Quarterly insurtech funding back above a billion US dollars
Global insurtech funding jumped to $US1.1 billion ($1.69 billion) across 119 deals in July to September.
That was up 20% from the previous three months, when there were 97 deals. The figure is still well down from $US2.35 billion ($3.66 billion) a year earlier.
Global Head of Gallagher Re Insurtech Andrew Johnston says the insurance startup sector is moving through a "crucial inflection point” from the “great experiment” into sustainable, profitable business outcomes through “precision, not volume”.
“The inflection point for many is to ensure that the great technology-enabled business ideas are housed in sustainable businesses that are being managed and checked properly,” he said, and the third quarter provided "some very thought-provoking examples of what this change looks like at an individual company level”.
“Insurtech still represents a very feasible solution to remaining technologically relevant but also as a driving force for value-adding change and sustainable business models.”
Average deal size dropped to a six-year low of $US10.3 million ($15.81 million) in the third quarter, and US-based insurtechs made up 56% of deals. Boston-based homeowners insurance platform Openly and San Francisco cyber platform Resilience each raised $US100 million ($153.51 million).
P&C insurtech funding jumped 26% quarter on quarter to $US931.32 million ($1.43 billion) on 90 deals.
Insurers made 34 insurtech investments and 2023 currently stands as the year with the highest number of insurer/reinsurer investment deals to date, with partnerships such as QBE and Converge, Axa Hong Kong and CoverGo, Hiscox and FloodFlash, Manulife Financial and League, and Nationwide Mutual Insurance Company and Hourly.
Munich Re Ventures backed Paris-based Stoik, Seattle-based Inspectify, and Munich-based Fernride.
"This upward trend of insurer activity is surely a signal that carriers are increasingly seeing the insurtech investment opportunity. As a relative percentage, insurers are now more active as investors than they ever have been,” the report said.
Mr Johnston says contemporary insurtechs can support better risk selection, portfolio optimisation, use of more relevant data, and better engagements with digitally-native consumers – but “the chances that insurtech, or technology more generally, is going to miraculously reduce operating costs in isolation and allow insurers to offer premium reductions will always be limited”.
Insurtechs should focus on targets that are accretive to the ultimate goals of the industry, he says, not “growth-at-any-cost type runaway train business models, and not pie-in-the-sky uses of expensive technologies with limited applications that might not have any relevance until 2123”.
Gallagher Data and Analytics Leader Don Price writes in the report that successful adoption of Large Language Model technology such as ChatGPT “is a challenge, but early evidence in our own research suggests there is value for those willing to make the investment”.
Within insurance, Gallagher says customer service, risk mitigation strategies, and the cost and risk of claims can be improved with the technology.
“From applications to emails to the insurance policy and claims documents, large language models can help summarise, interpret, and explain the content. This information can be a powerful aid to our experienced group of brokers and service agents in providing the best solutions to Gallagher’s customers,” Mr Price said.
"We have created internal websites to train employees and communicate the uses of AI. Our LLM instance, Gallagher AI, was written to provide an internal, secure environment for employees to use LLMs. Ideas for using LLMs are being sourced both from executive conversations and from the wider business.”
Gallagher is also undertaking feasibility studies for larger, complex opportunities after smaller projects such as language translation applications were developed early on for quick cost savings.
“We are optimistic our businesses will find value in adopting LLMs, but it is still too early to draw definitive conclusions. We need time to study the results, fully educate our leaders, and recognise that successful production processes may require modifications to both process and infrastructure,” he said.
“Patience is needed. Upfront investments will be required to assess the potential, develop pilots, and implement. These tools are not a revolutionary solution that can solve all problems, but at Gallagher we do see the potential for these tools to strengthen our sales and consulting experts.”