Gallagher Re Publishes InsurTech Report: Increased Funding

The latest Gallagher Re Global InsurTech Report for Q2 2024 highlights significant trends and developments in the insurance technology sector. With a keen focus on the role of artificial intelligence (AI) in transforming core insurance functions, the report takes a look at the industry's continuing evolution and the increasing importance of digital innovation.

The report begins by noting a resurgence in InsurTech investment, with global funding reaching US$1.27bn in Q2 2024, marking the highest level since Q1 2023. This uptick is driven by a notable increase in early-stage investments, which rose to US$377.60m, the highest since Q1 2023. Interestingly, while the average deal size increased to US$18.46m, the overall deal count fell to 82, the lowest quarterly count since Q2 2020.

The report reveals that one-third of Q2 2024 InsurTech deals involved AI-centered companies, with 40% focusing on risk-related InsurTechs. This highlights the industry's growing reliance on AI to enhance risk management and underwriting processes. Moreover, a significant proportion of the investment activity was concentrated in the United States, followed by the United Kingdom and France.

The Role of AI in Underwriting and Risk Management

A core theme of the report is the transformative potential of AI in pricing, underwriting, and portfolio management. The report highlights that AI tools offer the potential for better-tailored products and more appropriate coverage, leading to greater profitability. AI's ability to handle vast amounts of data quickly and accurately is seen as a key advantage, particularly in automating routine tasks and allowing human underwriters to focus on complex risk assessments and decision-making.

The concept of "bionic underwriting," where AI performs data-intensive tasks while human expertise is applied to interpret the results, is emphasised as the optimal approach. This hybrid model aims to leverage the strengths of both AI and human judgment, enhancing efficiency and accuracy in underwriting.

Key Stats: 

• Global InsurTech funding rose by 39.7% quarter-on-quarter to US$1.27bn in the second quarter of 2024.
• Early-stage InsurTech funding increased by 34.9% quarter-on-quarter, highlighted by a surge in average early-stage deal sizes.
• Average early-stage deal sizes increased to US$8.58m, the highest level since the first quarter of 2022, rising by 77.8% quarter-on-quarter.
• Early-stage deal count declined by 21.9% to 50 deals, the lowest since the fourth quarter of 2020.
• Property and Casualty (P&C) InsurTech funding increased from US$605.58m in the first quarter of 2024 to US$853.92m in the second quarter of 2024.
• The average P&C InsurTech deal size reached US$19.41m in the second quarter of 2024, the highest level since the third quarter of 2022.
• Life and Health (L&H) InsurTech funding reached US$420.16m in the second quarter of 2024, the highest since the first quarter of 2023.
• The average L&H InsurTech deal size reached US$16.81m, the highest level since the second quarter of 2022.
• The second quarter of 2024 saw 33 tech investments from (re)insurers, with 54.6% directed towards US-based companies.
• The average deal size among (re)insurer tech investments was US$23.95m, 29.7% greater than the average across all of InsurTech.
• AI-centred InsurTechs raised US$445.81m across a third of the second quarter of 2024 deals.
• 40.2% of the second quarter of 2024 InsurTech deals went to risk-focused InsurTechs.

Case Studies

The report provides several case studies demonstrating successful AI implementation in underwriting. One notable example is Ki Insurance, a digital platform for the Lloyd’s market, which has revolutionised the underwriting process by providing instant quotes through an AI-driven algorithm. This innovation significantly reduces the time brokers spend placing follow capacity, demonstrating the efficiency gains possible with AI.

Despite the promising benefits of AI, the report acknowledges several challenges, including the "black box" nature of AI algorithms, which can obscure the decision-making process and lead to issues of transparency and bias. Additionally, the report discusses the potential regulatory landscape, highlighting the need for insurers to navigate new rules and regulations being developed in jurisdictions like the EU, UK, and US.

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