b'Foreword continuedFigure 4 : Annual InsurTech funding totals, 2012Q3 2021 In certain cases, the motivations of outside VC providers arevaluations that might otherwise be considered irrational (relative to relatively short-term focused and therefore greater emphasis isbusiness performance on traditional [re] insurance metrics). 12,000 placed on volume and inbound growth versus sustainable loss (and therefore combined) ratiosor at least business models that canGiven that much of the capital coming into InsurTechs is attracted 10,503 be self-sustaining without the assistance of investment capital.to volume and inbound growth (particularly of gross written 10,000 This venture investment cycle is self-perpetuating on the way up;premium), many of the most highly valued InsurTech businesses venture capitalists are looking to drive valuations up, and this in turnby venture investors are unsurprisingly risk-originating businesses. attracts other venture capitalists who are attracted to these newThere are, however, many hundreds of InsurTech businesses that Funding total(US$ million)8,000 areas of growth. This too is reflected in the steady and significantfocus on distribution and business-to-business (B2B) software 7,108 rise in venture investors participating in InsurTech investments overvendor models that might themselves be fantastic businesses but 6,348 the years; that is to say, it is not just the prevalence of innovativeare unlikely to achieve the types of elevated company valuations 6,000 technology in our industry or the great untapped that is luringthat their carrier-model InsurTech cousins are commanding (at new venture investors in. Given that there is clearly an increasingthe moment). One cannot help but think that this current trend 4,167 venture investor audience participating in the global InsurTechof overvalued businesses going public might not actually be a 4,000 landscape, it is worth considering this every time a significant raiseblessing at all. Will some of these underwhelming InsurTechs 2,721 is completed or a new unicorn joins the blessing. It is also worthultimately jeopardize our overall view of technology as it continues 2,274 consistently checking back to the many motivations that a varietyto come into our industry? Will they be the heat that dries up 2,000 1,742 of investors have when we evaluate the timeline around the futureinvestment funding that should actually be looking for a better 868 of the InsurTech valuation peakand perhaps most important, thehome? Only time will tell, but one thing is for sure: The vast majority 348 276 types of investment motivations of the capital supporting InsurTechof InsurTech businesses are unlikely to receive many of the dollars 0 businesses. Bearing this in mind does help to rationalize certainthat dominate most InsurTech news stories.2012 2013 2014 2015 2016 2017 2018 2019 2020 2021TABLE OF CONTENTSThe graph above shows the annual InsurTech funding totals ($ million). To date, 2021 totals $10.503 billion. This is $12 million short of the entirety of 2018 and 2019 added together.Undoubtedly, one of the biggest drivers of overvalued valuationsIn 2012, we estimate that globally 153 venture investors put theirFigure 3. Venture investor s in insurtech from 2012 to Q3 of 2021. **2021 data shown is as of Q3, Figure 5: Venture investors inInsurTechfor businesses in this space is the continued prevalence of venturecapital to work into businesses that self-identified with the labelwhile the other data is annualized. Source: CB Insightscapital (VC) investors who have turned to InsurTechs to expandof InsurTech. Two years later, in 2014, that number had nearly1,200their portfolios and make the most of relatively buoyant markets.doubled to 278 venture investors. Two years after that, in 2016, it1,118If we look at the past 10 years, the number of venture investorswas on the road to doubling again to 511 venture investors. In 2021, participating in InsurTech is staggeringespecially whenwe estimate that, to date, 1,118 venture investors have their attention1,000Number of venture investors in InsurTechconsidered through the lens of year-on-year new entrant activity. Infirmly set on the world of InsurTechalmost 7.5 times the original857 884this instance, we define a venture investor to include the followingnumber we estimate for 2012. These investors are situated across790types of investor/capital: VC, corporate venture, super angels andthe globe with varying appetites and mandates; some have a very800growth equity. (Note, investors may have participated in multiplespecific InsurTech strategy, and others are making the most of the708deals in a given year but will only be counted once in the data we willopportunity as they see it. As Figure 4 shows, there seems to be present in Figure 5). no slowing down of venture investors wanting to participate in this600space, and in the short term at least, this only looks set to continue.511It does, however, make the grey matter (in terms of both promising409InsurTech business, and market opportunity) and capital balance400increasingly out of proportion (and as a result will continue to278support [and drive] the sorts of frothy overvaluations we have been178seeing for many years nowa financial game of musical chairs, if200 153you will). Foreword continued02012 2013 2014 2015 2016 2017 2018 2019 2020 2021Year (to date)**Investors may have participated in multiple deals in a given year, but will only be counted once in the data we will present in Figure 5Figure 4. Select insurtech relative stock price changes pegged to zero beginning January 2021 and ending October While we have not (visually) delineated the graph down to a quarterly basis for venture investor numbers in figure 5., we can see from our own raw data that, Figure 2 : Relative/compe, Q2 2021 saw a record number of VCs participating in InsurTech deals (570 unique investors). In Q3 2021, despitg S&P 500Carrying on from the Q2 recordings, the stock price performanceover time. It is worth noting, however, that the high(er)-valued from a quarterly perspectivarable InsurTech stock price changes over time pegged to zero beginning January 2021, includine the number 2021, including S&P 500 to benchmark. Source: CB Insights (data sourced from S&P Global Market Intelligence)o benchmarkt coming down from Q2s peak, Q3 recorded a very impressive 396 unique investors writing InsurTech checks. This makes Q3 2021 the second highestof many publicly traded InsurTechs continued