Increased Investment then Rapid Consolidation
This report focuses on the evolution of the InsurTech sector from increasing investment in the sector in 2017 to M&A consolidation in 2018.
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I. Selected M&A Transactions
2017 was a year of strong headline growth for InsurTech.
According to Accenture, “the number of InsurTech deals in 2017 rose by 39 percent compared to 2016, and the total value of funding reached US$2.32bn – a 32 percent increase on the previous year.”
High-profile InsurTech financings in 2017 should also continue to attract greater VC attention worldwide. Raises such as UK based Gryphon’s £180M in Q2’17 and Lemonade’s $120M in Q4’17 are expected to raise both venture capital investors’ interest and their confidence in InsurTech’ long-term potential.
In 2017, Allianz, as well as Aviva and Munich Re, set up significant venture funds to invest in early stage technology companies which will keep them abreast of innovation and drive their digital strategies. Borrowing ideas from some InsurTech startups, Allianz launched AllianGo, a site that serves the small business segment operating in the business owners’ policy, commercial auto and workers’ compensation space in a range of industries. MetLife also recently announced that it is starting an insurance startup training program that will offer the startups accepted up to $120,000 in seed money each for an equity stake in each startup.
Corporate investment will continue to ramp up in 2018 as more firms jostle to get involved. This is a hugely positive development for Insurtech firms, for whom insurer backing not ony provides a route to market, but also places deep insurance expertise at their disposal. However, for the InsurTech startup, receiving a strategic investment from an incumbent insurance company can prevent competing insurance companies from acquiring the company in the future. This is one reason why more M&A transactions rather than strategic investments will occur in the future.
III. M&A Consolidation
In the chart in Section I on selected M&A transactions, Sapiens was the most active acquirer, buying Adaptik, StoneRiver and Maximum Processing. Guidewire was also active, buying Cyence and FirstBest Systems.
Technology will spur M&A, as insurers seek to gain competitive advantage by acquiring InsurTech firms with advanced capabilities, rather than develop technology in-house. As detailed in Deloitte’s The State of the Deal: M&A Trends for 2018 acquiring technology assets ranks number one as a strategic driver of M&A activity.
44% of insurer directors think that “most existing insurers will not survive, at least in their current form.” PwC’s Audit and Risk Committee Forum survey”
However, the scarcity value of high-value specialty targets, reflected in rich multiples associated with acquiring such targets, will be a deterrent. The EV/revenue multiples of the M&A transactions above, which are available upon request, have a wide range from 1.5x to 9.6x.
In Asia Pacific, the value of InsurTech M&A jumped by 169 percent to $358mn. Accenture said the UK remains Europe’s InsurTech capital, with $364mn invested in UK companies, up from $19mn in 2016.
As the InsurTech sector matures, expect to see more M&A consolidation with buyers from incumbent insurance companies, other InsurTech companies that are in adjacent spaces and FinTech players with similar functionality for other customers, e.g. compliance software companies for banks acquiring compliance software companies for insurance.
This report was written by:
Ben Boissevain – Managing Partner
Ben Boissevain has 30 years of cross border M&A experience and has senior level global connections in the technology sector. https://www.linkedin.com/in/benboissevain/
John Daum – Partner
John Daum has in-depth insurance and InsurTech sector experience with an unparalleled network of contacts throughout North America, Bermuda and London. https://www.linkedin.com/in/john-daum-85760293/
Patrick Pisarek – Associate
Patrick is a student at Cornell SC Johnson College of Business. Previously at Morgan Stanley he was a Wealth Management Advisory Analyst. https://www.linkedin.com/in/patrick-pisarek-6aa1016a/
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