After a ‘muted’ second quarter, the third quarter has seen a good number of deals and ‘there is no shortage of capital’ says global head of insurtech
The UK has come in second in terms of the most active nations for insurtech funding in the most recent period, boasting 11 deals and $579m (£471m) of capital raised in total, according to Gallagher Re’s latest Global Insurtech Q3 2023 report.
Despite the UK’s success here, however, the US insurtech market was way out in front, having completed 80 deals and raising $1.9bn (£1.5m) of capital.
Speaking exclusively to Insurance Times following the publication of the report earlier this month (2 November 2023), Andrew Johnston, the reinsurers’ global head of insurtech, said: “Just as many reinsurers and insurers have done insurtech deals this year, as was being done in all of 2021.”
He added that “reinsurers are still investing extremely actively” in the insurtech sector.
In terms of transaction volume amount, fintech and insurtech investment firm Anthemis Group participated in the largest number of mid-size deals in the 12 months preceding the report.
Johnston said, however, that the market narrative was still focused on “doom and gloom”.
But he explained that, as 2021 was such a “big year” for insurtech unicorns – privately held startups with a valuation of more than $1bn (£0.81bn) – it might seem that funding since then had fallen off a cliff, but this was not the case.
He stressed that “there’s no shortage of capital,” noting that the picture would have looked very different if the trajectory had been slower and without a 2021 spike.
The report added that global insurtech funding increased by 19.8% quarter-on-quarter, surpassing $1bn (£0.81bn) in Q3, up from $916.71m (£746.8m) in Q2.
This was primarily driven by property and casualty, as well as two mega round deals.
Johnston noted “an uptick in deal count,” although big ticket deals had reduced significantly.
The report noted: “With our industry under so much existential pressure, now more than ever technology and new entrants can play a critical role in preserving and fortifying the value of reinsurance.”
While Q2 saw a sharp drop in series A capital raised, this trend was not repeated during this quarter.
Johnston explained: “But also, there was perhaps an overabundance of sympathetic investment capital, that almost denied insurtechs the opportunity to learn the right kinds of lessons that they should have been learning as they grew naturally.
“There was always capital to help that growth journey and not necessarily encourage insurtechs to focus on things like loss ratios or profitability.”
In contrast to the previous environment, Johnston said that these firms were now being forced to “operate in the wild”.
Lastly, in terms of technology trends, Johnston said generative artificial intelligence (AI) had remained a hot topic.
He explained: “It’s not just the actual technology itself that pushes the frontier, it’s the community being prepared to support it.”
With technological developments like AI, implementation usually requires a two or three three year lag, but Johnston said he believes that the use of generative AI in the industry could be fascinating.
However, he admitted that there would be ongoing conversations about what the industry could and couldn’t do with AI and associated regulation.
He said: “Companies should recognise the risks associated with large language models (LLMs) before adoption. Like any predictive model, they can make mistakes.”
LLMs is a statistical language AI model trained on data, with examples including ChatGPT and Google Bard.
Therefore, he said firms should fully test generative AI models before deploying them into business functions.
- Insurance Times has converted dollar amounts into pounds using an exchange rate of $1.21 = £1, which was correct as of 1 November 2023.
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