Will Lemonade’s IPO Success Sweeten Funding Outlook for Insurtech Sector?
By Bill Rosenberger
The insurtech start-up Lemonade more than doubled its shares during its market debut last week. Following in the wake of this success, Allstate and KKR launched M&A deals, indicating the pandemic has not stifled the insurance industry. However, the Willis Towers Watson Quarterly Insurtech Briefing Q1 2020, reports a 54% reduction in funding for insurtech entities compared to 2019. Additionally, there has been a reduction in “mega deals” dropping to a single transaction. To help clients, prospects, and others understand the insurtech funding landscape, PKF Advisory has provided a summary of the report’s key points below.
Key InsurTech Insights
- Investment Uncertainty – The area most impacted by the pandemic has been investments. The first three days of Q1 reported the same amount of money raised as the last three weeks of the quarter. By February 6th, the amount raised was reported at $450M, but it took the remaining quarter to double that. This is a sign of market uncertainty and insecurity about Coronavirus's impact on the economy, demand for insurtech services, and overall investing.
- Start-Up Funding Concentration – It was also uncovered that more than half of the start-ups raising capital in Q1 were U.S. based. This is in sharp contrast to the prior quarter, where over 50% of the deals were made abroad. The recent numbers show that U.S. companies accounted for 57% of deals and the U.K. with 10%. Interestingly, China experienced a 6% reduction, and the Asia Pacific region a 14% reduction over the prior period. One interesting note is that a company in the Czech Republic recorded a deal that is the first-ever in that country.
- Deal Stage Count & Funding – Not surprisingly, the analysis also revealed decreases in reported deals in both the mid and late stages. There was an 11% reduction in the overall count for mid-stage deals with a surprising funding increase of 9% over Q4 2019. For late-stage deals, there was a 2% reduction in the overall count with a funding decrease of 26%. While several late-stage deals concluded in early Q1, only one was completed in March of 2020.
- Property & Casualty (P&C) Funding – The amount of early-stage funding concentrated in the P&C vertical increased its overall share to 80% when compared against Life & Health (L&H) insurance. It was found that 75% of transactions in Q1 went to P&C insurtech companies, with early-stage deals accounting for 81%. Finally, the quarter's largest deals were with two companies raising $19.5M and $14M, respectively.
- Life & Health (L&H) Funding – In Q1 2020, L&H insurtech companies accounted for 25% of total deals and 17% of total funding. In contrast to the prior quarter, this segment experienced a 39% decrease in total deals and an 84% reduction in available funding. Finally, the largest deal of the quarter was to a single company worth $50M.
Many insurtech start-ups will be affected by the ongoing pandemic. Still, the report points out that if the insurance industry ever needed a reminder of the importance of hastening digital processes, online interaction, and remote functionality, it is the current environment in which we find ourselves.
If you have questions about the findings in the report, or are seeking additional information for insurtech funding and investment trends, PKF Advisory can help. For additional information, please contact:
Bill Rosenberger, CPA