Following an all-time best year in terms of funding in 2015 ($2.9B in 163 rounds), 2016 was another good year for the insurance tech sector, with $1.29B invested in 112 rounds despite a significant fall in the number of rounds.Despite a global funding slowdown, total funding at the early stage saw a rise at $80M, perhaps indicating that companies with newer business models continue to evolve in the space. Likewise, average ticket size at the Series A stage saw rise at $15.8M, a nearly 10% rise which is still an encouraging sign for this sector going forward.
The insurance sector is yet to see either a huge technological disruption or a game changer industry business model. However, the sector is witnessing some significant changes since the start of 2015, with new age technologies and concepts (AI, Blockchain, IoT) starting to gain traction. But it’s still hard to ascertain whether they would have any major significant in the near term.
John Massey, managing director, consulting and Patrick Kershaw Managing Director of Investments at Leo Tech, in a Q&A with Tracxn said that innovation in the insurance tech sector is to a large extent hampered by regulatory challenges prevailing around the sector currently. However, an easing, though not in the near future will eventually happen, as with other sectors which have been impacted by technology. (To read the full interview, download the full version of the report)
In a contrarian view, Andrea Traversone, Partner at Amadeus Capital Partners said that regulatory environment is likely to become more stringent, but the same will foster more innovation. (Read the full interview in our report)
Eight of the year’s top investment rounds by ticket size accounted for 66% of the total funding that went into the sector, with New York-based Oscar accounting for a lion’s share with a $400M Series C round secured in February this year.
Some of the other notable investment rounds in this year were bagged by companies that include San-Francisco-basedClover Health ($160M) and Blue Owl ($35M), Minneapolis-based Bright Health ($80M) and Chicago-based Maestro Health ($53M).
Some of the largest upcoming sectors in the space include on-demand and commercial insurance distribution platforms, P2P insurance, tech enablers who provide data and internet-first personal life and health sectors.
“I believe the next major shift is in the commoditization of actuarial data. What happens if this becomes a service? At the point someone can harness AI and ML technologies with large proprietary data sources and provide this as a service, the entire insurance industry has the potential to be upended,” said Kershaw.
The year also saw significant consolidation activity with around 24 reported acquisitions in this sector. Some of the major acquisitions include; Bedford-based FirstBest by Guidewire Software, Columbia-based Duck Creek by Apax Partners, New York City-based Connected Benefits by GoHealth Insurance, Washington-based Vertafore by Bain Capital and Vista Equity Partners, London-based Simply Business by Aquiline Capital Partners and Columbia(US)-basedEagleEye Analytics by Guidewire.
Internet-first insurers and employer insurance emerged as the top two funded business models. In the internet-first insurer model, new age players are leveraging technology to provide full-stack services, thereby posing new challenges for incumbent Insurers. Likewise, in the employee insurance sector, there has been a shift from traditional offline-agent based insurance delivery model towards online-distribution platforms across all products (Auto, Health, Life, Employer Insurance), thus reducing distribution costs and enhancing customer experience.
500 Startups (EMBROKER, Mojio), Startupbootcamp (ULU,INSLY), Ben Franklin Technology Partners (Livegenic, Life.io), Lerer Hippeau Ventures (Namely) and General Catalyst Partners (Zenefits) were the top investors in this sector.
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First appeared at Tracxn Blog