Gallagher Re’s comprehensive report into the state of the global insurtech industry outlined that while the first quarter of 2024 saw a downturn in investment, Q2 delivered a notable uptick in insurtech funding. Global investments in insurtech hit $1.27 billion, the highest level since the first quarter of 2023. Meanwhile, early-stage insurtech funding also increased to $377.60 million while the average deal size rose to $18.46 million, the highest since Q3 2022.
It’s a positive sign for a market which has been struggling to meet the expectations of investors and end customers alike. Looking at some of the challenges which have faced the sector, EIS CEO Alec Miloslavsky (pictured) highlighted how investment challenges have underscored the difference between the two forms insurtech can take – insurance companies looking to pioneer new models and technologies, and companies that sell technology across the insurance supply chain.
He noted that the 2023 funding environment represented a challenge to both – forcing the former to focus on the bread-and-butter of being an insurance company, and prompting a natural selection process among the latter. “Anyone who was in the category of a feature as opposed to an end-to-end solution came under severe pressure, and didn’t tend to do well,” he said. “Meanwhile, private players delivering end-to-end core systems to [their customer base] tended to do OK, provided they had scale.”
However, he highlighted that even for companies with the right scale, new business proved a challenge because the decision-making cycles extended even further than their always extensive length. That element doesn’t specifically reflect the finance environment as much as it does the overall sense of uncertainty in the market, he said, and the hesitancy of key decision makers.
In early 2024, those conditions started to abate, as technology providers were able to ride the wave of an improved rating environment and in the context of the insurance industry, there is still a very large runway for technological deployments. “Very little of the industry has really transformed itself,” Miloslavsky said. “The pressure is there to provide a digital experience to the client base, to modernise distribution, to add new distribution channels and to provide product diversity. None of these large secular trends have changed and that is what is driving the technology refresh cycle.”
He is cautiously optimistic about the trajectory of the global insurtech industry and expects to see some further improvements and recovery towards the end of the year. He projects that “true-blue insurtechs”, which are venture-funded, will be slower to recover because the engine behind their investment is driven by the recovery of the wider investor community. In addition, the attention is simply no longer on this corner of the market, because it has moved across GenAI.
“I would say that whoever has survived this cycle and has an end-to-end solution or a good niche will start or continue to recover, and will be somewhere between stable and thriving by the end of the year,” he said. “However, I don’t foresee a huge influx of money into startups that are aimed at insurance only.”
It’s a projection reflected in Gallagher Re’s report into the market which found that despite the increase in funding, the overall number of insurtech deals dropped to 82, its lowest since Q2 2020. The research also highlighted that one-third of the deals in Q2 2024 involved AI-centered insurtechs, while 40% focused on risk-related technologies. In addition, the number of early-stage deals fell by 21.9% to 50, the lowest since Q4 2020 – which was attributed to a decrease in seed-stage deals, which dropped from 45 in Q1 to 29 in Q2.
Identifying some of the key conditions required to support the growth of the insurtech market in the latter half of 2024, Miloslavsky emphasised that a lot of responsibility lies with the individual vendors who need to showcase success in the marketplace. They need to execute successful deployments which will signal to the market that the risk of engaging with them is palatable. The requirement for transformation isn’t going away, but companies need to demonstrate that they’re the right vehicle for that innovation.
“For us, for example, who focus on doing only one thing – selling core systems to drive large transformation programs – that means seeing those succeed and seeing some of our clients start gaining the benefits of these transformations. From my perspective, successful outcomes really are at the heart of continuing the positive momentum of the market.”
Looking ahead he noted that, in general, the lending environment and the financing environment are easing, which will have a side effect on accelerating buying cycles. “I also think that there’s a lot of pent-up demand,” he said. “People held back on investment, but you can only hold back for so long.”
