The global Insurtech sector witnessed a significant rise in funding throughout the second quarter of 2024, amounting to US $1.27 billion, marking the highest levels of funding seen since the first quarter of 2023, according to latest findings unveiled by reinsurer Gallagher Re.
Q2 2024 saw AI-centred Insurtechs obtain a grand total of $445.81 million in funding, with early-stage organisations receiving 17 out of the 21 deals.
However, the average size of AI InsurTech deals was smaller compared to non-AI deals during the period, Gallagher Re highlighted.
Moreover, early-stage InsurTech funding also experienced a notable increase during the quarter, reaching a total of $377.60 million, the highest level since Q1 2023.
From what we understand, the average deal size rose to $18.46 million, the highest level since Q3 2022, which clearly indicates “a growing appetite” for larger investments in the industry.
Gallagher Re explained that the increase in funding can be attributed towards a near doubling of average deal sizes.
It’s important to note that the overall results for the first half of 2024 are $124 million short of the results achieved in the first half of 2023.
Additionally, Gallagher Re stated that B2B Insurtechs received a higher share of deals in both Property & Casualty (P&C) and Life & Health (L&H) Insurtech’s in Q2 2024.
However, despite the surge in funding seen throughout the quarter, the overall InsurTech deal count in Q2 2024 was the lowest since Q2 2020, which suggests a shift towards larger, more impactful investments.
AI-centred Insurtech’s reportedly received a third of the deals in Q2 2024, while risk-focused Insurtech’s secured 40% of the deals.
The reinsurer explained, that since 2012, AI-centred Insurtech’s have received approximately 16% of all capital invested in the industry.
Dr Andrew Johnston, Global Head of InsurTech at Gallagher Re, commented: “The application of AI to risk functions, such as pricing and underwriting, offers significant potential, but as the industry continues to embrace AI, it must also address the regulatory challenges associated with its implementation.”
It’s no secret that AI is making a major impact across the industry, as the technology is able to provide new insights by analysing previously inaccessible data sets, such as property roof conditions or flood plain locations.
As well as this, AI’s analytical capabilities also allow for the identification of links and correlations between large data sets, which ultimately helps lead towards more accurate pricing and risk assessment across the insurance sector.
Johnston, added: “While AI tools have been successfully applied to pricing, underwriting and portfolio management, completely delegating underwriting to AI has had limited success The most promising approach seems to be combining human expertise with AI tools in underwriting and pricing.”
Furthermore, Gallagher Re stated that both machine learning (ML) and advanced analytics, have the potential to revolutionise re/insurers’ risk functions, including pricing, underwriting and portfolio management, while ML-driven portfolio management tools can play a vital role in identifying profitable segments and manage singular event losses.
But, the firm warns that challenge lies in the “black box” nature of ML technologies, concluding that, by working with AI vendors to increase internal transparency, actuaries can make more informed decisions and provide more precise and transparent risk pricing.
