Insurtech funding was relatively stable in the third quarter as seed-funding appetite returned, according to a new report from Gallagher Re.
The global insurtech sector saw $2.35 billion in total investment during the third quarter, down 2.5% from Q2’s total. However, early-stage funding skyrocketed by 48.1% quarter over quarter, driven by the second-highest number of quarterly seed funding deals on record. P&C insurtechs saw $1.2 billion in mega-round funding through investments of $100 million or more, double the level of Q2.
Despite the mega-rounds, average deal size dropped 7.6% to $20.42 million in the third quarter. The decline reflected the volume of early-stage funding, Gallagher Re said. Total deal count rose 6.1% to 140 deals. The effect was most pronounced in L&H funding, which dropped from $917.85 million in the second quarter to $579.19 million in Q3. Deal size in that segment was also down, falling 38.6% to $15.24 million, averaged over 51 deals. Total funding of PP&C insurtechs rose 18.8% to $1.77 billion. (Re)insurers made 20 investments, pushing the market toward a three-year high for strategic funding, Gallagher Re reported.
“Third-quarter investments this year were made at a particular inflection point for the global insurtech sector,” said Dr. Andrew Johnson, global head of insurtech for Gallagher Re. “Pressure is mounting on those companies that sold the idea of endless growth to secure funds. The extent to which some founders truly believed they could grow their businesses (to the degree they were indicating) in our industry will always be a topic for discussion, but it seems very clear now that the era of rushed growth for growth's sake at the expense of profitability is coming to a close.”
Johnson said that “hubristic rhetoric” about disrupting the industry is declining as people realize “that profitable carriers – no matter how ‘outdated’ – intermediaries, and traditional markets are to be supported, not displaced.”
“Genuine disruption has been extremely limited despite almost $50 billion of global insurtech investment,” Johnson said. “Success has typically come only in areas where incumbents have been embraced and respected. Meanwhile, there’s increasing pressure on risk-originating insurtechs operating as MGAs to begin partaking in the process of retaining risk, which in practice makes them look more like incumbents.”
The Asia Pacific region saw its highest funding and deal count of the year so far in Q3, with APAC-based insurtechs raising a total of $999.77 million across 76 deals. In the third quarter, 53.5% of all disclosed APAC funding went to India-based insurtechs, which raised $210.76 million. In terms of deals ever completed, insurtechs from 18 APAC countries have raised $7.77 billion through 447 deals – 17,71% of all insurtech fundraisings ever. During the first half of 2022, APAC hosted 11 mega-round deals and boasts three of the top 10 insurtech nations in terms of total funding contribution: China (in third place), India (fourth) and Singapore (ninth).