InsurTechs favour alliances over M&A, KMPG reveals

KPMG’s latest Pulse of FinTech report has suggested that a lack of M&A activity globally could reflect greater concerns about InsurTechs with high valuations that have not yet generated positive returns.

A report by Insurance News revealed that KMPG said insurance carriers focused on building alliances with InsurTechs last year as they explored emerging technologies and capabilities, rather than making outright acquisitions.

2021 M&A activity centered primarily around digital distribution, KPMG said, such as American Family’s acquisition of Bold Penguin.

Deal Ram Menon, KPMG international global head insurance, said, “There are a lot of investments in digital insurance distribution across the ecosystem as the industry aims to reduce complexity for their customers buying insurance.”

Menon said he expects digital distribution to keep growing in 2022 and beyond. He also forecasts new digital exchanges for insurance agents and distributors, and direct-to-consumer sales and marketing solutions that offer customised solutions.

However, despite investor interest in the insurance space forecast to remain strong, there are concerns that higher valuation companies who have gone public are underperforming.

However, KPMG said profitability has become a key focus as public InsurTechs “experience headwinds,” causing investors to focus on underwriting and profitability. “Over the past eighteen months, a number of mature InsurTech companies in the US have gone public, either through IPOs or SPAC mergers. Many of these companies have experienced strong headwinds in the public markets, underperforming compared to those in other sectors,” it said.

KMPG said this trend may give impetus to greater market consolidation this year. Looking ahead, the company said it expects increasing investment from both carriers and non-carriers, closer partnerships between platform brands and insurers on distribution, a growing focus on embedded insurance and more investment in unique commercial insurance solutions.

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