Despite insurtech funding drop, stakeholders optimistic about way forward

While funding for insurtech companies has generally declined in Q1 2024, sector stakeholders suggest it is more of a balancing out than a cause for concern.

Joel Albarella, Head of NYL Ventures, the venture capital arm of New York Life Insurance Company, described it as a “healthy reset” that will benefit the industry broadly.

“I think 2022 and 2023 have certainly been reset years, correction years for fintech, more broadly,” he said. “It’s a healthy reset here, where we can get back to basics, back companies that are solving real problems, driving real ROI for the industry, and it’s an exciting time to be an insurtech investor.”

“The general consensus seems to be that insurtech is entering into a more mature phase of development, which is a good thing for everyone, including consumers,” Chase Allen, SVP, Quility B2B, added.

While most insurtech stakeholders acknowledge that insurtech is, in a sense, “bouncing around on the bottom” of the most recent funding bubble, optimism about the sector’s future investment potential remains.

Insurtech funding nearing record lows

According to Gallagher Re’s Global InsurTech Report for Q1 2024, the insurtech sector is seeing some of its lowest funding figures in years.

Global funding fell to USD $912.25 million and quarterly funding is down 17.3% — the lowest levels since Q1 2020. For the first time since Q3 2017, there have been no quarterly mega-round deals over USD $100 million.

“There continues to be plenty of capital infused into the insurtech space, but the overall injection dosages have gotten smaller,” Allen noted.

Albarella said the trend seems to match the general trend in the broader venture and startup ecosystem. However, he described this as a positive balancing out after periods of abnormally high, “unsustainable” funding levels and deal volumes.

“Valuations now make a lot more sense than they did in 2021, when investors were throwing money at the industry and pursuing a growth-at-all-costs mentality,” Sarah Kim, partner, Centana Growth Partners, said. “That approach does not work in insurance and leads to adverse selection and misalignment of interests with agencies, brokers, customers and carriers, which is unsustainable.”

Trend: shift in investor sentiment

Industry experts believe the decline in investment is due, in part, to investors becoming more focused on a return on investments instead of solely on insurtech’s novelty and potential.

“I think part of the rapid expansion was a belief, and maybe this is something that’s proving to be less true, that insurance could be a technology company first and an insurance company second,” Albarella said.

He noted that a low interest rate environment drove demand, and firms that had not traditionally invested in venture suddenly got involved. Now, however, many bandwagoner investors are making their exit — and some experts see that as a positive.

“We see great opportunities now that the tourists and generalists have pulled back,” Kim said. “Founders are more disciplined now. Those who understand the space and the industry's needs are still very engaged.”

Insurtech on its ‘second wave’

At the same time, stakeholders believe insurtech itself has shifted from being primarily a “disruptor” of traditional insurance to partnering with and better enabling all the players in the industry.

“I think there’s two separate trends here. There’s wave one, being disruption, here for life insurance, and then wave two being a little bit more practical and collaborative,” Albarella said.

“Insurtech seems to still be associated with ‘digital disruptors,’” Jeff Kroeger, president, Insureon, added. “Specific to distribution, a lot has changed on that front in the last 10 years, as most direct-to-consumer agencies have either failed, been acquired by larger brokers, with mixed results, or converted into carriers themselves.”

“While the insurance industry definitely needed to evolve and become more efficient, I think the lesson learned for a lot of companies and investors was that you can’t just take a technology platform and use it as a direct replacement for what agents have done for a few centuries now,” Allen added.

Sustained interest in AI

One of the areas where insurtech has defied the general downwards trend is in artificial intelligence. As Gallagher reports, 28% of the Q1 2024 insurtech deals went to AI-centered insurtechs, which raised USD $316.06 million in funding. However, the report also pointed out that AI-centered insurtech only saw a slightly higher average deal size than the overall insurtech industry for Q1 2024.

Nonetheless, most stakeholders are optimistic about the potential of AI investments in insurtech.

“There is still plenty of room and need for insurtech investment, as even the most human-forward insurance agency will have to adapt by providing their clients with the best and most secure technology platforms available if they want to stay relevant,” Allen said.

“As the market continues to mature, the next phase of insurtech innovation will likely focus on emerging technologies, such as new datasets, AI models and tools and sensors to enhance various aspects of the insurance process, creating more efficient, risk-aware and user-friendly solutions,” Kim added.

NYL Ventures, founded in 2012, is New York Life’s corporate venture capital arm that invests in and partners with starts-up that assist in powering innovation across the company.

Quility Insurance is an insurtech operating platform and digital marketplace founded in 2020. Its B2B arm provides insurtech solutions to independent agents.

Centana Growth Partners is a global equity fund and investment mandate founded in 2015.

Insureon, founded in 1997 and acquired by HUB International in 2022, is a digital, independent marketplace for small business insurance.

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Rayne Morgan is a journalist, copywriter, and editor with over 10 years' combined experience in digital content and print media. You can reach her at [email protected].