66 InsurTech investment deals in Q1 2018 marked a new high, as transaction sizes continued to increase and the line between InsurTech funding by incumbent (re)insurers and traditional venture capital was blurred by newer ‘hybrid’ investment funds. InsurTech investment volume of $724 million in Q1 was 16% greater than the $624 million recorded in Q4 2017, and up 155% from Q1 2017. These are the findings of the latest Quarterly InsurTech Briefing from Willis Towers Watson (NASDAQ:WLTW), the leading global advisory, broking and solutions company, produced in collaboration with CB Insights.
Seven $30+ million investment rounds were completed during the quarter, as investors continued to make increased bets in selected companies. The Briefing finds that insurance sector incumbents prefer minority investments in start-ups developing technology which will ease their own commercial pressure points, including distribution costs, claims handling, and underwriting excellence. They seek improved processes, and focus on nodes within the value chain that present the biggest challenges. Achieving an outsized investment return is secondary to incumbent investors.
In contrast, traditional VC investors tend to focus on InsurTechs which address customer pressure points such as price, ease of access, and underserved markets through innovation. They tend to be product- not process-focussed, and look to developments in other sectors for ideas. Unlike incumbent (re)insurers, traditional VC InsurTech capital is likely to take majority positions and focus on integration across the industry value chain. Traditional VCs are solely driven by investment return. However, they often lack meaningful access to the insurance market, and therefore tend to pursue revolutionary ideas.
As InsurTech investment surges, companies are finding a third way. A subset of specialist insurance investors is creating a ‘hybrid’ model in which they seek to blend the best of both traditional and incumbent (re)insurer venture capital models. These ‘hybrid’ models are looking to combine the traditional VC investor mentality with the industry expertise of incumbents to create a more aligned model that targets both financial and strategic returns for its investors.
Rafal Walkiewicz, CEO, Willis Towers Watson Securities, said: “For InsurTech start-ups, the funding scene is more complex, and finding the right investment partner has become more difficult. Hybrid models will continue to evolve, and may be the ultimate answer for InsurTech entrepreneurs looking to balance industry expertise and the traditional VC value-creation mentality.”
Paddy Jago, Global Chairman of Willis Re, said: “The incumbent market has actually been relatively receptive to taking a serious look at the digital innovation that is going on around us, and those driving it. Most of us know that to remain relevant, we need to embrace change. I have always believed that we cannot view change and not change ourselves.”
Download a full copy of the report here.
About Willis Re
One of the world’s leading reinsurance brokers, Willis Re is known for its world-class analytics capabilities, which it combines with its reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world’s top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker’s global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit willisre.com.
About Willis Towers Watson Securities
Willis Towers Watson Securities, with offices in New York, London, Hong Kong and Sydney, provides advice to companies involved in the insurance and reinsurance industry on a broad array of mergers and acquisition transactions as well as capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work. Willis Towers Watson Securities is a trade name used by Willis Securities, Inc., a licensed broker dealer authorized and regulated by FINRA and a member of SIPC (“WSI”), Willis Towers Watson Securities Europe Limited (Registered number 2908053 and ARBN number 604 264 557), an investment business authorized and regulated by the UK Financial Conduct Authority (“WTW Securities Europe”) and Willis Towers Watson Securities (Hong Kong) Limited, a corporation licensed and regulated by the Hong Kong Securities and Futures Commission (“WTW Securities (HK)”).
About Insurance Consulting and Technology
Willis Towers Watson’s Insurance Consulting and Technology business has over 1,200 colleagues operating in 35 markets worldwide. It is a leading provider of advice, solutions and software – primarily to the insurance industry. Its consulting services help clients manage risk and capital, improve business performance and create competitive advantage – by focusing on financial and regulatory reporting, enterprise risk and capital management, M&A and corporate restructuring, products, pricing, business management and strategy.
About Willis Towers Watson
Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has over 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com
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