Insurtech: An increasingly lively global M&A scene with major European involvement

What are Insurtechs?

Insurtech is any type of technology-enabled solution, company, platform or application focusing on digitising the broader (re)insurance industry or any part of the (re)insurance value chain. The ultimate aim of an Insurtech is to increase operational efficiency and improve client servicing capabilities. Insurtechs often enhance the experience for customers along their insurance journey. They also improve the management of risk, mitigation, and recovery of loss, or help make operations more efficient ‒ within insurance companies themselves and across the value chain.

Insurtech’s origins go back to around 2010, at a time when large tech companies started to make large-scale moves into new industries and provide their rapidly expanding customer base with different service offerings. In the meantime, rather than viewing Insurtechs as pure disruptors trying to steal market share from incumbent carriers, established industry players have increasingly adopted a more collaborative approach, partnering with Insurtechs to augment existing capabilities or establish new ones across the (re)insurance value chain.

How has dealmaking developed?

The level of M&A and growth financing activity focused on Insurtechs has been boosted significantly by the need for digitalisation. Insurtech investments have been on the increase year on year, with more than 2700 transactions reported since 2016. Many top (re)insurance executives and industry experts see the trend continuing into 2022 and beyond. The fact that average deal value increased significantly between 2016 and 2021 indicates the growing interest in and maturity of the sector.

Investments by European investors have been in line with the global industry trend. The volume of Insurtech investments by European investors is expected to have doubled in 2021 by comparison with 2016. A total of more than 1100 transactions were observed over the past six years, with a total reported deal value of USD 22.3bn. Unsurprisingly, around 80 % of Insurtech transactions by European investors took the form of venture capital investments.

Number and volume of Insurtech M&A transactions, 2016-2021

Developement of Insurtech transactions from European investors     

Where is the focus of interest?

European investors display a marked affinity for US-based targets, as well as investments in the UK, Germany and France. European investors have mainly targeted Insurtechs in the non-life sector, with more than 60 % of all transactions during the period reviewed in the report geared to P&C or non-life companies. Across the sector we have identified six main areas of the insurance value chain that are the focus of Insurtechs’ efforts: product development, distribution, pricing, claims, services and full-stack (solutions that span the entire value chain). In our study we analyse Insurtech transactions of recent years on the basis of these six areas.

What about Insurtech valuations?

In terms of valuations, Insurtech companies are more like Fintechs than mature insurance industry peers, which are often much larger. Insurtechs are heterogeneous and often early-stage ventures with a high degree of uncertainty regarding the future development of their business. This means that evaluators have to apply different valuation methods. They should also conduct sensitivity and scenario analyses to fully grasp the main value drivers. The primary goal should be to derive an overall acceptable valuation bandwidth. It’s important to realise that valuing start-ups and Insurtechs is more like an art form, and is subject to negotiation instead of being an exact science.

Share of transactions by valuation, 2016-2021

Prospects for Insurtech deals

Insurtech M&A activity has remained buoyant despite the pandemic. Driven by (re)insurers’ growing interest in building or augmenting their capabilities along the value chain to remain relevant in the market, European investors have been showing increased interest in Insurtechs. Going forward European players, both traditional and non-traditional, can be expected to maintain and increase their involvement in this sector, targeting much of their investment at US-based Insurtechs, particularly those focused on developing capabilities in services.

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