Global insurtech funding on the upswing – report

New funding for the global insurtech sector rose to US$1.39 billion during the first quarter of 2023, according to a new report from Gallagher Re.

That’s up from US$1.01 billion in the fourth quarter of 2022, the lowest quarterly total since Q1 2020.

Average deal size rose 25.3% in the first quarter of 2023, although deal count held steady, according to Gallagher Re’s latest Global InsurTech Report. Mega-round funding accounted for only 12.9% of the total, the lowest level since Q1 2020.

The quarterly investment increase was driven by P&C insurtech funding, which spiked by more than 53% to US$967.89 million, the report found. Life and health funding was also up, risking 9.65 to US$420.73 million.

Total early-stage funding was US$423.59 million, although early-stage L&H funding tumbled 44.3% from Q4 2022 to US$119.04 million. The average early-stage deal rose 28% to US$8.31 million.

The majority of investments by (re)insurers were for early-stage rounds, a trend that’s now lasted for six straight quarters, the report found.

Funding totals indicate that 2023 may see a return to more “normal” levels of insurtech funding seen prior to 2021, when 62% of investments were through mega-rounds, compared to 41% in 2022, Gallagher Re said.

“2023 may be the beginning of a new era for insurtech,” said Dr. Andrew Johnston, global head of insurtech at Gallagher Re. “2021 undoubtedly marked the funding peak, fueled by COVID-19 uncertainty and an organically occurring crescendo. The sector came back down to earth in 2022, leading to some serious restructures, cost-saving actions, and new business strategies. A lot of companies did not make it through.

“Founders are now thinking about long-term sustainability and growth, and realising their businesses will need to pull the plough themselves, reliant on their own capabilities and revenues,” Johnston said. “A significant upside seems to be the genuine willingness of many (re)insurers, brokers and agents to adopt technology. The pressure is therefore on insurtechs to make their businesses palatable and value-adding.”

The Q1 edition of the Global InsurTech Report is the first of four reports in 2023 that will focus on the life cycle stages of insurtech funding:

• Early-stage incubation rounds (angel, convertible note, pre-seed, seed, and seed VC)
• Early-stage acceleration rounds (series A)
• Mid-stage expansion rounds (series B and C)
• Late stage growth and view-to-exit rounds (series D, E+, growth equity, PE, exits and corporate majority)

The Q1 report includes several case studies of insurtechs whose most recent funding round fits the incubation criteria, Gallagher Re said.

“Despite the chequered financial performance of insurtechs, they have successfully continued to attract funding, partially driven by investors chasing yield, but also by tech-oriented investors applying tech-style funding philosophies – and valuations,” said Deepon Sen Gupta, global head of strategic advisory for Gallagher Re. “However, investors are increasingly focused on obtaining a return on their capital, and understanding payback periods. Rather than just being hypnotised by the size of the total addressable market, they are now keen to see a genuine need for an insurtech’s existence.”

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