is due to the growing need for B2B companies to be part of marketplaces, thus offering the possibility of more liquid, transparent and real-time experiences that facilitate commerce. Embedded insurance is gaining an important position to facilitate the integration of different solutions and parts that can jointly offer a seamless insurance solution on marketplaces.
In terms of lifestyle, it is interesting to see how well-being continues to be a priority as a way of life. Consumers continue to push for a more integrated experience that can support their health wellness. Companies in this sector have the opportunity to be part of customers’ daily lives and offer them value through different channels.
Finally, pet insurance companies continued to gain ground in the field of Insurtech during this last year. New companies generate interesting business models and offer personalized products and experiences that connect with the mindset and priorities of the pet owner.