Observers of global funding trends in the insurtech sector are at risk of whiplash after recent highs and lows, as reported every three months in Gallagher Re’s Global InsurTech Report.

New funding rebounded 38% to $US1.39 billion ($2.06 billion) in January to March. It was a remarkably sharp turnaround from the fourth quarter, when funding dived 57% to its lowest since the first three months of 2020. 

Last year, the buoyant sector was sent sharply back down to earth as investor confidence dried up, triggering widespread and significant cost cutting and revamped business strategies, and a “lot of companies that did not make it through”.

Gallagher Re’s latest report explains that while much was made of last year’s plunge in investment  — “Are investors pulling back for good? Will company valuations ever return to their 2020/2021 levels?” – the true story is perhaps under-recognition of the “lumpiness” that mega funding (rounds of at least $US100 million) inflict on the numbers.

“Somewhat astonishingly, if we consider all deals from 2012 onwards, 51% of all capital invested into insurtech has come from mega-rounds … from only 4% of the total number of deals done,” Global Head of InsurTech Andrew Johnston says.

Gallagher Re is confidently predicting 2023 will be the beginning of a “new era” for insurtech after its “broad-based reset in 2022”. The sector is at a juncture where founders are realising their businesses will “need to pull the plough themselves,” reliant on only their own capabilities and revenues, without the “luxury and solace” of third-party capital.

“We seem to have truly met this point in time which poses both sides with a huge opportunity,” Mr Johnston said. “The world has found its groove again, now is the time to focus on making all of this promise happen.”

In the first quarter, average deal size was up by a quarter on steady deal count, and mega-round funding accounted for only 13% of the total, the lowest in three years.

Property & Casualty insurtech funding drove the quarterly investment increase, as it surged by more than 53%, and the average early-stage deal was up by 28%. The majority of investments went to these early-stage rounds, a trend now observed for six consecutive quarters. 

In 2021, two “monumental quarters” of 28 mega rounds raised a whopping $US7 billion ($10.36 billion) for Integrity Marketing Group, Devoted Health, wefox, Bought By Many, Collective Health, Extend, Acko General Insurance, Alan, Shift Technology, Clearcover, Ethos Technologies, CarDekho, Yuanbao, The Zebra, Hibob, SmartHR, HealthCare.com, Alice, PayMaya, EIS Group, Embroker, Friday Health Plans, Hyperscience, Slide Insurance, Wrapbook, H2O.ai, Sure and Ladder.

That made up 62% of 2021’s funding, while last year only 41% of funding came from mega-rounds. 
"We are still dealing with numbers that can be significantly impacted by a handful of individual deals,” Mr Johnston said. “A handful of standalone deals can, and do, have an enormous impact on the overall totals.” 

Gallagher Re now expects gently rising insurtech funding and says a “significant upside” is seeming genuine willingness of many insurers, brokers and agents to adopt technology. 

“The pressure is therefore on insurtechs to make their businesses palatable and value-adding,” Mr Johnston said. “Generally speaking, ideas and technologies have to be acceptable to the community of which they will one day be a part if they are to succeed.” 

See the report here.