The number of insurtechs operating globally has contracted by around a third in three years as Gallagher Re says the insurance industry’s “narrative around disruption is truly over”.

For full-year 2022, insurtech investment halved to $US7.9 billion ($11.41 billion) – a “dramatic drop” and the first year-on-year decline since 2016 as mega-round funding dropped by over $US6 billion.

Gallagher Re estimates that of nearly 3000 global insurtechs at the end 2019, just 2050 are now actively open for business. For a number of reinsurers, insurtech capacity allocation is “simply not a risk worth taking,” Global Head of Insurtech Andrew Johnston says.

“As rates harden, insurance capacity simply becomes a more expensive sought-after commodity and frankly most insurtechs were either ill-prepared for this scenario, or simply did not understand the industry well enough to model for it and respond appropriately,” he said.

The global technology sector has seen around 120,000 layoffs across 800 firms in six months, and insurtechs are not immune.

"Staff layoffs have been profoundly visible, especially with better known insurtechs,” Mr Johnston said.

In the fourth quarter, global insurtech investment plunged to $US1.01 billion ($1.46 billion), down 57% from the third quarter, the latest Global Insurtech Report says. The number of deals dropped to 106, the lowest in two years.

Average deal size was down 42%, and mega-round funding fell 90% quarter on quarter to just $US153 million ($221 million) during October-December.

Australia had nine insurtech deals last year worth $US219.3 million ($316.76 million), including Cover Genius and Sydney-based Butter in the fourth quarter. Sydney-based Employment Hero’s $183 million deal was the 12th largest globally for 2022.

The largest deal worldwide was Germany’s wefox, which is one of the world’s 42 insurtech unicorns, a term for startups that reach a valuation of a billion dollars.

Mr Johnston says 2016-2019 had been “awash with insurtechs telling the industry to brace itself for the cataclysmic revolutionary forces it was preparing to unfold,” and 2020 and 2021 saw “spectacular raises and blessings of unicorns”.

Last year “brought the reality of the issue back to down to earth somewhat,” he said.

“Many insurtechs tried to unpick the traditional value chain and put it back together in an even more convoluted and complex way. This failed experiment, for the most part, has provided new insurtechs with many cautionary tales.”

Around $US50 billion ($72.22 billion) has been invested in insurtechs since 2012, with half focused on distribution and the rest roughly split between full-stack insurer model and B2B technology vendors.

See the report here.