Insurtech Startup Investment Trends in Q2 2021

The initial months of Q2 2021 have witnessed significant investment activity within the insurtech startup sector. Several companies operating within the broader startup ecosystem have recently announced new funding rounds. These include Clearcover, Alan, Next Insurance, and The Zebra.

The Need for Insurtech Segmentation

However, the insurtech sector is diverse, necessitating a segmented approach to accurately assess the performance of individual companies. A comprehensive understanding requires breaking down the sector into its constituent parts.

While the $200 million funding round secured by Clearcover last week, Next Insurance’s $250 million round from earlier in the month, and Alan’s $220 million round announced yesterday are noteworthy, our focus today will be directed towards The Zebra and its position within the insurtech landscape.

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Categorizing Insurtech Startups

The Exchange categorizes insurtech startups into three distinct groups: neoinsurance providers, insurtech marketplaces, and insurtech enablers. This segmentation is crucial for clarity within the insurtech space.

Neoinsurance providers, such as Root, Metromile, and Next Insurance, leverage technology to modernize insurance underwriting and sales processes. They frequently prioritize optimized mobile user experiences.

Marketplaces, including The Zebra, Gabi, and Insurify, empower consumers to efficiently compare and identify suitable insurance options.

Finally, companies like AgentSync fall into the insurtech enabler category, providing solutions that assist other insurance businesses in digitizing operations and achieving modernization.

Recent Developments in the Insurtech Marketplace

Insurtech marketplaces have recently regained attention following The Zebra’s $150 million Series D funding round earlier this month. This round was accompanied by the release of key growth metrics.

Furthermore, Insurify announced a new partnership with Toyota, further highlighting activity within this segment.

Today, we will analyze the overall performance of insurtech in 2020, examine preliminary venture data from 2021, and delve into the growth trends observed among insurtech marketplace companies. The Exchange has compiled data and details from The Zebra, Insurify, Wefox, and other sources.

Tracking the progress of specific startup categories over time is a key focus of our analysis. We invite you to explore these insights with us!

2020 to the Present

Data from PitchBook concerning the insurtech sector in 2020 highlights the significant expansion of this startup area. According to the data firm, $18.3 billion was invested in insurtech startups last year through venture capital, private equity, and mergers & acquisitions. While this figure was slightly below the 2019 total, it remains noteworthy considering the onset of the pandemic – few anticipated such resilience in insurance investment during a global crisis.

The current year is demonstrating strong performance for the insurtech market, particularly in terms of venture capital funding. Typically, commentary might address the unprofitability of some newer insurance companies; however, given our current focus, mentioning that Lemonade’s adjusted losses in late 2020 were approximately 150% of its revenue is not pertinent. Therefore, we will refrain from doing so.

Venture Capital Trends

Preliminary data from PitchBook illustrates the continued strength of venture capital interest in insurtech companies. Analyzing insurtech startups based in the United States that secured venture capital funding in 2021 to date, PitchBook identifies around 150 deals totaling roughly $4.5 billion. In comparison, last year saw 439 rounds amounting to $7.4 billion, using the same criteria.

A record-breaking year appears likely for the insurtech industry, mirroring trends in other sectors. This is partly attributable to the rapid growth generally observed among startups in this category. Kin Insurance, a Chicago-based neoinsurance company, recently announced exceeding $100 million in annual recurring premium within just 21 months of operating as a carrier. This represents substantial progress, even acknowledging potential ongoing refinement of their underwriting model.

European Insurtech Performance

Wefox, a European neoinsurance provider, distinguishes itself by prioritizing collaboration with agents in select markets, rather than relying solely on direct-to-consumer digital channels. The company reported revenues exceeding €100 million in 2020 with a loss ratio of 43%. This is a positive indicator. Their overall cost ratio was 56% last year, suggesting potential for strong economic performance prior to a potential public offering.

Our attention will now shift to the insurtech marketplace segment, specifically examining recent results from The Zebra and performance data from Insurify.

Insurtech Marketplaces Exhibit Rapid Expansion

The Exchange initially analyzed insurtech marketplaces in early 2020, and continued to monitor this sector throughout the year. This sustained attention has proven valuable. For instance, The Zebra, a U.S.-based company, experienced significant success in 2020, indicating a promising area within the venture capital landscape capable of generating substantial returns.

The Zebra increased its revenue from $37 million in 2019 to $79 million in 2020. The company also reports a $150 million annualized run rate, suggesting revenue exceeding $12.5 million in March. Furthermore, it stated that its “monetization unit economics continue to improve by 100% year-over-year,” implying positive movement in its contribution margin calculation. (The Zebra has secured over $250 million in funding throughout its history, establishing it as a major recipient of venture capital.)

This represents substantial growth for the company, coupled with improving financial performance. But which other companies are experiencing similar trends?

Insurify is a direct competitor to The Zebra and other insurtech marketplaces, and is currently demonstrating impressive growth. Beyond recently securing a partnership with Toyota, as discussed by Insurify CEO Snejina Zacharia with The Exchange this week, the company has revealed strong recent growth figures. (Insurify has raised only tens of millions in external capital, for context.)

While Insurify is less forthcoming with precise figures than The Zebra, it disclosed to The Exchange that its revenue has more than doubled since December 2021. This equates to achieving a year’s worth of typical startup growth in just over a single quarter. This achievement follows a 2.5x growth rate for Insurify last year, as previously reported by Zacharia.

Notably, Zacharia is prioritizing maintaining profitability – which is interpreted as likely positive free cash flow, a method for young companies to fund operations independently – meaning this growth isn’t fueled by excessive spending.

Tanveen Vohra of Insurify emphasized to The Exchange, during multiple conversations, how the company maintains low sales costs through organic customer acquisition, a focus of their team’s efforts. According to Insurify’s CEO, approximately 49% of customers are acquired through organic or other cost-free channels. This is a significant achievement!

Considering the growth experienced by both companies, it’s reasonable to assume that other players in this market are also performing well. This suggests a favorable environment for further funding rounds, potentially in the eight- and nine-figure range, similar to The Zebra’s recent raise.

The entire insurtech sector appears determined to remain prominent. Neoinsurance provider Hippo is still pursuing a public offering via a SPAC, and AgentSync, operating in insurtech enablement through its API-powered services, continues to secure funding alongside its ongoing growth. Combined with the strong performance of insurtech marketplaces, a dedicated reporting focus on these companies is warranted.

Further updates will be provided as these companies announce significant funding rounds or file relevant documentation.