UK insurtech sector ‘remains in most optimal place’ – Gallagher Re

The UK insurtech sector “remains in the most optimal place to be successful” in relation to different stakeholders, despite global insurtech funding plummeting to the lowest level seen since 2018.

That was according to Andrew Johnston, global head of insurtech at Gallagher Re, who spoke exclusively to Insurance Times following the reinsurance brokers Global Insurtech Report for Q4 2023, published at the beginning of the month (1 February 2024).

He said: “The UK remains in prime position to lead this space and I encourage all the different parts of the community in the UK to embrace that.

”It’s a wonderful opportunity that most of the rest of the world just don’t have, I’m pretty bullish on the UK.”

Gallagher Re’s report showed that 31 insurtech deals were completed in the UK across 2023, putting the country in second place to the US, which saw 216 deals.

India took third place in the deals completed ranking, with 26 completed.

Despite maintaining second place in terms of deal volume, later stage expansion insurtech investment during Q4 of the 2022/23 period saw the UK lose out on its usual second place and slip five places to sixth with £56.73m ($71.24m) invested across five deals.

It was Germany that scooped second place with £444.88m ($558.7m) in investment spread across seven deals, with France, India, Australia and Israel all placing above the UK. 

Uptick ahead

Despite the Gallagher Re report noting that global quarter-on-quarter funding increased by 0.5% in Q4 2023, it explained that insurtech deal volume fell by 16% quarter-on-quarter, with 39.9% of all funding in the most recent period attributable to mega-round deals.

Global insurtech funding also plummeted from £6.3bn in 2022 to £3.58bn in 2023 – the lowest level seen since 2018.

But regardless of funding being increasingly focused in the larger end of the market, Johnston predicted an “uptick” in 2024 that would see investment growing, more mega rounds and possible Initial Public Offerings, in which shares of a private firm are made available to the public to allow for equity from public investors to be raised.

Johnston explained that “2023 was an overcorrection” that suggested the “foundation was very strong for a [improvement] this year”.

He forecast that general technology venture capital (VC) funds may also make a return to the market, once performance for the year began to increase.

Because a large amount of capital was invested in the insurtech sector during the 2021 unicorn boom, “advertised returns for investors were probably overstated”, he explained.

He added: “There was probably a disproportionately high exodus of what I would call general tech venture capital (VC) firms, which is why we’re now seeing such a relatively high proportion of corporate venture capital firms (CVCs), insurance and reinsurance investing.”

But is more investment better?

Johnston noted that if companies were “overvalued”, it could make the next fundraising round “difficult”.

“Now is a very healthy space,” he explained.

“We are in a truer market economy, in that you don’t have the general tech VC funds writing massive cheques that throw everything out of proportion. [Instead,] you have got the people that will benefit from this technology deciding what they think it’s worth.” 

Strategic investment

One highlight of the report was that 2023 saw an increased interest in private technology investments from reinsurers. A record 148 of these transactions occurred, which was 12% more than the previous record of 132 investments in 2019.

Several UK-based insurtechs were the beneficiaries of these agreements and entered into strategic partnerships with reinsurers.

Notable deals in the UK included Kynd, with investment from MGA Nirvana Underwriting, Supercede, with investment from Lockton Re; and Coincover. 

For Johnston, however, focusing on technology adoption and strategic investment “probably isn’t the whole story”.

He explained: “It might be that the right amount of money has been invested and that these companies are now developing this great technology as well as partnering with insurers and reinsurers and doing it for the benefit of the general public.”

Johnston also questioned whether capital needed to be raised indefinitely and highlighted the historical “barrier to entry” for insurtechs in the industry.

• Insurance Times has converted dollar amounts into pounds using an exchange rate of $1.27 = £1, which was correct as of 1 February 2024.