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DEALS in the insurance and technology (insurtech) sector in South-east Asia recorded a total value of US$2.35 billion in 2023, up from US$538 million in 2022, indicated a report by EY in August.

This is despite macroeconomic and geopolitical challenges, and the fewer number of deals in the year – 27 deals took place in 2023, while 39 were closed in 2022.

The majority of deal value in 2023 was driven by Japanese insurer Sumitomo Life’s acquisition of Singapore Life (Singlife), which valued the latter at US$3.5 billion, and Singapore-based insurtech company Bolttech’s US$246 million series B round. (*see amendment note)

EY noted that investors prefer established insurtech companies with a proven track record amid a general flight to safety – riskier early-stage companies secured only two publicly announced series A deals amounting to US$2.3 million in 2023.

Investors are also looking at companies driving digital transformation, given investments by tech unicorns and traditional financial service providers into insurtech platforms to enhance product offerings and customer experiences.

Last year’s deal value is slightly below the 2020 high of US$2.35 billion from 32 deals, which was driven largely by Singlife’s merger with Aviva Singapore that was valued at over US$2 billion.

But deal count fell from the peak of 46 in 2021, as conditions deteriorated amid hawkish rate policies, geopolitical tensions and rampant inflation.

EY expects the pull-back in deal velocity to be temporary, driven by the need for short-term correction as insurtech re-orientate themselves and focus on tighter financial management and working towards profitability.

“A healthier reset will allow insurtechs to emerge more resilient, instil greater confidence in customers and become well-positioned to capture the rapidly growing insurance opportunity in the region,” said the report.

Rahul Vardhan, partner for strategy and transactions at EY, expects fundraising in the short to medium term to gear towards category leaders that have a record for sustainable and profitable growth. 

Regional expansion

Presence across multiple jurisdictions is a key differentiator to scale in South-east Asia’s underpenetrated insurance market, he said.

Yet, regional expansion is capital intensive and requires a strong understanding of local regulations – especially for underwriters.

“Insurtech firms that execute this well will achieve a meaningful competitive advantage. Scarcity of such companies in the region is likely to drive high demand and valuations,” he added.

Deals for insurtech companies headquartered in Singapore continue to dominate deal count and funding, accounting for 85 per cent of the total deal value in the region.

But countries such as Indonesia, Thailand and Malaysia have seen an increase in the share of the funding pie.

This is driven by favourable demographics and structural developments, such as the sizeable population, relatively low insurance penetration rate and rapidly growing Internet penetration rate.

There were also more exits across a more diverse range of acquirers in 2023, signalling a maturing market with growing liquidity, EY said.

In 2023, the sector had three mergers and acquisitions (M&As), two secondary transactions and one initial public offering (IPO).

EY noted that IPOs have emerged as a viable strategy. 

In 2023, automated motor claims processing platform BlueVenture Group listed on the Stock Exchange of Thailand (SET). The pipeline also “appears promising” with online finance supermarket Silkspan on the SET, and possibly Bolttech on Nasdaq.

Private equity and venture capital investors fuel the deal market in terms of deal count. They are looking into insurance brokers or distributors, potentially driven by the short supply of other more complex business models, the report said.

Meanwhile, strategic players – such as tech unicorns and traditional financial services providers – are investing at a lower frequency, but are primarily doing so to expand their product offerings and enhance customer stickiness.

Vardhan noted a shift in the investment landscape and focus of insurtech companies. 

He said: “While the allure of rapid top-line growth and customer acquisition has been a driving force in the past, insurtech firms must now balance scalability with financial prudence to attract investment.” 

*Amendment note: A previous version of this article gave a figure of US$2 billion for the SingLife deal. SingLife has said this figure is incorrect.