Venture funding for insurtech has declined worldwide, and more so in Asia. Given the long lead times required for insurtech to deliver profits at scale, is venture capital suited to the industry?
According to Mundi Ventures, a dedicated investor in insurtech, global VC allocations this year will have fallen back to 2018 levels, at about $4.2 billion. That’s just 28 percent of the $14.9 billion invested by VCs in 2021.
Funding in 2024 for Asian insurtech has fallen more. It’s on track to have fallen by close to half year-on-year, both in terms of number of deals and their value, versus declining by 7 percent worldwide.
That includes retreats by corporate venture capital too: earlier this year, regional carrier AIA shuttered its venture arm.
Of course, lots of technology sectors have suffered the same pattern: 2018-2021 witnessed a venture-investing bubble. And if insurtech funding is down this year by 7 percent, that’s better than the 23 percent decline for fintech ex-insurtech, according to Mundi.
Not a wow
But the question is what will it take for VC to fall in love with insurtech again? Because for now the sector lacks the big success stories that drive excitement.
Insurtech exits are few. The industry benchmarks are public companies in the US such as Lemonade, Root and Hippo – all lossmaking, with the tanked share prices to show for it.
Lemonade is a direct-to-consumer business – insurance in an app – but insurtechs come in many types. Many aim to improve the processes of insurers. Those that face consumers are regulated, others are software-as-a-service vendors. Embedded players, usually with a broker’s license, are riding the growth of e-commerce to bring products to consumers. Their time to market, cost structure and valuations vary accordingly.
What they have in common is the rarity of exits, be it the IPO route (usually for consumer-facing businesses) or strategic acquisition. Sumitomo Life’s acquisition of SingLife in 2023 for $3.5 billion was a regional exception (and SingLife is more of a tech-savvy insurer than a pure digital play).
This leaves insurtechs reliant on VC funding, or M&A. Bolttech, the device-insurer/embedded startup, has grown huge on acquisitions; in most cases, the insurtechs are the targets. This is true of other fintechs. But the insurance sales cycle is long, probably longer than with banks. The solutions take a long time to gestate and make a difference.
Growth or nothing
In Asia, this means incumbents have favored insurtech solutions that promise to increase top-line revenues, rather than software to improve efficiencies. SaaS companies trying to help with efficiencies (claims, administration, fraud detection) end up looking interchangeable – unless they can scale, which is hard to do in Asia.
While revenue growth has worked in microinsurance (such as Zhong An’s flight-delay insurance) and product protection, but such solutions haven’t taken off in health or life insurance.
Instead, VCs or insurance companies are backing platforms that can extend their reach to customers, such as Indonesia’s Qoala (which raised a $47 million Series C in 2023) and Singapore’s Igloon (with a pre-Series C in 2023 raising $36 million). Both have multi-market solutions to connect consumer-facing platforms for insurance companies.
But investors are finding these models have limits. Asia is still fragmented so scaling is hard. It’s hard for these companies to establish a unique differentiator, other than scrambling to add channels. The cost of customer acquisition remains high.
And data!
The other promise of insurtechs that touch consumers, directly or via platforms, is that they use data to make underwriting better, either by their own teams or third-party insurers. Data is expensive and hard to come by, and it takes time for those advantages to manifest. For example, Lemonade is still running a nearly 80 percent loss ratio, so its AI isn’t obviously improving its underwriting skills. This means insurtechs still rely on traditional underwriting, which is expensive and sort of undermines the point.
And some models that bundle customer data, such as Igloo, may not be able to maintain a flywheel of added value. Other models are simply attempts to buy eyeballs. SingLife now markets products in the Philippines versus GCash, the payments wallet, but it pays for that access, and industry players say SingLife is paying more than the premiums it wins from the deal – because it doesn’t own the customer. SingLife recently launched its own app in the Philippines, raising the question of whether partnerships with fintechs work.
Another example has been AIA and Manulife working with third-party wellness apps. These have succeeded as engagement tools, which allow insurers to cross-sell. Insurance’s big problem is its inherent distance from policyholders, who typically buy through third parties and only contact the insurer when it’s time to claim. Insurers have another problem, which is health insurance is a loss-making business. Hence the wellness apps, designed to tackle both problems.
