Insurance carriers focused on building alliances with insurtechs last year as they explored emerging technologies and capabilities, rather than making outright acquisitions.

KPMG’s latest Pulse of Fintech report says a lack of M&A activity globally could reflect concern about insurtechs with high valuations that have not yet generated positive returns.

Total global insurtech investment activity was $US14.4 billion ($20.19 billion) across 418 deals last year, down from $US16.3 billion ($22.86 billion) a year earlier and around half the levels seen in 2018.

“The insurtech sector continued to gain a significant amount of attention in second half 2021, particularly in the VC market,” the report says.

Looking ahead, KPMG 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.

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

“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,” KPMG Interational Global Head Insurance Deal Ram Menon said.

Mr Menon 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.

Investor interest in commercial insurance space continued to grow last year. However, KPMG says 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 says.

This may spark consolidation this year, KPMG says.

For fintech investment more broadly, KPMG Partner Mergers & Acquisitions and Head of Fintech Daniel Teper predicts 2022 will be a record year for fintech investment in Australia after investment rebounded to in excess of $US2.5 billion ($3.5 billion), nearly equaling pre-COVID highs.

Australia saw 134 deals recorded across the year, compared to 84 in 2020 and 72 in 2019.

“This would indicate that we are continuing to see investment in start-up and scale-up businesses, as well as significant M&A activity for more mature players in the space,” Mr Teper said.

Investments are taking place across a range of sub-sectors and from a broad set of investor groups, he says.

“We are continuing to see investment in start-up and scale-up businesses, as well as significant M&A activity for more mature players in the space.”