Insurtech funding witnessed a significant upswing, escalating nearly 20% to hit US$1.098 billion in the third quarter of this year. Specifically, early-stage Insurtech funding soared by almost 25%, amounting to US$269.45 million. Notably, deal shares for US-based insurers surged to their peak levels since the first quarter of 2020. However, despite these positive strides, the third quarter of 2023 showcased the smallest average Insurtech deal sizes recorded in six years. This follows a drastic decline in Insurtech funding in 2022, plummeting from US$15.8 billion in 2021 to US$7.98 billion last year. The era of ‘mega-rounds,’ where companies secured over US$100 million, faded away abruptly.
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Berlin-based digital insurer WeFox claimed the two largest Insurtech funding rounds to date, contributing to over US$3 billion in investment within the top 10. Moreover, in a recent development, NEXT Insurance secured US$265 million from Allianz and Allstate.
Andrew Johnston, Global Head of Gallagher Re InsurTech, reflects on the pivotal shift in the global Insurtech landscape. Johnston continues, highlighting the emergence of painful truths stemming from unlearned lessons during crucial phases of company evolution. He notes the repercussions of wealthy backers generously funding Insurtechs, allowing companies to take shortcuts, and disregard factors like loss ratios and customer retention. Johnston emphasizes the misalignment of metrics focused on growth and divergence, often prioritized by investors and companies alike.
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The Crucial Role of Insurtech in the Future
In the face of immense pressure on the industry, Johnston underscores the pivotal role of technology and new entrants in safeguarding the value of (re)insurance. Natural catastrophe losses have surged to a decade-high, with unprecedented losses driven by ‘sub-cat’ perils and named events. The cumulative payouts since 2017 surpassed US$900 billion, emphasizing the urgency to comprehend the escalating risks posed by climate change and other macroeconomic factors.
These Insurtech funding surges but reveal painful truths. Embracing sustainability is crucial. Technology can fortify the industry amidst rising natural catastrophe losses.