2024 Insurtech Funding Trends: A Shift Towards AI and Sustainable Growth
The global insurtech landscape saw significant transformations in investment patterns throughout 2024, with artificial intelligence (AI) emerging as a pivotal player in funding trends. According to Gallagher Re’s latest quarterly report, the insurtech sector experienced fluctuations in investment levels, particularly in the latter half of the year.
Investment Overview: Decline in Funding but Growth in Early-Stage Investments
Gallagher Re reported that total insurtech funding reached US$4.25 billion in 2024, reflecting a 5.6% decline from US$4.51 billion in 2023. This marks the lowest annual total since 2018. The number of deals also decreased by 18.5% year-over-year, dropping from 422 in 2023 to 344 in 2024, the lowest level since 2019. Notably, while overall funding declined, early-stage funding increased by 8.8%, and the average deal size grew by 14.6%, indicating a shift towards more targeted investments.
Fourth Quarter Funding Decline
The fourth quarter of 2024 witnessed a sharp decline in funding, plummeting from US$1.38 billion in Q3 to US$688.24 million in Q4. This represented a significant quarter-over-quarter decrease, although the number of deals slightly increased from 77 to 78. AI-focused insurtechs accounted for 42.3% of Q4 deals, with half of all transactions involving companies specializing in claims-related technology. This trend underscores the growing importance of AI in shaping the future of insurtech.
AI’s Dominance in Insurtech Investments
Gallagher Re’s analysis highlights the increasing role of AI within the insurtech sector. AI-enabled insurtechs raised an average of US$5 million more than their non-AI counterparts. In the third quarter, 63.4% of insurtech firms that secured funding had a focus on AI. Despite this, the report cautions that while AI is a strong driver of investment, its actual impact on efficiency and productivity across the insurance industry is still developing.
The Strategic Use of AI in Insurance
AI is increasingly viewed as a crucial tool for enhancing underwriting and risk selection. Gallagher Re emphasizes that AI applications must align with commercial objectives, noting that while AI can improve risk assessment, its implementation must be strategic. The report also advises against overusing AI in customer service settings, suggesting that automation should not compromise customer experience.
Corporate Venture Capital Activity Remains Strong
Despite the overall decline in funding, corporate venture capital (CVC) funds from insurers and reinsurers remained active in 2024. In October alone, nearly US$340 million was invested by industry CVCs, with significant contributions from companies like MS&AD, Munich Re, American Family, and Tokio Marine. Much of this investment was directed toward insurtechs focused on claims, cyber, property, and specialty insurance lines.
Transitioning Towards Sustainable Growth Models
The report underscores that 2024 marked a transitional year for insurtech, moving towards a more sustainable growth model. After years of rapid expansion, the industry is now focusing on profitability rather than mere scale. The decrease in mega-round funding and the emergence of fewer billion-dollar startups, or "unicorns," signal a maturation of the sector.
Looking Ahead: AI’s Continued Influence
Gallagher Re anticipates sustained interest in AI applications within insurtech, particularly in underwriting, claims processing, and cyber risk management. While the investment landscape may remain cautious, a more disciplined approach to funding could foster a stronger and more stable insurtech market in the coming years.
Final Thoughts on Insurtech’s Future
The insurtech sector is navigating a period of significant change, with AI at the forefront of investment strategies. As the industry adapts to new challenges and opportunities, the focus on sustainable growth and strategic use of technology will be crucial for its future success.
For more insights and updates on the insurtech sector, consider checking out resources from the Insurance Information Institute and McKinsey & Company.