Global InsurTech Funding Recovered Somewhat in Second Quarter

Global InsurTech funding experienced something of a recovery during this year's second quarter, increasing 8 percent over the prior quarter to reach a total of $2.41 billion, according to the second-quarter 2022 Gallagher Re Global InsurTech Report.

The second quarter's funding growth was a significant improvement from the 58.0 percent drop in funding InsurTechs experienced during the first quarter, the report says. InsurTech funding is down 50.2 percent year on year, however, the August 2022 report notes, with last year's second quarter seeing a record $4.84 billion in InsurTech funding.

The average deal size increased 18.3 percent in the second quarter, Gallagher Re reports, to $22.11 million from $18.72 million during the first quarter. The growth in the average deal size was offset by a 7.7 percent decrease in the total number of deals done during this year's second quarter, the report says, with the second quarter seeing 132 InsurTech deals, down from 143 in the first quarter.

Funding for property-casualty InsurTechs increased 5.9 percent in the second quarter from its first-quarter level to $1.49 billion. The number of property-casualty InsurTech deals was down, however, to 92 in the second quarter from 106 in Q1. The bulk of second-quarter property-casualty deals were focused on distribution and business-to-business, the Gallagher Re report says.

Total disclosed funding for early-stage InsurTech funding was $368 million in the second quarter, a 44 percent drop from the first quarter and a 26.1 percent decrease from the same period in 2021. Gallagher Re attributes the decline to a 53.7 percent quarter-on-quarter decline in early-stage property-casualty InsurTech funding, to $269 million in the second quarter from $582 million in the first quarter.

US-based InsurTechs were involved in the most funding deals during the second quarter, with the 60 US deals representing 45.5 percent of the global total, according to the report. Insurers and reinsurers made 28 InsurTech investments in the second quarter, 5 fewer than in the prior quarter. Still, the 61 investments by insurers and reinsurers during the first 2 quarters of this year top the total of 48 during the first half of 2021.

In the report, Dr. Andrew Johnston, global head of Gallagher Re InsurTech and the report's editor, notes that the turmoil being experienced in global stock markets thus far in 2022 is certainly having an impact on both InsurTechs and InsurTech investors.

"As the global market has waned, the InsurTech ecosystem has met a very interesting juncture; at a macro-level, be swept up in the downgrading of public value, or represent a viable investment alternative to an investor's portfolio that is otherwise being dragged into generalized bearishness; and at a micro-level, either capitalize on the availability of lower-priced assets or struggle to survive," Dr. Johnston writes.

He notes that historically, emerging technology companies in most industries have been hit hard in the early stages of economic downturns. "This is not unique to InsurTech but is particularly pronounced in any technological boom where valuations have been especially frothy—which for InsurTechs, this has certainly been the case," he writes.

Until now, investments in InsurTechs have outpaced the overall growth of the stock market, Dr. Johnston notes.

In the current environment, InsurTechs can still offer investors viable investment alternatives, the report's editor suggests, with InsurTechs positioned to offer long-term growth and profitability, providing an opportunity to diversify portfolios.

"In our midst are a number of InsurTechs who will undoubtedly change the face of (parts of) our industry (and in some cases, most are already doing so)," Dr. Johnston writes. "As the markets begin to recover and individual businesses are released from the bog of generalized skepticism, those InsurTechs should rise to the surface with the utmost buoyancy."

Dr. Johnston notes the challenging issues many InsurTechs are intended to help address. For example, as natural catastrophes become more frequent and more severe, InsurTechs helping to underwrite flood, wildfire, named storms, and climate change risks are positioned "to distinguish themselves as companies for the future."

"We have already seen the impact that InsurTechs are having on delivering value in cyber and small and medium-sized business product delivery," he writes. "The case is the same for potential around electronic vehicles, and of course no contemporary commentary on this topic would be complete without a nod to ESG [environmental, social, and corporate governance]-related matters (although our industry is still a far way off defining what they mean by this in any kind of meaningful manner—that can be consumed by the masses)."

While emphasizing InsurTech opportunities, Dr. Johnston also suggests that it's necessary to acknowledge the very real impact of the current market downturn on some individual businesses.

"While company cessation, layoffs, revised growth targets have always existed, this most recent downturn in market performances has led to some fairly high-profile InsurTechs announcing significant staff layoffs," Dr. Johnston writes. He cites the example of one InsurTech that announced a 30 percent staff layoff in May, despite raising $50 million at the end of 2021, and another that announced its own layoff after doubling its funding to $250 million just 2 months earlier.

"This could of course be coincidental, but given the increased number of other InsurTechs announcing layoffs and the shutting of doors, there is a sense that for many InsurTechs, the last few months have been a real struggle to deliver what was once expected," Dr. Johnston writes.