Global InsurTech Funding Decreased Slightly in Third Quarter

Global InsurTech funding decreased 2.5 percent quarter on quarter during the third quarter of 2022 from $2.41 billion during the second quarter to $2.35 billion in the third quarter, according to the third-quarter 2022 Gallagher Re Global InsurTech Report.

Property-casualty InsurTech funding gained, however, during the third quarter, Gallagher Re reports. Meanwhile, early-stage InsurTech funding increased 48.1 percent quarter on quarter, the second-highest deal quarter ever.

(Re)insurers made 24 InsurTech investments during the third quarter, with 2022 projected to reach a 3-year high this year, Gallagher Re says in the November 1, 2022, report.

The size of the average InsurTech funding deal also decreased quarter on quarter, the report says, dropping 7.6 percent from $22.11 million in this year's second quarter to $20.42 million in the third quarter.

According to Gallagher Re, the third quarter's funding decrease was the result of a 36.9 percent quarter-on-quarter decline in life and health (L&H) InsurTech funding, dropping from $917.85 million in the second quarter to $579.19 million in the third quarter. The average deal size for L&H InsurTechs fell 38.6 percent quarter on quarter, from $24.81 million in the second quarter to $15.24 million in the third quarter.

Funding for property-casualty InsurTechs increased 18.8 percent quarter on quarter, from $1.49 billion in the second quarter to $1.77 billion in the third quarter, the report says.

The average deal size for property-casualty InsurTech financings also increased quarter on quarter, from $20.73 million in the second quarter to $22.97 million in the third quarter, Gallagher Re reports. The number of property-casualty InsurTech deals did fall in the third quarter, however, to 89 from 92 the prior quarter.

While global funding decreased in the third quarter, there was a 6.1 percent increase in the number of individual funding deals quarter on quarter, Gallagher Re says, with 140 deals in the third quarter versus 132 in the second.

The 48.1 percent increase in early-stage funding saw that funding go from $368.26 million in the second quarter to $545.35 million in the third quarter, the report says. That substantial increase in early-stage InsurTech funding was consistent across both property-casualty and life and health, Gallagher Re says.

Property-casualty early-stage funding increased 48.3 percent in the third quarter to $399.51 million from $269.43 million a quarter earlier. L&H early-stage funding increased 47.6 percent in the third quarter to $145.84 million from $98.83 million in the prior quarter. Despite the quarter-on-quarter increase in early-stage funding to InsurTechs across both sectors, early-stage InsurTech funding is still down 13.5 percent year on year, Gallagher Re says.

The number of early-stage InsurTech funding deals increased 21.4 percent quarter on quarter, from 70 in the second quarter to 85 in the third quarter, according to the report. Gallagher Re says the increase is largely the result of a 63.2 percent increase in early-stage L&H deals, rising from 19 in the second quarter to 31 in the third. This year's third quarter set a quarterly record for the most early-stage life and health InsurTech funding deals, Gallagher Re says.

Early-stage property-casualty InsurTech funding deals also experienced a slight quarter-on-quarter increase, the report said, with 54 deals in the third quarter versus 51 in the second. Early-stage property-casualty deals also increased 49.1 percent year on year, Gallagher Re says, with this year's third quarter tying this year's first quarter for the second-most early-stage property-casualty InsurTech deals. The current record remains 93 such deals during the second quarter of 2021.

(Re)insurer InsurTech investment activity is on pace to exceed both 2020 and 2021, the report says, with this year's third quarter seeing 24 corporate InsurTech investments from (re)insurers. The third-quarter activity brought the 2022 total to 85 (re)insurer InsurTech investments, with an average of 28 per quarter, Gallagher Re reports.

The last 2 years saw 96 such investments in 2020 and 107 in 2021, so if the current pace continues, 2022 could top those totals with 113 corporate InsurTech investments, Gallagher Re says. Such a development would be "A sure sign that our industry has not lost hope in the power of what InsurTechs have to offer, despite so many of them struggling in this current environment," the report says.

The third quarter also saw the highest percentage of "seed" or "angel" corporate InsurTech investments from (re)insurers since the fourth quarter of 2015, Gallagher Re says. Those start-up investments represented 29.2 percent of the quarter's total, up from 17.9 percent of all investments made by (re)insurers in the second quarter.

MassMutual Ventures led corporate venture activity among (re)insurers in this year's third quarter with six investments, Gallagher Re reports. Other (re)insurers making multiple investments during the third quarter were Allianz X, American Family Ventures, AXA Venture Partners, CNP Assurances, Northwestern Mutual Future Ventures, and SiriusPoint.

Notable (re)insurer-InsurTech partnerships during the third quarter included Allianz and Broker Insights, Markel and PathPoint, Swiss Re and Cowbell Cyber, and QBE and Zego, the report says.

In a preface to the third-quarter report, Dr. Andrew Johnston, global head of Gallagher Re InsurTech and the report's editor, notes that many InsurTechs are not directly involved in risk origination. But, he wrote, a growing number are offering products, services, and solutions that either support incumbents in originating and managing risks or are directly involved in the process of pricing, risk selection, and portfolio optimization, often as managing general agents (MGAs).

"The MGA model for new businesses is in fact a very sensible one, especially for those who do have a demonstrable edge that will differentiate and scale over time but which do not have access to tens of millions of dollars in the short-term," Dr. Johnston wrote. "It is an opportunity to perfect the underwriting, establish yourself in the market, develop a brand and help risk partners to grow organically (which can in turn lead to very deep reinsurance relationships further down the road). The model effectively allows for outsourcing all balance sheet requirements, allows a company to stay balance sheet light, and allows for limited/no restrictions on risk-based capital charges."

Such an approach, he suggests, could be a natural evolutionary path for some of these InsurTech MGAs to eventually become risk bearers themselves.