InsurTech investments dropped ‘dramatically’ in 2022 as venture capitalists focus on profitability
At $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.
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.
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.”
Exodus of investors
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 $4.63m.
The figures underlie a year of macro-realism for individual InsurTechs and micro-hardship for investors in the sector, the report observes.
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.”
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 $200m, but US companies, at $4 billion, received 35% more investment than the next six countries combined.
Climate transition offers opportunity
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 the 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.”
In reviewing the protection gap, and looking to the future role parametric coverage is likely to play in our industry, Antoine Bavandi, Gallagher Re’s global head of the Public Sector, Parametric & Climate Resilience Solutions practice, 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.”