Insurtech funding in Q1 2017 sees 64% drop from Q1 2016 to US$283 million: Willis Towers Watson Securities

Insurtech funding in the first quarter of this year saw funding volume of US$283 million, a 64% drop from the first quarter of 2016’s total of US$783 million, likely the result of “start-ups moving from fundraising to product launch stage,” a new report from Willis Towers Watson (WTW) Securities said.

WTW Securities, the investment banking business of global advisory, broking and solutions company WTW, released its inaugural Quarterly InsurTech Briefing on Tuesday, highlighting the potential for the US$100billion “small business insurance market to experience transformational digital disruption.”

The new research, the first of a series of quarterly reports produced in collaboration with Willis Re and CB Insights, analyzes how the industry is incorporating emerging technologies into existing processes to target friction costs within every aspect of the traditional insurance value chain.

Although there was a reduction in the total insurtech funding in the first quarter of 2017, WTW Securities said in a statement that it “could be a result of the significant investments in 2016 now reaching the product launch phase.” P&C funding volume declined 25% from Q4 2016 and 52% year-over-year from 42 P&C transactions in Q1 2016. The 23 P&C transactions in Q1 2017 also represented a 15% decline from 27 P&C transactions in the fourth quarter of 2016 and a 45% decline year-over-year from 42 P&C transactions in Q1 2016, the report said.

The report noted that the small business insurance sector is seeing up to 25% of total premium being digitally underwritten by 2020, and this potential has been the driving force behind the significant investments made by many of the industry’s biggest players. “From Travelers’ £400 million acquisition of UK SME insurance broker Simply Business in mid-March 2017, to Munich Re’s development of Digital Partners, its specialist division focused on investing in and partnering with emerging distribution start-ups, the industry is evidently embracing new technologies,” the statement said.

According to the report, key players in the insurtech market include:

• Ebrokers – Providing consumer-friendly digital experiences (such as shopping, quoting, education, service, etc.);
• Aggregators – Providing small businesses with a view of potential available insurance options;
• Adjacent players – Non-insurance digital small business services companies beginning to partner to cross-sell insurance;
• Technology enablers – assisting incumbent carriers and brokers to develop and offer digital services; and
• Traditional insurers/distributors – partnering with start-ups, delivering direct capabilities and becoming innovative around technology.

“As incumbents face pressure from entrepreneurial businesses targetting friction costs within the traditional insurance value chain and the continued influx of alternative capital into the (re)insurance sector, it is important for industry leaders to demonstrate an open mind, embrace innovation and invest in potential applications,” WTW Securities chief executive officer Rafal Walkiewicz said in the statement.

“(Re)insurance market participants must also not be afraid to “fail fast” if they are going to identify technologies that will help them adapt their existing business models in order to position themselves for success in a streamlined insurance industry that is likely to look much different in the future than it does today,” Walkiewicz added.