But while engagement is higher, these apps were also supposed to provide the data to enable insurers to make smarter underwriting decisions and design more competitive products. That may yet occur, but it takes time, and there’s no evidence in public that this is working.
Patience required
Just look at a great insurtech success: Zhong An, the property and casualty carrier. It now makes money (and has successfully spun off its own SaaS business, Peak3), but it took a decade of learning to get there. And that’s the problem with VC-funded companies: 10 years-plus is a long time for a venture-capital fund.
It’s also a long time for the people working in corporate VC. Institutions can go the distance, but their executives operate off short-term KPIs and bonuses. This is another reason why insurance companies tend to invest in, or partner with, insurtechs that can deliver some immediate bang. Asia’s a growth story, so tech partners need to be about that too.
For most insurtechs, the onboarding process is too slow; and for insurers, the results take too long. Insurers want to see return on investment; startups can’t generate revenues if they’re locked into a single carrier.
Besides, most insurers in the region operate off outdated mainframe systems. Many of them aren’t able to take advantage of what insurtechs have to offer, and need to focus on migrating to cloud or revamping their information architecture. They’re just behind, as the first generation of startups learned the hard way.
Asia wrinkles
Even the region’s success stories will have to grapple with big questions about their future. Can embedded models drive growth or have they plucked the lowest hanging fruit? At some point, will the likes of Qoala, Igloo or Indonesia’s PasarPolis (which last raised in 2021) decide to obtain their own underwriting licenses?
Also the biggest decreases in funding to insurtechs has been in the Series C segment. Growth equity has largely dried up (across tech categories). There’s less support for boosting insurtechs towards a listing. The big insurance CVCs and reinsurers could play this role but for the time being they are putting new investments on hold (or in AIA’s case, shut the program down).
Government can sometimes provide support. OneDegree, a Hong Kong insurtech, won contracts in the Middle East with the support of the Hong Kong government. OneDegree’s own story makes clear how necessary it is to scale globally – and how difficult that is for customer-facing insurtechs. Take Bowtie, for example, another of Hong Kong’s licensed virtual insurers: its business is solely Hong Kong. How long can this last, and how expensive or hard will it be for Bowtie to enter new markets?
Southeast Asia and Hong Kong enjoyed investors’ favor during the boom years. But today the reliable bets are in big markets: India, China, Japan.
Several Indian insurtechs have enjoyed strong raises recently. Onsurity, provider of healthcare benefits to SMEs, raised a Series B of $45 million in September. Comparison website InsuranceDekho raised $60 million in 2023 (and its rival PolicyBazaar is now part of a listed entity). Most recently, Zopper, a digital distribution platform, raised a $25 million Series D this month. Moreover, India’s insurtech scene is enjoying funding across the spectrum, from seed deals to late stage.
Other notable deals in the rest of the region feel like one-offs rather than trends, such as Bolttech’s $246 million Series B in 2023, or Peak3’s $35 million Series A earlier this year.
Next generation
There is good news. There are signs that VC funding is on the rebound. Public multiples for insurtechs have fallen, but the growth story in Asia is real. So is fragmentation, giving incumbents a reason to continue to partner with insurtechs they think can help sales.
There’s even some good news from Lemonade, the standard bearer for insurtech. In the third quarter of this year, it reported increasing in-force premiums, more customers, and higher premiums on average. It’s improved topline growth without adding headcount. It’s still losing money, mostly on marketing, but less so. Most important, it seems its promise that it could attract younger customers and grow with them is slowly paying off. There are signs its underwriting is improving with the use of AI. Its stock price has rebounded, if not to 2021 levels. In other words investors are beginning to think Lemonade can, eventually, deliver the goods.
Meanwhile, insurers and VCs are rethinking the way artificial intelligence is upending all walks of business. The long-held promise of personalization is closer to reality, and this could also finally make back-office productivity SaaS more attractive – which could even help make health insurance a sustainable product.
It’s reasonable to argue that over the past decade, since insurtech became a category, its models haven’t worked. Incentives and timescales among startups, insurers, and investors are all misaligned. And insurance companies make a lot of money – a lot of money. So the incentives to stay the course with risky startups hasn’t been there.
But insurers and reinsurers face a lot of problems. Changing climate, demographics and health trends point to a harder time. The industry is going to need digital solutions to survive. The ones that solve internal problems with incentivizing long-term investment will have the advantage over the next generation of insurtech innovation.
