Key Insights from the Houlihan Lokey Insurance Technology Market Update Q2 2020
August 28, 2020
The Q2 2020 Insurance Technology Market Update by Houlihan Lokey revealed a number of promising insights for our industry. The update calls out, “Despite the chilling effects of COVID-19 on the global markets over the past several months, insurance technology (insurtech) M&A and capital raising activity has been quite positive, all things considered.”
Houlihan Lokey asked five founders from leading insurtech companies how COVID-19 has affected their businesses over the past few months, how they have navigated through the pandemic, and what they expect the impact will be on the broader insurtech market over the next 12–24 months.
Sure Co-Founder and CEO Wayne Slavin responded, “As challenging as this time has been for everyone, it's reminded us why insurtechs exist: to drive innovation when it’s needed most. Sure is fortunate to have experienced a 400% increase in customer demand and expanded our team by 20% since the start of shelter in place. These data points reinforce the ongoing demand for digital insurance. By not adopting new technology, like Sure, insurers risk losing market share permanently. Alternatively, we’ll see savvy organizations begin to acquire insurtechs and vertically integrate the technology into their businesses over the next 12–24 months.”
Additional highlights provided in the report include:
Insurtech appears to be weathering the COVID-19 storm just fine, with ~$1.4 billion in financing volume and ~$1.7 billion in M&A volume during Q2—way ahead of Q1 levels of ~$700,000 and ~$865,000, respectively.
76 financings in Q2 was ~20% higher than the year-ago period, while total Q2 volume was ~6% behind the year-ago period.
If you include Lemonade and Accolade’s IPOs (which occurred the first week of July), Q2 financing volume would have totaled ~$2.0 billion, or the highest single quarter over the past two years.
Lots of Q2 financing activity for digital distribution businesses that maximize the customer experience obtaining insurance across a number of categories (including the Zebra and Pie Insurance) as well as software and data and analytics (including Duck Creek and ClaraAnalytics).
31 M&A transactions in Q2 was ~48% higher than the year-ago period, while total Q2 volume was largely in line with the year-ago period.
While the ~$11.8 billion in 2019 M&A volume was bolstered by a number of large deals, including Prudential/Assurance, Roper/iPipeline, and Willis/Tranzact, 2020 hasn’t seen similar megadeals and we have seen only ~$2.5 billion in YTD 2020 M&A volume.
Some have argued that the pandemic is actually driving increased M&A activity in the category, as large incumbents push to digitize and small insurtechs look for exits.
Q2 saw a significant spike in insurtech IPO launches or filings (including Selectquote, Lemonade, Accolade, and Duck Creek), which we expect will garner further interest in the category and boost private market capital raising activity.
Insurance software and data and analytics companies lead the public company pack, trading at 22.4x and 21.0x EV/2020E EBITDA, respectively.