to be a generallyInsurTechs (in the buildup to IPO) are currently still typically those quarter of unique investor activity, with only Q2 2021 being higher.0.60 downward trend throughout Q3. While this does not seem tobusinesses that are capable of demonstrating very high sales/Root be dampening the trend of more InsurTechs wanting to launchvolume growth, and this type of growth can realistically only Relative/comparable share price percentage change (pegged to zero on January 4, 2021)0.40 an initial public offering (IPO) (and investment capital backingbe supported by certain types of business modelstypically this trajectory), it will over time become harder and harder forrisk origination. As we can see post IPO, however, per Figure 2 8willistowerswatson.com S&P 500 9 InsurTechs to command the sorts of valuations that we have beenof relative stock change performances on the prior page, risk-0.20 Quarterly InsurTech Briefing Q3 2021 observing if this trend continues in perpetuity. Additionally, it willoriginating InsurTechs stock performance seems to be trending become especially difficult for certain InsurTech businesses (todownward, as a groupat least for the time being. This is certainly 0.00 Bright Health command current valuations) if it does become clearer/apparentsomething for us to keep an eye on. Duck Creek Technologies that certain InsurTech business models are much more conducive (0.20) to price defense, or at least performance of a more robust manner Lemonade Hippo(0.40) OscarFigure 3: Annual InsurTech funding trends, including transaction volume and dollar amount, 2012Q3 2021MetroMile(0.60) Investment amount Number of dealsGo Health(0.80) 450 421 $12,000400 377(1.00) $10,503$10,000350 3141/6/2021 2/2/2021 2/16/2021 3/1/2021 3/25/2021 4/21/2021 5/4/2021 5/17/2021 5/28/2021 6/11/2021 6/24/2021 7/21/2021 7/21/2021 8/3/2021 8/16/2021 9/10/2021 9/23/2021 10/6/2021 300 262 $7,108$8,0001/20/2021Deals US$ million250 $6,348 218 $6,000S&P 500 ROOT Lemonade MetroMile Oscar GoHealth 200 176Duck Creek Technologies Bright Health Hippo 150 132 $4,167$4,000Data sourced from S&P Global Market Intelligence 94 $2,721 100 66 $1,742$2,274$2,000Figure 2 shows the stock prices over time of some of the global InsurTechsaverage. While we cannot read too much into the relative performance46that have gone public. In order to create a graph of stock price changeMAYER BROWN |123 50 $868 of one business, it is worth noting that with the exception of GoHealth (a$348$276 relativity, we pegged S&P 500 and eight InsurTechs at zero for themarketplace), all other InsurTech models here present are risk originating,0 $0beginning of the year (Metromile, Oscar, Bright Health and Hippo arewhereas Duck Creek is a software-as-a-service (SaaS) technology2012 2013 2014 2015 2016 2017 2018 2019 2020 2021introduced at the point of going public with the same peg) to illustrateprovider for our industry. Perhaps over time we will see that certain relative performance over the same time period. While this is extremelyInsurTech business models perform better over time once they have goneYearcrude, what we are attempting to present is the convergence ofseeminglypublic. To reiterate the point made in Q2, this highly correlated behavior correlated public InsurTech stock performances. Interestingly, Duckof the InsurTech pack is possibly a reflection of how the market views Creek Technologies has moved away from the rest of the highlightedInsurTech in general (as a single animal), and not (just) a reflection ofThe volume of investment capital in the first three quarters of 2021 has surpassed the $10 billion mark for the first time in a single year in InsurTech group and is performing closer to what we are seeing across the S&P 500individual business performance.investment history.If we look at the average total percentage of mega-round dealsThe topic of unicorn creation leads us to ask the same question weThis latest Quarterly InsurTech Briefing is announcing that globalThe topic of unicorn creation leads us to ask the per quarter, we can see that approximately 50% of InsurTechasked exactly two years ago (in the Q3 2019 Quarterly InsurTechInsurTechs continue to see a strong trajectory in Q3. This quarter,same question we asked exactly two years ago investment goes into mega-round deals. What is particularlyBriefing): At what point doesa group of unicorns become anglobal InsurTech funding reached an enormous $3.1 billion. This interesting is that in the past few quarters, each individual mega- oxymoron? Well, it has come to our attention that there is suchrepresents a 23% increase compared with the same period last(in the Q3 2019 Quarterly InsurTech Briefing):round does seem to be representing an increasingly small(er)a thing as a group of unicorns: A blessing of unicorns is theyear and is notably the second-largest funding quarter on record.At what point does a group of unicorns become percentage of quarterly raises. This is most likely a reflection ofcollective noun for such a group. Are the InsurTech unicorns inFor the first time in history, we are seeing in excess of $10 billionan oxymoron? Well, it has come to our attention an increased number of mega-rounds being done on a quarterlyour midst a blessing? That remains to be seen. In Q3 alone, therebeing invested in a single year into this truly global phenomena. Thethat there is such a thing as a group of unicorns: basis. We know that many InsurTechs before going public wish tohave been a couple of new unicorns added to this blessing. U.K.total number of deals is also now at an all-time high as well, with 421 embark on a big raise to increase their company value, and withmotor InsurTech Marshmallow joined the blessing club followingdeals completed this year to date. A blessing of unicorns is the collective noun for it create unicorn status (i.e., start-up companies in the softwarean impressive $85 million raise, on a $1.25 billion valuation. Similarly,such a group. Are the InsurTech unicorns in our or technology industry that are valued at over $1 billion). Fourunicorns also publicly unveiled themselves this quarter as well.midst a blessing?InsurTech unicorns were created in 2018, five in 2019, five in 2020Just days after Q2 2021 closed, both Hippo (already a unicorn) and and eight so far in 2021. Depending on your definition of InsurTech,Doma went public. it could be argued that there are now 24 InsurTech unicorns in existence.6willistowerswatson.com Quarterly InsurTech Briefing Q3 20217'