Last few months have seen private market investors pouring capital into promising insurtech startups, while the public markets sent the value of recently public insurtech companies lower and lower. The decline in the value of public insurtech unicorns has been an oft-repeating theme. Contrarily, global insurtech venture activity has been hitting new highs. In 2021, insurtech funding reached 566 deals (an all time high) and $15.4 billion in capital (90% gain over 2020). The learnings for investors are to rethink valuation methodologies, for insurtechs to position themselves differently prior to an IPO, and for incumbents on how to engage in their own complicated digital transformations.
Root, with a $350 million Series-E raise in 2019 and valuation of $3.6 billion, initially traded as high as $22.91 per share. Very recently, it was at $1.82 per share, or $460 million, about half the private money it raised. Lemonade saw value dwindle from all-time highs of $171.56 per share to under $30. That is the bad news. However, there are disparate insurtech models, and only few have been tested by recent IPOs. The Zebra is an example of making money by providing portals to insurance products, arguably a stronger model than trying to rebuild underwriting. Others like AgentSync, are seeing success offering infrastructure-like services. The overall picture is encouraging, not entirely to be written off.
Indications are that insurtechs selling insurance have valuations drift from tech-multiples toward insurance-multiples — a much smaller number. This impacts M&A equally, constricting pathways for startup exits. Insurtech startups closer to tech than insurance might sail through, while those that are more insurance are at risk of lower multiples.
Insurtech funding was steady in Q2’2022, at roughly $2.4 billion, close to the figure for Q1’22. This comes after a sharp downturn in Q1, with funding being less than half the $5.4 billion funding total in Q4’2021.
Private investments increased across all stages. Last year, seed funding constituted $572 million in funding, notable being employee benefit platform Healthee’s $22 million round and Spot’s $15 million. Early-stage VC accounted for $4 billion, driven by Series A funding, notable being Bolt’s $210 million round and health insurance intermediary EasyHealth’s $135 million round. Late-stage VC funding totaled approximately $7.6 billion, driven by 27 mega-rounds worth approximately $6.2 billion.
The best minds in insurtech have spent the last few years discerning the fallacies of extant insurance business models. With the clearest of intents, they set out to obliterate the inefficiencies that have plagued this massive engine. The sheer size – 7 trillion in a 100+ trillion USD global economy – makes it a proposition that requires multitudes of stratagems, armory and tactics. Out-thinking an establishment that has withered more than three centuries of turmoil and transformation is arduous. Available capital has been lapped up by players with clear focus on turbocharging the technology implements and upending a maligned yield model. The progress till date has been commendable. Notwithstanding temporary blips, the prognosis has been of numerous advances that unlock a future full of potential. So, while the public and private markets do not concur on insurtech valuation, it stems from myopic public market sentiment, taking an immediate term perspective on performance. The private markets are more elastic and propound maxims in divergent growth areas, backed on the multiplicative effects of scalable technologies. The battle-hardy insurtechs are learning from each setback to come back stronger. Those starting anew have an edge, as they glean from insights from those before them. The onerous tasks begin at the beginning, calling for rigorous attention to the right spaces to attack, the potent metrics that will deliver, the innovation stacks that will differentiate. Importantly, there is a dire need to balance the myopic and the long-range views, so an industry glorified for understanding risks of all hues, does not falter in the very yardstick that sets it apart.