Insurtech funding slumps in 2023

Global insurtech funding dropped 43.7% year over year to the lowest level since 2018, according to a new report by Gallagher Re.

Funding went from US$8.0 billion in 2022 to US$4.51 billion in 2023, according to the Global InsurTech Report. 

“The slump in funding was driven by a year-on-year decrease in funding in both Property & Casualty (P&C) and Life & Health (L&H) InsurTech,” the report reads.  

In particular, P&C funding fell 35.4% to US$3.4 billion. 

Globally, overall deal counts also fell year over year, from 521 to 422. In P&C insurtech, the deal count tallied 316 in 2023, down from 358 in 2022.  

Canada saw six insurtech deals in 2023, and tied for seventh place globally with South Africa, Germany and Israel. In comparison, the U.S. saw the most deals for a total of 216.  

But what explains the drop in funding? Andrew Johnston, Gallagher Re’s global head of insurtech suggests a change in investment behaviour may be a primary driver.  

“Whereas 2021 was the peak of the market and described as the first phase of the InsurTech investment or the ‘great experiment,’ 2023 could be viewed as the beginning of a new phase involving a sustained change in investor behaviour,” he wrote in the report. 

“Will [cheque] sizes be smaller but not less frequent? Will mega-rounds [i.e., fundraising of US$100 million or more] become less common? Will the overall flow of deal activity continue? Time will tell, and we may one day reflect that 2023 was an overcorrection, and potentially itself an anomaly.” 

In fact, Gallagher Re reports 39.9% of all last quarter funding in 2023 went to mega-round deals — a six-quarter high. 

Regardless, this insurtech slump could potentially stem from changing market conditions, another expert added. “Economic uncertainty and rising interest rates coming out of the pandemic created a more challenging market for [venture capital and private equity] investing,” Bart Zanelli, executive vice president of Gallagher Securities said in the report.  

“In many conversations I have heard investors report that their funds are limited and that they are keeping their powder dry in terms of new investments. There is currently a preference to apply funds toward existing investments rather than newer, riskier investments.” 

Recently, insurtech investments have slowed to a thin stream, replacing the strong wave seen in prior years. In 2022, experts suggested this was due to a combination of factors, including consumer financial struggles and tough competition from more established firms.  

 

Feature image by iStock.com/gorodenkoff