On February 13, 2019, KPMG, one of the big four accounting firms in the world, released a seventy-five-page analysis entitled “The Pulse of Fintech 2018.” The biannual report highlights key trends and activities in the fintech sector in key markets around the world.
The report focuses primarily on the development of the larger fintech sector. The report broadly defines a fintech company as “any business that is using technology to operate outside of traditional financial services business models to change how financial services are offered” including firms that use technology to improve the competitive advantage of traditional financial services firms.
Insurtech included under the broad rubric of fintech
Since insurance is a subsector is the financial service industry, insurtech is a subsector of fintech. The report recognizes this relationship with some interesting points regarding the current state of the insurtech industry.
The methodology section at the end of the report has a short but useful list of definitions applicable to the fintech industry. One of these definitions is as good a working description of what qualifies as an insurtech company as we have seen.
Insurtech—Companies using technology to increase the speed, efficiency, accuracy, and convenience of processes across the insurance value chain. This includes quote comparison websites, insurance telematics, insurance domotics (home automation), peer-to-peer insurance, corporate platforms, online brokers, cyber insurance, underwriting software, claims software and digital sales enabling.” “The Pulse of Fintech 2018,” p. 74.
We are sure now that we have seen the new buzz word “domotics” in connection with insurtech, we will start hearing about the new frontier for insurtech companies operating in the “domotics space.” The word already appears in some online dictionaries as a contraction of the Latin word “domus” for home, and “robotics.”
Funding for Insurtechs down for 2018 but still third-highest on record
In 2017, insurtech had a banner year for swallowing up investor money. That year had, per the chart below, a record number of funding deals at high values. For 2018, the number of deals did not vary in a statistically significant way from the prior year. However, the value of the deals did deviate materially from the prior year.
Chart from KPMG “The Pulse of Fintech 2018”
According to the report, the 2017 prices reflected “not only late-stage growth investors but also strategic acquirers willing to pay significant premiums for innovations within insurance product and services lines.”
The premiums paid seem to have descended earthward in 2018, from their stratospheric levels of 2017. However, the $6 billion that changed hands in 2017 for insurtech properties was still the third-highest annual total.
In the U.S. in 2018, insurtech investment ranged from healthcare to automotive and home insurance. Healthcare had two large funding rounds with Oscar Heath receiving $540 million and Devoted Health raising 300 million. Other insurtech companies also had significant fundraising success. Root Insurance, an auto insurance platform, raised $100 million.
The report finds Insurtechs “maturing rapidly, attracting larger funding rounds”
In the same vein, the report notes that insurtech has matured significantly as a sector, with insurtech companies attracting larger and larger funding rounds globally. During 2018, there were thirteen insurtech deals of over $100 million.
The report notes that insurtech solutions also expanded rapidly during the year, with claims management and the unbundling of insurances services and processes continuing to snag larger investment shares. Also, the report noted that many Insurtechs shifted to platform-based models to offer insurers different distribution networks or white-label products and services.
The authors claim traditional insurers have “generally embraced this platform-model—seeing it as one way to embrace innovation across their value chain without developing solutions independently.”
Report sees U.S. insurers expanding into Asia to test innovative products and services
The report speculates that “Asia is poised to see substantial growth in insurtech investment.” The growth is to develop, per the authors, in part by U.S. and Europe-based traditional insurers looking to use Asia to test alternative insurance offerings. The authors believe Asia will benefit from these U.S. and European insurtech investments because, “Compared to the U.S. and Europe, Asia is seen to have relatively low barriers to entry, a high population base, and fairly light regulations—making it highly conducive for testing innovative options.”
Insurtech is not just a big country’s game: Israel is a leader
A small country mentioned in the report with a disproportionate number of startups including insurtech startups is Israel. This nation of under nine million people has the highest number of startups, primarily in the tech area, in the world per capita. E.g. The ubiquitous travel app, Waze, started in Israel before it came to the U.S and got sold to Google for $1.5 billion. With one startup for every 1400 people, the country has earned the sobriquet, “Startup Nation.”
Not surprisingly Israeli tech companies are focused on developing cybersecurity solutions including identity authentication and fraud detection. However, according to the report Israel now has insurtech companies working with automotive companies to develop new business models and service offerings.
In the report, Meital Raviv Director, Head of Fintech & Innovation, Financial Services, KPMG in Israel commented on this development stating, “Collaborative opportunities are driving a lot of interest in areas like insurtech right now. We are seeing very different companies working together to create new business models and value propositions—such as insurance companies and automobile companies sharing data on their customers and then developing insurance programs based on that data.”
Report highlights trends to watch for in 2019
In 2019, the report predicts, that insurtech, along with other areas of fintech, will have significant funding available for growth. The report’s authors predict that corporate investment in the space will remain strong, “although there may be an increase in emphasis on partnership models over standard direct investment.” They also expect a growing emphasis on consolidation as companies look to grow and achieve the scale required to grow globally.
Free download of the report
KPMG’s full report can be downloaded for free by clicking on this: “The Pulse of Fintech 2018.”
About KPMG and KPMG Fintech
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services that operates in 153 countries and territories with 207,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
KPMG Global Fintech comprises professionals in over 50 fintech hubs around the world, working closely with financial institutions, digital banks and fintech companies, to help them understand the signals of change, identify the growth opportunities and to develop and execute on their strategic plans as the financial services industry is transforming with the emergence of innovative new products, channels, and business models.