Freddie Scarratt, deputy global head of insurtech at Gallagher Re, said that while artificial intelligence (AI) accounted for 28% of first-quarter 2024 funding, the adoption curve for its pricing is longer than anticipated.
When asked about the impact of generative AI in revolutionizing insurance during an interview with AM Best, Scarratt said that the transformation is still in its early stages. He highlighted claims and fraud as areas where C-suites see significant returns on investment.
“Some of the areas we thought were really interesting was in the claims and fraud area, that seems to be where c-suites are seeing the most amount of return on their investment, companies such as Shift Technologies, and we are seeing that really come in and be used, especially in the London market, as well as here in the US. It just seems an area where people need to be prepared to take risks and take that big step forward, as there is absolutely going to be applicability for that sort of technology moving forward,” he said.
Gallagher's Q1 Insurtech report, which focuses on AI, addresses several challenges the reinsurance industry faces in implementing AI. Scarratt pointed to data accuracy as the top concern, noting the importance of structured data for AI technologies.
“And a couple of the other challenges around that is, are there any biases within that data? And it's something we're really conscious of. You need to have good data and you need to know where it's from and how it's going to take effect,” he said.
“And the reason that's so important is, as personalization of pricing comes into the market, which we expect to with AI and gen AI, again, a topic we discussed in the panel, we are very worried about the uninsured customer. If personalization of pricing comes to such an extent that people fall outside, what happens to those risks which are esoteric or cannot be covered,” Scaratt said.
The report also noted that global insurtech funding fell to its lowest level since the first quarter of 2020, dropping below $1 billion. Scarratt attributed this to the absence of mega-round funding, with no single company receiving $100 million or more.
“That said, it has since 2021 been coming down year on year investment numbers. Part of that is because of a reset in valuations, which you've seen since the peak in '21. So really, I would say it's a continuation of what we've been seeing over the past year, but also an effect of those mega-round fundings,” Scaratt said.
Scarratt highlighted that AI funding made up 28% of Q1, with AI deals averaging $2 million more than non-AI insurtech deals.
“We expect that to increase. By that, what I mean is, those companies who don't have AI products will soon be bringing them out, and those who do are going to make a much bigger song and dance about it. AI isn't new but people are sure making a big song and dance about it,” he said.
Regarding the role of AI in insurance and reinsurance, Scarratt discussed its application in distribution, personal lines, chatbots, embedded insurance, and analytics. He noted that while AI has not yet significantly impacted pricing due to the importance of human underwriting, its adoption will eventually drive substantial changes in the industry.
“The adoption curve is going to be longer than I think people expect, but the AI pricing is going to move forward and it's going to be really powerful [in] our industry,” he said.
Scarratt also observed a positive trend of increasing corporate venture capital investments in insurtech. He noted that 2023 saw the highest number of such investments, with Q1 2024 continuing this trend.
“So, I think we had 150 single investments last year and 14 Q1s. We're definitely on trend there and the more people with a real understanding of our industry invest in our industry. I think that's an only positive force going forward,” Scaratt said.
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