The trend: Due to a slower pace in insurance deals and investment, funding for insurtech companies fell to their lowest level for more than two years in the third quarter 2022.
CB Insights’ Q3 State of Insurtech ReportIt was found:
- Q3 Insurtech firms raised $2.3 Billion for the weakest quarter in Q220.
- Quarter-over-quarter, funding fell by just 4% (QoQ). But it was still far below the record-high levels in 2021.
- Despite this decline in funding, insurtech funding for 2022 will reach $9.6 Billion, the second-highest record.
- Based on the last three quarters, 595 insurtech deals are expected to be signed for the year. This represents a 11% decrease from 2021, but is still well above the previous three years.
What does this mean?Similar to Deals and funding for fintechsThe insurtech market is now entering a consolidation phase, with falling valuations and a more difficult funding environment. Insurtechs that are weaker may not be able to raise capital while those with more resources will have to take down rounds. To attract financial backers, companies must demonstrate the viability of their business models. Some will need to reduce costs or downgrade their plans in order to avoid raising capital.
The perfect climate for companies looking to acquire insurtechs at a discount could be the decrease in deals, lower valuations and decreases in funding rounds. As companies have ample cash reserves and look for bargain-priced insurtechs, expect to see more deals over the next year.
Let’s get to the bottom of it: Insurtechs will seek to reduce costs in order to weather the economic storm. Those that can’t may have to seek funding; and some weaker firms will inevitably not survive.
But, this presents opportunities for strong businesses. Some that raised money at realistic valuations over the last couple of years won’t be greatly affected. In the face of the imminent global recession, although funding and deals could drop further, the health of the insurance industry is better than most others.
