Our inaugural InsurTech Summit NYC on June 16 brought together leading VCs, emerging companies of all stages, as well as other key stakeholders. Below are the main takeaways from the first panel, Key InsurTech Investment Trends: Valuation, Volatility, Convergence and Divergence.
Investments in the insurtech sector are a mosaic of evolving risks and opportunities. Where are the truly revolutionary ideas and execution? How, where and when does venture capital best navigate this ecosystem? And what do insurtech startups need to do to capture the attention of an ever-savvy investor base? McDermott Partner Michael Halsband led an investor insights panel that discussed insurtech investing trends.
InsurTech is moving from “T” to “I” with a renewed focus on fundamental problems and risks that require solutions.
During the InsurTech Investment Trends panel, top InsurTech investors shared how they identify opportunities for success investing in insurtech startups and offered their perspective on missteps and failures encountered in the industry. The panel also explored the state of mergers and acquisitions (M&A) trends in the ecosystem. Finally, the panel discussed the changes in InsurTech’s funding streams in 2022.
1. Focus on the “I” in InsurTech
While the industry has seen a technology-based, “grow at all costs” approach to driving interest in new insurance products, a return to the focus on a strong insurance background is essential to new businesses. Investors are looking to underwrite a great book with the influence of deeply experienced management teams who fundamentally understand how to optimize a real-world issue in the insurance ecosystem with an effective and profitable strategy. Jonathan Crystal, managing partner at Crystal Ventures, noted the focus on business-to-business (B2B) commerce and transformational technology being deployed in new ways. David Wechsler, Principal at OMERS Ventures, noted the focus on early-stage companies through the growth phase and long-term investments with a lifespan of five to 10 years, with multiple rounds with which to work. Katelyn Johnson, AmFam’s chief executive, noted growing interest in Series B/C incubation and funding, models with enforceable modes, and companies run by executives who have developed non-model theses. pure growth. Mike Millette, managing partner at Hudson Structured Capital Management, highlighted the focus on early-stage seed companies and a look at viable businesses that understood the fundamentals of insurance – the “I” of the insurtech – who would be best positioned to significantly disrupt key industry sectors.
2. Lessons learned
Given the buzz surrounding new and disruptive InsurTech products, the panel suggested that new companies would be best served by focusing on thoughtful distribution innovation in addition to product innovation in order to create a great product and… identify a long-term strategy. Focusing on adding value for customers and on thoughtful, tax-responsible growth can help businesses avoid pitfalls. Each panelist noted that new entrants to the market that have management teams with fundamental knowledge of the insurance space have a greater likelihood of long-term success. Again, focusing on the “I” in insurtech was part of Mike Millette’s main focus. Andy Tam, Managing Director of Perella Weinberg Partners, noted that to increase the likelihood of a successful fundraising or M&A transaction, management teams should build financial cushions throughout the business timeline. ‘a transaction.
3. Deliberate funding
InsurTech funding fell 58% in Q1 2022, down 15% year-over-year from Q1 2021 [Source: CB Insights]. While 2022 saw the weakest funding flows in recent years, the market offers opportunities for long-lasting partnerships with more active investors. The panelists’ consensus was that funding flows may continue to slow for the foreseeable future. This trend is likely to limit the frenzied buzz around less viable companies and provide space for savvy capital to fully invest and build relationships with thoughtful companies. Panelists pointed out that the market is still correcting valuation.
4. Trends in mergers and acquisitions
InsurTech has seen an increase in interest in mergers and acquisitions and continues to accelerate. This trend has allowed incumbents to acquire top talent and expand access to new customers. Additionally, InsurTech investors have optimized and engaged in their own mergers and acquisitions to gain new capabilities or consolidate in their own spheres. Disruptive partnerships will be a differentiator in the M&A space.
5. Participation of the holder
Corporate VC (CVC) is important in InsurTech because companies need both structure and innovation. HVAC can be quite effective when there is a distance from the parent company, however, this requires keen judgment (which in turn requires time and energy). This could create remedial work for incumbents, who must either hire people with venture capital experience or through trial and error. A successful venture capital investment should push for big exits and big returns.