Insurance software companies have been popular targets for Private Equity and strategic investors alike over the last 5+ years. 2013–2014 was a period of high activity for PE investors, and though transaction volume has declined from that peak, many of the largest buyouts on record, like Vertafore and Solera, occurred in 2016. We expect Private Equity interest in insurance software assets to remain high in 2018 for a number of reasons.
Insurance software represents attractive, high-return investment opportunities for PE. Compared to most verticals we are exposed to, the insurance industry is well behind the ‘technology curve’. Bountiful opportunities remain for innovative vendors to disrupt the market with capable, flexible SaaS offerings, and investors have taken notice – some have even formed strategic partnerships to benefit specifically from this digital evolution. Further, investors are encouraged by the strong track record of 3x–6x returns from previous transactions in the space.
Insurance firms are clamoring for modern solutions to simplify business operations. The shift away from manual efforts and hackneyed processes to digital solutions to achieve business goals is underway. Insurers are looking to technology to reduce overhead, errors, and risk through the creation of strongly integrated processes and effective leveraging of automation. SaaS-delivered products helping to reduce administrative burdens through modern operations, improve data transfer and sharing across parties, automate and integrate claims processing, and enhance customer onboarding and retention will rule the year.
The impact of Blockchain and AI will be felt, but not for some time. It’s difficult to start a technology discussion in financial services and other transaction-heavy markets without broaching the topic of blockchain. While blockchain has a place in the insurance software market – lowering overhead (increased automation), reducing error and fraud, improving customer experience (e.g., onboarding, contract management) – it is not as fully developed nor as close to realization as in other financial technology markets. Investors can invest in the space confidently without worrying about the short or medium-term impacts of blockchain. Similarly, AI has not been widely embedded in core technologies, though some customer-facing use cases have found success (e.g., chat robots).
Private Equity’s insurance software cycle is almost complete. With investment cycles nearing their end, several insurance assets are expected to come to market in the next 6–12 months. Whether you’re interested in a company that serves the general insurance industry or serves specific insurer types, automates a manual intensive piece of the value chain, or simplifies operational overhead, there is an asset for you.
