The un(der)banked is FinTech’s largest opportunity

Industry subsectors on the upswing include insurance and
payments. InsurTech has seen very stable funding (in the midst of the
aggregate FinTech industry downtick), with modest uptick in absolute
dollar funding for two consecutive quarters (12% average sequential
growth over the last two quarters). Insurance has arguably been a
FinTech laggard (relative to subsectors such as banking and payments)
and is now attracting greater interest as an area of potential disruption.
InsurTech bucks the trend in larger deal flow. Peer-to-peer insurance
models have been covered by the mainstream media, but this area is not
truly moving the needle in terms of funding. The strength in InsurTech
has seen funding steered primarily toward new methods of distribution,
many of which are focusing on small-to-medium businesses and
servicing 1099 contract workers. The growing interest in the sector is
also seen in funding transaction sizes. In 2Q16, three of the seven large
($40 million or greater) transactions occurred in the InsurTech space,
and average transaction size was $18.3 million, or 20% greater than the
average FinTech deal size in 2Q16.
A specific area within insurance that has seen healthy funding
trends is the commercial insurance subsector. With DeNovo, we look
at not only industry subsectors, but also the funding trends of specific
technology topics within the subsector. At this level, we can better
understand whether disintermediation may or may not be occurring,
and the innovation in specific technology areas.
In an otherwise “soft” first half (1H16) for FinTech, investments in
unmanned aerial vehicles (UAVs) used by the commercial insurance
sector have increased 62% year-over-year from 1H15 (see Exhibit 13,
next page). The average investment per company has also seen a steady
upward pace with an average transaction size of $38 million in 2016
(up from $32 million in 2015) and well above the $15.6 million average
investment for FinTech in 1H16.
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