New funding for the global insurtech sector surged in Q1 after hitting a multi-year low in Q4 2022
New funding for the global insurtech sector increased to $1.39 billion during the first quarter of 2023, according to a new report from Gallagher Re.
That’s an increase of $1.01 billion in the fourth quarter of 2022, the lowest quarterly total since the first quarter of 2020.
The average deal size increased 25.3% in the first quarter of 2023, although the number of deals remained flat, according to the latest report from Gallagher Re. Global InsurTech Report. Mega round funding accounted for just 12.9% of the total, the lowest level since Q1 2020.
The quarterly investment increase was driven by P&C insurtech funding, which soared more than 53% to $967.89 million, according to the report. Life and health funding also rose, risking 9.65 to $420.73 million.
Total early-stage funding was $423.59 million, although early-stage L&H funding fell 44.3% from Q4 2022 to $119.04 million. The average early-stage deal increased 28% to $8.31 million.
Most of the (re)insurers’ investments were for early-stage rounds, a trend that has now lasted for six consecutive quarters, according to the report.
The funding totals indicate that 2023 may see a return to more “normal” levels of insurtech funding seen prior to 2021, when 62% of investments were made via mega-rounds, compared to 41% in 2022. said Gallagher Re.
“2023 may usher in a new era for insurtech,” said Dr. Andrew Johnston, global head of insurtech at Gallagher Re. “2021 certainly marked the peak of funding, driven by the uncertainty of COVID-19 and a crescendo that occurred organically. The sector came back down to earth in 2022, leading to some serious restructuring, cost-saving actions, and new business strategies. Many companies did not.
“Founders are now thinking about sustainability and long-term growth, realizing that their businesses will have to pull the plow themselves, depending on their own capabilities and income,” Johnston said. “A significant advantage appears to be the genuine willingness of many (re)insurers, brokers and agents to adopt technology. So the pressure is on insurtechs to make their business acceptable and to add value.”
The first quarter edition of the Global InsurTech Report is the first of four reports in 2023 that will focus on the stages of the insurtech funding lifecycle:
- Early Stage Incubation Rounds (Angel, Convertible Note, Pre-Seed, Seed, and VC Seed)
- Early Stage Acceleration Rounds (Series A)
- Mid-Stage Expansion Rounds (Series B and C)
- Late-stage growth rounds and exit views (series D, E+, growth capital, PE, exits and corporate majority)
The first quarter report includes several case studies of insurtechs whose most recent round of funding fits the incubation criteria, Gallagher Re said.
“Despite the rocky financial performance of insurtechs, they have continued to successfully attract funding, partly driven by performance-chasing investors, but also by technology-oriented investors applying tech-style valuations and funding philosophies,” Deepon said. Sen Gupta, Global Head of Strategic Advisory, Gallagher Re. “However, investors are increasingly focused on getting a return on their capital and understanding payback periods. Instead of just being mesmerized by the size of the total addressable market, they are now eager to see a genuine need for an insurtech to exist.”
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