Funding for technology companies focused on the insurance industry will likely be robust this year and into 2022 as so-called insurtech companies mature, according to a recent report and other industry sources.
Although insurtech investments slowed after the outbreak of the COVID-19 pandemic last March, recent examples of successful public capital raising and acquisitions by traditional insurers could encourage more deals, they say.
Insurance-related technology startups “will still be able to secure the large amounts of financing required … given funding trends through the first nine months of 2020,” S&P Global Inc. said in a report on the sector released last week.
“Funding for private U.S. insurtech companies declined dramatically in April, amid the early stages of the pandemic, but both the value and volume of transactions rebounded in subsequent months,” the report said.
Insurtechs formed about five years ago may be primed for an initial public offering or other transaction, the report said.
S&P sees the active funding environment extending into 2022, according to the report’s author, Thomas Mason, senior research analyst for S&P Global in Charlottesville, Virginia.
The stage of the companies’ maturity is more of a factor in their ability to attract resources than the part of the insurance industry in which they participate, he said.
“It seems like the 2015-2016 vintage of companies — if you were formed in these years and grew really quickly, regardless of what type of company you are — those are the IPO and M&A candidates at this point,” Mr. Mason said.
Several technology companies in the insurance sector had successful IPOs over the past years.
Duck Creek Technologies Inc. CEO Mike Jackowski said the company’s successful IPO in August, which raised more than $400 million, provided the software as a service provider with greater visibility in the marketplace and allows it to make investments. Duck Creek’s stock jumped more than 50% from its offering price of $27 per share on its first day of trading.
Personal lines insurers Lemonade Inc. and Root Inc., which both went public in 2020, are prospering, said Martha Notaras, managing partner at Brewer Lane Management LLC in Los Angeles. “Those companies are really impressing people with their growth.”
Lemonade reported $73.9 million in total revenue in the first nine months of 2020 compared with $43.8 million in the same period in 2019, according to its most recent earnings report.
Root reported $295.9 million in total revenue for the first nine months of 2020, compared with $183.7 million in the year-earlier period.
Mr. Mason of S&P Global said the current low interest rate environment also encourages insurtech funding. “Low interest rates are a catalyst for venture capital investments seeking higher yields,” he said.
The acquisition of insurtechs by established insurance industry companies is also fueling sector growth.
Most recently, American Family Insurance Mutual Holding Co. last week bought online insurance exchange and technology company Bold Penguin Inc.
In November 2020, broker Brown & Brown Inc. acquired CoverHound Inc., a digital insurance marketplace, and its wholly owned subsidiary CyberPolicy. In January 2020, Aon PLC bought CoverWallet, a digital insurance platform for small and medium-sized businesses.