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Sep 2022

The three Rs and InsurTech

Source: Asia Insurance Review | Aug 2022

Private equity and venture capital investors love low-interest rate environments. They can borrow cheap and fund their pet projects. Until recently, this was great news for InsurTechs in APAC looking for investors who bought into their dream.
But everything changed suddenly on 24 February as war was forced on the world and the three Rs became the new focus of investors – Russia, recession and rates.
The US may have been the glamorous end of the InsurTech revolution with the likes of Lemonade, Hippo and Root some of the highest profile to launch IPOs and tap the public markets - but Asia Pacific was quick to catch up.
Recent S&P Global Market Intelligence data indicates that India has the second-largest InsurTech market in APAC after China, with India accounting for 35% of the $3.66bn of venture capital in the sector. In total, the region is estimated to have around 335 InsurTechs.
At the big end of town, China’s ZhongAn has around $937m in funding and Waterdrop has $631.4m – while India’s PolicyBaazar has $766.6m, CarDekho has $497.5m, Digit Insurance has $460.8m and Acko has $458m.
Other APAC nations also have a place at the table: Japan’s SmartHR has $194.3m in funding and Singapore’s SingLife has $180.3m.
Investors can be fickle, however, and as technology stocks across the board got hammered by the three Rs, these same investors switched their attention to more tried-and-true sectors and away from high-growth sectors.
At the peak of the rout in the US, the share price of Lemonade fell almost 90%, Root’s share price fell by more than 90% and Hippo’s fell 85%.
This is the kind of seismic shift that sorts out the leaders from the stragglers and the winners from the losers – and InsurTechs around the world are being expected to demonstrate less hyperbole and more emphasis on a sound business model.
This renewed focus on the nitty-gritty of the business: What is the strategy behind an InsurTech’s underwriting? At what price can it afford to underwrite risks?
This is where many InsurTechs are at a disadvantage compared to their incumbent peers.
InsurTechs may be able to boast swish technology, a lower cost base and AI-driven underwriting – but these will only offer a marginal benefit unless the customer base is large – and growing the customer base fast is a recipe for burning through cash quickly. This is not something that every investor will be keen to do in such an uncertain macroeconomic environment as the war drags on and food shortages loom.
And yet the reality is that many InsurTechs will need to raise more capital to get through the next 12-24 months and it is not clear where that cash will come from in the shadow of the three Rs.
The alternative to raising more cash will be to improve underwriting margins which could involve reducing headcount, slashing other costs and raising prices.
InsurTechs will be watched most closely over the next year or so – and certainly for as long as Russia president Vladimir Putin’s invasion continues – and the spectre of inflation, stagflation, recession and soaring interest rates continue to haunt the markets. A 
Paul McNamara
Editorial director
Asia Insurance Review
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