Insurtech funding in Q2 was dominated by four big deals, while smaller players missed out (SFTBY)

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Insurtechs globally secured $1.4 billion in funding across 69 deals throughout the second quarter of the year, down 2% from Q1, according to a report from Willis Towers Watson and CB Insights. However, year-over-year (YoY) funding increased 273%. Forty-two percent of all insurtech deals this quarter went to startups in the US.

Here’s what it means: While big insurtech players enjoyed large funding rounds, investments in smaller players declined.

Insurtech funding was largely fueled by the top four deals. Lemonade raised $300 million, Collective Health secured $205 million, and PolicyBazaar and Shuidi Huzhu scooped up $152 million and $145 million, respectively. These funding rounds totaled $802 million, or 57% of insurtech funding last quarter.
Softbank had a significant role in driving funding in the insurtech space. The conglomerate led investments in three out of the four top deals last quarter, marking a significant interest in insurtech that was strongly felt across the community. Softbank also announced last week that it’s looking to raise a new $108 billion Vision Fund, next to its $97 billion existing one. We expect that at least some of the new funds will be invested in global insurtechs.
Early stage insurtechs took a hit last quarter. With total funding of just $147 million, Q2 2019 marked the lowest amount of funding for early stage fintechs since Q3 2017, when startups in the space raised only $121 million. Hence, it seems that the insurtech space is maturing, and players securing later-stage funding rounds are likely to use the funds to further scale their business.

The bigger picture: A small number of large players accounting for a majority of funding is a trend we’ve seen in other fintech areas as well, and it could point to a more mature market.

UK fintech funding was also dominated by a number of established players in the first half of 2019. Even though 123 fintechs in the country scooped up funding during that time, four players — Starling, Monzo, OakNorth, and Greensill — accounted for 51% of the total fintech funding.
Established players securing the majority of funding shows that the segment is maturing, which can make it more difficult for new entrants to gain investor interest. Players like Lemonade have been operating successfully for years and proven their business models to investors. They’re therefore seen as safer bets by investors, making it easier for them to attract funding, which ultimately helps them scale their business further and cement their competitive advantages over newer players. As the industry matures and the market becomes more crowded, it’s likely becoming more challenging for new entrants to make a case for their product to investors, as their likelihood of future success is diminishing with increased competition. Over time, we’ll likely see more funding go to bigger players, while early stage fintechs will increasingly struggle to receive necessary cash injections.

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