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Macro-realism, micro-hardship for InsurTech as annual global funding plummets by half

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Topics: InsurTech Topical Trends

First instance of a year-on-year decline in investment since 2016. Narrative around disruption ‘truly over’ – Venture capitalists are focused on profitability and well-understood KPIs

At USD $1.01 billion, global InsurTech investment fell in the fourth quarter of 2022 to its lowest quarterly level since Q1 2020, and declined 57.0% from the third quarter of 2022, according to the Global InsurTech Report from Gallagher Re, the global reinsurance broker, published today.

InsurTech funding in Property & Casualty (P&C) for Q4 2022 slumped 64.4%, to $630.16 million, while total Q4 investments in Life & Health (L&H) fell 33.7% to $383.76 million. Average deal size across 106 rounds declined 42.3% to $11.79 million. The performance drove annual total funding for 2022 down by 49.5% from 2021, to $7.98 billion. Notably, InsurTechs attracted $6.51 billion less in mega-round funding – a 66.7% year-on-year drop.

Early-stage funding declined less dramatically, falling 25.1% quarter-on-quarter to $408.27 million in Q4, driven by a 51.3% drop in early-stage P&C funding over 50 deals averaging $4.63 million. Despite the overwhelming trends, early-stage L&H funding actually increased in Q4, by 46.5% to $213.64 million, driven by four deals greater than $40 million. The figures underlie a year of macro-realism for individual InsurTechs and micro-hardship for investors in the sector, the report observes.

Dr Andrew Johnston, Global Head of InsurTech at Gallagher Re, says: “At the end of 2019, we estimated the total number of InsurTech businesses globally at 3,000, but now only about 2,050 are actively open for business. Meanwhile, venture capitalists are focused on profitability and well-understood KPIs. Capital is available, but investment dropped dramatically in 2022 from 2021, with 2021 arguably marking the ‘peak of expectations’. The most significant feature of 2022 is that the narrative around ‘disruption’ seems to be truly over.”

A small number of individual businesses have done remarkably well, according to Dr Johnston, all of which treat the industry as a community. “2022 has prompted an exodus of third-party capital providers, causing the sector to refocus on the real prize: wider adoption of appropriate technology to make the entire process of insurance more efficient, cost effective, and less complex leading to an improved customer experience.”

Over the course of 2022, Gallagher Re’s quarterly Global InsurTech Reports have focused on specific geographies. The Q4 report provides a global overview of InsurTech trends, and collates a list of 2022’s InsurTech investment frontrunners. Leading with the highest number of individual deals is Y Combinator, with 17 rounds completed. Gaingels and Anthemis take joint second place with 12 deals each. Plug and Play Ventures were ranked third with ten deals.

In terms of total investment value, the ranking is rather different. Greycroft tops the list, having invested $699 million over nine transactions during the year. Next is OMERS Ventures with $592 million recorded, including a share of Q4’s only mega-round, for Clearcover. Third comes Allianz X, with $565 million across three deals. Allianz X was an investor alongside Greycroft in Pie’s September round, and in Coalition’s $250 million round earlier in the year. Acrew Capital and Anthemis also deployed amounts in excess of $500 million into 2022 InsurTech investments.

The top seven recipient countries for InsurTech investment in 2022 were the US, the UK, Germany, France, India, Israel, and Australia, all of which topped $200 million, but US companies, at $4 billion, received 35% more investment than the next six countries combined.

The Report also includes case studies of the InsurTechs Cowbell, a full-stack cyber insurer; the distributors Emmi, which help companies integrate carbon value into financial portfolios, and Raincoat, a parametric natural catastrophe calculation agent; Altelium, a B2B service provider, which provides analytics to support battery insurances; and Yokahu, a digital MGA that offers parametric natural catastrophe cover to consumers.

The Report’s ‘Deal of the Quarter’ probes Bolttech, whose stated mission is to build the world’s leading, technology-enabled insurance ecosystem. Bolttech opened a Series 2 round in 2022 which will take its valuation to more than $1.5 billion. This quarter’s ‘Specialist View’ is written by Alexander Choniski, Gallagher Re’s Head of Embedded Insurance, who delves into this hot topic and unveils Emmersa, Gallagher Re’s latest embedded InsurTech offering.

Thought Leadership on the hot topic of climate, science, and ESG is delivered by Gallagher Re’s Ed Messer, Head of UK Analytics, and Steve Bowen, Chief Science Officer, who share their expert views on the current and future role of these subjects in our industry. They write: “The carbon market will be worth more than $2.4 trillion by 2027, reflecting huge increases in both mandatory and voluntary carbon transfer. This will create a large number of new risks associated with underlying carbon sequestration projects, their certification, and the financial risks associated with any new market. The insurance industry will play a pivotal role in facilitating an orderly transition to net-zero.”

‘Investor Corner’ is contributed by Ruth Foxe Blader, partner at Anthemis, one of 2022’s leading InsurTech investors, who shares her observations on the changing market. The feature ‘Driving Change’ provides insights from Antoine Bavandi, Gallagher Re’s global head of the Public Sector, Parametric & Climate Resilience Solutions practice.

In reviewing the protection gap, and looking to the future role parametric coverage is likely to play in our industry, he says:

“Strengthening financial resilience and reducing the protection gap globally call for larger measures and stronger incentives. They require conditions that allow all parties and partners involved in the resilience and risk ownership chain to align interests, and benefit from mutual contributions. Well-targeted, multi-stakeholder, public-private partnerships and risk-sharing facilities can create these necessary conditions to help overcome various constraints.”

View the full report here.

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