Oshri Kaplan, Munich Re Ventures: DI M&A VC Roundtable

November 17, 2022 4:56 AM

Three insurance VC professionals spoke to Digital Insurance about M&A activity in the insurtech sector. This section features Oshri Kaplan, investment director, Munich Re Ventures. Click here to return to our package home page.

What’s the overall health of the insurtech market?

Oshri Kaplan, Munich Re Ventures

On one hand, Covid was a forcing function for digital transformation for the industry, pushing both incumbents and MGAs to expedite their digital growth plans. On the other hand, many newly-listed insurtech startups experienced significant volatility in the public markets, with share price drops of over 75%, which creates a level of uncertainty for other private insurtechs, specifically later stage ones. Longer term, as companies continue to focus on profitable unit economics, the overcorrection we're seeing in the public markets today will likely reset.

What’s your view of the insurtech startup market and what it has in store for 2023?

While we have seen a major trickle-down effect from public market performance to late stage insurtech investments, we continue to see strong traction in the early stage as incumbents adopt and work more tightly with those players. We expect 2023 to be a strong year for insurtech enablers. These players will continue to build solutions across the entire value chain, from broker automation workflow tools to digital TPAs and insurance payments solutions. Similar to the last couple of years, we expect embedded insurance to remain a driving force for the industry, with players building solutions horizontally creating the infrastructure of the embedded ecosystem, as well as vertically-tailored solutions to tackle specific and nuanced industries.

How might insurtechs disrupt the insurance market in the future?

The insurance market is large, and we don't see insurtechs as disrupting the market entirely -- rather evolving it. That said, we see a new wave of digital marketplaces for insurance distribution and placement of risk both on the primary and reinsurance side. These marketplaces, whose popularity is partly driven by the hardening insurance market, are looking to scale their operations and connect risk to outside capital in a way that has not been done before: by digitizing the placement of risk and the data sharing process.

Why has insurtech M&A cooled and will it stay that way?

As mentioned, the volatility in public markets has influenced insurtech private markets, from milestone and unit economics expectations, to valuations and multiples. Similar to other industries, public company multiples are typically used as comps in acquisitions – and these comps are currently unstable. As a result, insurtech startups are deciding to remain private longer and delay their exit strategy. For those that are flush with cash or have the ability to raise cash, they can use this time to shore up their economics and await a rebound in prices. While many companies are currently in this holding pattern, others may be more cash constrained. We anticipate M&A conversations will resurface.

Will insurtech funding remain strong?

We expect early-stage investing will continue to remain strong next year as it is the least affected by public markets. In prior years, we observed that some later stage companies who had plenty of capital runway would still ride the momentum of the market and raise additional funding to expedite their growth plans. We saw less of that in 2022, with investors and entrepreneurs both observing the multiples correction and waiting for the public market to stabilize before hitting the growth capital button. We expect more clarity and stabilization in the public market next year and all stages of insurtech investing to pick back up.

At the same time, the entire value chain of insurance incumbents are looking to innovate and improve their internal technology stack by investing and partnering with enabling technologies in the ecosystem. For example, we are seeing partnerships on improving broker interfaces to place risk, payments reconciliation tools for carriers and reinsurers, and API solutions to plug into insurance products. Overall, we are seeing innovation in this market being driven not only by VC investments, but also by other players in the insurance value chain.