The life insurance segment of the insurtech sector continues to see less activity than its non-life cousin. Private markets analytics firm Pitchbook’s Q3 2022 Insurtech Report, published just before Christmas, says that $306.5mn of deals were completed in the first three quarters of 2022 in its health and life segment; property and casualty ($518mn) and Commercial ($503mn) represents the two largest segments by dollar amount through Q3 last year.
It’s not surprising. Life insurance-based insurtech has lagged its non-life counterpart since the dawn of the market in the early 2010’s; a combination of demand-driven factors such as certain segments of property and casualty (P&C) insurance being mandatory, and the comparatively straightforward nature of underwriting these products when compared to life insurance, has meant that more investment dollars have flowed into P&C start-ups.
The gap might be about to narrow, however. Michael Konialian, CEO and Co-Founder at New York-based insurtech Modern Life, says that the wins in the P&C segment have opened some eyes in the life-based sector.
“We’re now in the early innings of a wave of substantial investment and digital transformation in the life insurance space,” he said. “The innovation in P&C and success stories there have also helped shift the mindset at carriers that the innovation in the life space is something to embrace today rather than wait for the future.”
For venture capital funds and their investors, there’s hardly a shortage of opportunity. In the United States alone, LIMRA’s 2022 Insurance Barometer, published in April last year, suggests that more than 100 million Americans are either underinsured or uninsured when it comes to life insurance; add to that the Covid-19 pandemic, which, according to the barometer, drove 31% of Americans to say they would be more likely to consider buying life insurance in 2022.
Whatever percentage of that opportunity turns into an increase in the number of insured, most of that business will go through an advisor, like an insurance agent, and Konialian says that the insurtech market can support life insurance advisors, which in turn will improve outcomes for their customers.
“More than 90% of life insurance purchased today is still facilitated by a financial or life insurance advisor. However, very little innovation has focused on enhancing the advisor experience,” he said. “The first wave of insuretech innovation focused on simpler, easier to underwrite, term products sold directly to consumers, but we think the advisor community is the next frontier for innovation in our space; technology which will handle not just simple term life policies but also permanent life and other more complex products that need to be tailored for a client’s specific needs.”
The insurtech market generally slowed down in 2022, in keeping with most of the sub-sectors in the private markets as valuations fluctuated in line with those in the public markets, and investors like venture capital and private equity funds chose to watch the game from the side lines rather than play in it. Pitchbook’s report says that 461 insurtech deals – across all sub-sectors – worth a total of $7.9bn were completed through the first three quarters of last year, pacing well behind the banner year of 2021, where 736 deals were completed at an aggregate value of $14.3bn.
Despite the pull back, deal activity in 2022 through the first three quarters is still high enough to deliver the insurtech market’s second-best year on record. And unlike some sub-sectors of venture capital, there’s an in-built resilience to the life insurance market that makes it an appealing risk counterparty for early-stage investing.
“The U.S. life insurance industry is over 150 years old and is a $150bn market. It is a core financial planning product that hundreds of millions of people have a need for, and has shown a lot of stability across market cycles,” said Konialian.
Despite the opportunities in the life insurance-based insuretech market, 2023 is set to be a challenging one for the sector.
“We believe the market outlook for insurtech companies remains challenged—including higher competition and unsustainable business models—despite early progress, and that venture funding will slow for the foreseeable future,” wrote Robert Le, Senior Analyst, Emerging Technology at Pitchbook and author of the Q3 report. “Insurtech companies have been viewed as overpriced in the private markets—as was reflected in our index of recently listed public insurtech companies, which was down more than 75.0% over the last 12 months ending September 30, 2022.”
Whether 2023 is the year that life insurance insurtech begins to close the funding and activity gap on its non-life peers remains to be seen. Given the macroeconomic headwinds facing all private markets strategies, perhaps it’s unlikely, and given the size of the non-life insurance market and the necessity of purchasing that insurance, perhaps it never will. But structural tailwinds, such as the acceleration of the use of digital technology in consumer’s daily lives, brought on by the Covid-19 pandemic, a tech-savvy population purchasing pretty much anything via their phone or laptop, and advances in healthcare all point to a strong opportunity set in life insurance insurtech in the medium to long term.
“Many consumers haven’t gotten the life insurance coverage that they need because of logistical challenges, such as waiting months for an application to be approved or jumping through hurdles like a medical exam. We believe that shortening that timeline from months to weeks – or even minutes – can help a number of those people get covered,” said Konialian. “Demand by consumers and advisors is also driving life insurance innovation. Having been exposed to simpler, integrated workflows in other domains, many advisors are not only open to what’s possible, but are actively seeking out new technology for more complex life insurance cases. There’s an incredible amount of opportunity for future innovation and investment in the life insurance space, given the scale of the opportunity and the potential impact for technology to dramatically transform it.”
