InsurTech Funding Increased 37.6 Percent Quarter on Quarter in Q1

InsurTech funding increased 37.6 percent quarter on quarter during the first 3 months of 2023 to $1.39 billion from $1.01 billion during the fourth quarter of 2022, according to Gallagher Re.

The first-quarter Gallagher Re Global InsurTech Report, produced in collaboration with CB Insights, said the average deal size during the quarter increased 25.3 percent from the fourth quarter of last year, despite no quarter-on-quarter change in the number of deals.

The funding increase during the first quarter was largely the result of a 53.6 percent quarter-on-quarter jump in property-casualty InsurTech funding, the report said, to $967.89 million in this year's first quarter from $630.16 million during the prior quarter. Life and health InsurTechs also saw a quarter-on-quarter funding increase, rising 9.6 percent to $420.73 million in this year's first quarter from $383.76 million during the last 3 months of 2022, according to the May 2023 report.

The average InsurTech deal size increased 25.3 percent quarter on quarter to $14.77 million in the first quarter from $11.79 million during last year' s final quarter, Gallagher Re reported.

In keeping with other InsurTech funding trends, the increase was greater for property-casualty InsurTechs, with the average deal size increasing 31.0 percent quarter on quarter to $14.23 million in the first quarter from $10.86 million in the fourth quarter of 2022. Life and health InsurTechs saw average deal size increase 18.0 percent in the first quarter to $16.18 million from $13.71 million a quarter earlier.

The quarterly deal count remained flat from the fourth quarter of 2022 to the first quarter of 2023 at 106. The property-casualty deal count increased 7.0 percent quarter on quarter to 76 deals in the first quarter from 71 in the prior quarter. The life and health deal count fell 14.3 percent to 30 deals in the first quarter from 35 in last year's fourth quarter.

The Gallagher Re report noted that the first-quarter increase in global InsurTech funding came against a backdrop of a 13 percent quarter-on-quarter decline in overall global venture funding.

Early-stage InsurTech funding increased 3.8 percent quarter on quarter during the first quarter, Gallagher Re said, despite an 18.3 percent drop in early-stage deals. In terms of the first quarter's deal count, 37.7 percent of all InsurTech deals were in the early-stage incubation category, according to the report, a percentage that was consistent with long-term InsurTech data.

For the sixth consecutive quarter, the majority of first-quarter InsurTech investments from insurers and reinsurers were early-stage investments, Gallagher Re found. There were 30 total corporate InsurTech investments from insurers and reinsurers in the first quarter, the report said.

Gallagher Re's first-quarter InsurTech report also examines the impact of mega-round financing—funding rounds of more than $100 million—on InsurTech funding trends.

The report noted that mega-round funding represented 12.9 percent of total first-quarter InsurTech funding, the lowest contribution rate since the first quarter of 2020. The quarter saw only one mega-round deal with Gravie, an employer health benefits company, raising $179 million in venture-backed funding, Gallagher Re said.

In a preface to the report, Dr. Andrew Johnston, global head of Gallagher Re InsurTech and the report's editor, noted discussion surrounding the dip in InsurTech funding from 2021 to 2022—from $15.80 billion in 2021 to $7.98 billion last year. Indeed, 2022 was the first year to see a decline in InsurTech funding since 2016.

But, Dr. Johnston wrote, it's possible the 2021 funding level was an anomalous one, driven by mega-round activity, and that 2022 actually represented a return to the true growth trajectory of InsurTech funding seen prior to 2021.

"Mega-round funding has undoubtedly been a significant driver of overall InsurTech investment figures," Dr. Johnston wrote. "It could be argued, especially after the observations made in 2022, that it is the single most important factor to consider when we consider the investment numbers, and their overall impact on the sentiment and conclusions that we make."

In any given year or quarter, a handful of stand-alone mega-round deals can have an enormous impact on overall InsurTech funding totals, Dr. Johnston noted.

Removing mega-round deals from an examination of 2021 InsurTech funding shows a "very stable and consistent year," according to Dr. Johnston. At the same time, the first quarter of 2022 saw more non-mega-round InsurTech deals than in three of the four quarters in 2021. "It is clear, therefore, that mega-round activity is not only having a huge impact but a healthy reminder that we are still dealing with numbers that can be significantly impacted by a handful of individual deals," he wrote.

Dr. Johnston noted that examining all InsurTech financing since 2012, 51 percent of all investment has come from mega-rounds, even though those mega-round deals represent only 4 percent of the total number of financing deals done over the period. "It is clear, then, that a huge amount of money is invested in a small number of deals and when this happens, it has the ability to hugely influence final numbers," Dr. Johnston wrote.

"What will be truly fascinating is to see what 2023 delivers in terms of results," he wrote. Working on the assumption 2021 was an anomalous year in InsurTech funding and operating on a sequency projection from prior year data suggests this year could see 590 InsurTech funding deals—up from 521 in 2022—raising $8.5 billion, according to Dr. Johnston.