Whilst the latest insurance industry data shows a very tough 2020, with an overall reduction in Gross Written Premiums of 8% and losses at unprecedented levels, we believe that there has never been a better time to raise capital for Insurtech deals.

Attending a family office investment event last year I was intrigued by the message that insurance as an asset class (measured by Lloyds market) is expected to grow its returns over the next couple of years. Compounding this is the enormous amount of capital that has been pumped into the global financial system by governments over the past year and the cost of borrowing continues at very low interest rates, with a benign inflationary environment expected for the foreseeable future.

With premiums hardening as Covid19 impacts and weak near term historical returns cause many to withdraw from the insurance market, the continued growth of premium pricing is likely to continue into 2021 and 2022, across most lines of business and also geographies. Some view nominal returns of around 10% in 2021 which is similar to that expected in Private Equity, both nearly double that of other asset classes.

What does this mean for Insurtech companies seeking capital? In short, it is probably the best time in the past few decades for raising money from investors in the sector (noting that the sector is some five years old!). But even with all the money chasing good deals, it is nevertheless important to ensure that the offering is in line with good practise; product – market fit for instance.

But perhaps the most compelling part of the story relates to demand side of the equation –  insurance continues to be bought; indeed although insurance is traditionally linked to GDP growth, it has been modestly effected in the face of Covid19 impacts on GDP – according to the speaker from the Lloyds market, US premium growth at Lloyds remained positive at 2.9% (Oct 2020) as opposed to pre-Covid19 growth of 3.8%. Thus, if insurance premiums are growing (expansion of the market) and the supply side (funds) are strong, the environment is very conducive for investment return. Although this should impact the valuations achieved, one should rather use the environment to structure the best outcome for Insurtechnopreneurs in terms of choice of investors and the reward than focus on entry price.

The market remains skittish and the old adage of “management, management, management” as being the three most important factors of investment, remains key. We have also noted that investors find it easier to look at companies where the individual team members are known to them than those that are unknown. A sign of the difficulties of not being able to get to know someone over dinner or a pint!

The impact of Covid19 has had some positive impacts for the Insurtech industry, particularly around automation and reducing contact between people where possible. Certain retail sectors have taken off – not least cycling, where insurance has not played a strong role traditionally, but as bicycles become more expensive (with sophisticated leisure machines and e-bikes for instance), the need to insure has become more compelling. On the other hand many insurtech businesses improve information flow to reduce risk or improve the customer experience in claims management. This latter sector, particularly where claims move into legal dispute, has caused endless headaches for the legal side of the insurance sector as courts either shut down or slowed dramatically, leaving many cases unresolved.

As a result we are very optimistic about the future of Insurtech and investment in the sector. If you are an Insurtechnopreneur, it is about time…..