Moving towards a horizontal InsurTech industry
InsurTech entrepreneurs are present all over the world, innovation has no borders for those looking to disrupt the traditional insurance industry. Germany, France and the UK are the top three InsurTech markets in Europe, and London, as the place modern insurance originated in, remains InsurTech’s biggest hub in Europe. These European countries, and other areas of the world like China, and more generally, Asia and the Pacific, are beginning to play a more prominent role as investment destinations for InsurTech capital.
While there is data that supports a global leveling of insurance tech investment, it is still a US dominated industry. Between 2015 and 2016, 65% of strategic tech investment by (re)insurers went to the US. According to CB Insights Quarterly InsurTech Briefing Q1 2017, the US has been in charge with 67% of all insurance tech deals since 2012 to present. Germany and the UK each received about 5% in this time frame.
North America continues to drive the majority of investment from global venture funds in the short term. But there is recent evidence that may indicate this reign won’t last much longer. In the first quarter of 2017, there have been 38 investment transactions in total, mainly led by the US (47%), followed by the UK (13%), France (11%) and Germany (8%). This recent uptick in non-US investments suggests that Europe is gaining ground for the first time ever.
The most important InsurTech investments occur at seed, angel and series A stages. The key players are represented by accelerators (StartupBootcamp, 500 Startups, Techstars), vertical-specific VCs, non-specific VCs (Andreessen Horowitz), vertical-specific corporate VCs (i.e. Aviva, Axa Strategic Ventures, Munich Re) and global re-insurers.
Let the M(oney)&A flow
It is no surprise that insurance companies have been increasing their involvement in the Fintech/InsurTech space. In fact, insurance mergers and acquisitions (M&A) activity was exuberant in 2015. So large in fact that the $1.85B invested in Q2 of 2015 almost exceeds the funding of all quarters since then combined! Google played a large role in the deal volume of that year by signing off on at least 6 separate partnerships and investments in insurance tech according to a CB Insights analysis.
Google’s investments in the InsurTech space go through GV (Google Ventures) – the VC arm of Google’s parent company Alphabet- and CapitalG (Google Capital). It has also partnered with homeowner insurance providers Liberty Mutual and American Family Insurance through its Nest product line (as well as with Axa, VSP and Cover Hound). Examples of how connected Google and its various arms are can be seen in its multiple and diverse investments in the field; $32M in health InsurTech Oscar in 2015 as well as $60M in Gusto that year, most recently an investment in Lemonade, the US homeowners and renters online insurance carrier, and $81M in Collective Health, another InsurTech startup.
The fact that Google is such a large player making waves in the InsurTech sector while being a non insurance company is certainly interesting and an anomaly, and may be foreshadowing future expeditions by the tech giant.
Moving towards a more horizontal InsurTech sector
As far as Europe is concerned, the northern region saw a 50% increase in the number of insurance M&A deals during 2016 compared to a previous record number in 2015 and it is expected to continue into 2017. We move back to the earlier discussion of European growth in the sector, both in general and relative to the US.
According to a Mind the Bridge study (conducted in collaboration with CrunchBase) where 560 M&A deals in InsurTech were tracked since 2010 (see chart):
the vast majority of acquisitions (68%) involved US startups. While US corporates tend to buy mostly US startups (92% of the times), the picture is much more balanced for non-US acquirers. Only 43% of the times EU corporates acquired “domestic” startups, while 44% of the transactions were directed to US startups.
These numbers confirm and deny a horizontal theory. Obviously the US, in light of 17 years of InsurTech deals, continues to be the main player. However, The UK (because of London) has a visible presence, as do Canada and Continental Europe. With this presence growing in the early part of this year, geographically we are seeing a leveling of the field.
Financially we have also seen, and will continue to see an equalling out of M&A activity. We can expect fewer mega-deals like the ones that occurred in 2015. As large companies begin to accept that innovative startups will be important parts of their futures, they may prefer to begin working in partnership instead of making direct investment, especially after the huge 2015 year.
Potential regulatory shakeups in the EU and US
There are multiple contingencies that should be taken into consideration both in the political and the regulatory realms in EU, the US, and UK. Brexit and the Trump administration could have major impacts on global engagement and relationships specifically in regards with the Solvency II regulatory framework. Solvency II reviews the prudential regime for insurance and reinsurance undertakings in the European Union. There are similar solvency requirements in the US that may be liable to change in the near future as well.
Rules and regulatory standards will change and evolve but an overall favorable environment for InsurTech M&As will likely remain, as these won’t be necessarily negative changes to hurt the industry, but certainly, changes which may enable new innovation activities. Opportunities InsurTech entrepreneurs can take advantage of.
Collaboration for Innovation
How are the major Insurance companies getting organized to cope with such Open Innovation trends?
This will be the topic of our next post of this series…
Mind the Bridge offers a program in Silicon Valley to facilitate deal-making between startups and corporates in the InsurTech and Automotive sectors. Our next meeting and Demo Day will happen on July 6th at our San Francisco Innovation Center. Reach out to us to know more about the program.