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Illustration: Dom Guzman

Insurance isn’t known as a fast-moving industry. The oldest names in the business have been around for centuries. And the core business proposition — paying policyholders in bad circumstances using money from those who averted disasters — has pretty much stayed the same.

But in recent years, this most traditional of industries has been an ultra-hot sector for VCs and startup founders. From digital-first insurance providers to AI-enabled risk measurement tools to customer-focused SaaS plays, venture investors have poured over $20 billion into the space over the past three years. A handful of startups have also been moving rather rapidly from launch to exit.

“We’ve never seen insurance move this fast,” said Mike Greene, CEO of Hi Marley, an SMS-focused insurtech startup that closed a $25 million Series B this week. He sees a few factors contributing to the heightened speed of digital-age adaptations. One is stepped-up competition from industry newcomers. Another is a good earnings year in 2020 leaving large insurers more flush to spend on upgrading backend tech and customer service.

Public markets have certainly taken note. Since summer, at least four venture-backed insurtech companies have carried out U.S. public offerings, with the largest and most recent entrant, Oscar Health, valued at $6.5 billion. Another two upstarts — Hippo Insurance and Doma (formerly States Title) — announced plans this month to go public by merging with blank-check acquirers.

Meanwhile, on the venture-funding side, investment continues at high volume. Last year, U.S. investors put a record $4.9 billion into insurance-related deals, per Crunchbase data. And the momentum continues in 2021, with at least two companies in the space securing $100 million-plus rounds just this week. We look at funding totals for the space in the chart below:

Why the insurance exit momentum?

Given the red-hot public market reception for tech and software offerings in recent quarters, it’s not terribly surprising to see well-funded insurtech startups making their debuts.

That said, compared to some other software sectors, the pace is relatively rapid. Newly public insurance providers Lemonade and Root, along with soon-to-be-public Hippo, for instance, were all founded in 2015. By startup standards, that’s not a long time to go from inception to a billion-dollar-plus public market debut.

For insurtech companies, there are several apparent drivers behind their rapid scaling and exit trajectory. One is that companies need to prove they can play in their space, but don’t need to dominate, said Caribou Honig, a partner at SemperVirens Venture Capital who follows the insurtech space.

”It’s not a market where you need 10 percent market share to build a billion-dollar business,” Honig said. “If you have 1 or 2 percent share in homeowners or auto or life, for instance, that’s a big business.”

The SPAC phenomenon is also a factor. Companies that go public by merging with a blank-check acquirer tend to have less mature business models than traditional IPO candidates. Commonly, SPAC deals feature newer, riskier brands tied to a hot investment theme — in this case, insurance industry modernization.

Public valuations also have held up at a level where most early investors should see positive returns — with room for future growth ahead. We look at the public offerings to date and those planned in the chart below:

Earlier stage looks nichier

Insurtech only began to emerge as a major venture category about five years ago, per Honig’s recollection. But given that five years is a long time in the startup sphere, there are predictable distinctions between more mature VC-funded players in the space and newer entrants.

Commonly, Honig says, newer insurance upstarts are less likely to take on a major category, such as homeowners or auto, and focus instead on a smaller niche.

We’ve seen a lot of deals along these lines in recent days. Two providers of cyber insurance products Corvus Insurance and Cowbell Cyber, just closed rounds of $100 million and $20 million, respectively. They’re scaling up as more enterprises look for insurance against the growing number of cyberattacks.

Meanwhile Zego, a London-based insurance provider focused on gig workers, landed $150 million this week in a Series C round at a $1.1 billion valuation. And Beam Dental, a provider of dental benefits policies, raised an $80 million round last week. (See the full list of 2021 insurance and insurtech investments here.)

Software startups focused on serving the insurance industry are also scaling up. As Hi Marley’s Greene sees it, insurance is such an enormous industry that even a niche offering can be tremendously valuable.

This is a really enormous market, and it’s still early innings

The math behind insurtech optimism pans out in a basic analysis. Global insurance premiums now top $5 trillion annually. Capture just 1 percent of that, and you have a $50 billion revenue stream. Secure just 0.1 percent, and it’s still $5 billion.

Big rounds for insurtech and insurance upstarts in 2021 also coincides with the roaring market for fintech, a closely related space. The trendlines are similar: There are more big rounds, and they keep getting bigger.

Source: As Insurtech Exits Spike, More VC Money Piles Into The Space