Briefing: ‘Casualties’ could arise in insurtech sector due to ‘funding shortfalls’

By Editor Katie Scott

Despite the general appearance and perception that insurtech is a growing, forward-thinking and flourishing marketplace, participants at October 2022’s Broker CEO Forum – hosted by Insurance Times at Winchester’s Lainston House – fear there could be “failures” and “casualties” in this sector due to “funding shortfalls”.

During and following the Covid-19 pandemic, industry interest in insurtech grew as more companies started to explore how technology and digital processes could improve their business operations and propositions.

However, one attendee at the Broker CEO Forum commented that the insurtech market could see “more failures in the short term”, despite M&A dealmakers “pumping up multiples between 20 and 40.”

He said: “It will be interesting to see what happens in the insurtech segment because I do think that’s been pumped up in the last couple of years.

“We may see more casualties in that arena because I think there’s going to be funding shortfalls because their levels of growth are not going to get to where they want to because of the climate at the moment.”

The Global insurtech report, published by Gallagher Re in August 2022, seemingly supports this view.

It found that although global investment in insurtechs increased by 8.3% between Q1 and Q2 this year, overall investment in the sector is still 50.2% below the level recorded in Q2 2021 of $8.84bn (£7.62bn).

Global investment in the insurtech sector was $2.41bn (£2bn) during Q2 2022.

Spending money to make money

So, what are insurtechs doing to bolster their growth and retain necessary funding?

Another Broker CEO Forum delegate commented that he had seen insurtechs looking “to buy conventional businesses as a way of achieving rapid earnings”.

He explained that, in his opinion, money within the technology and insurtech sector generally had decreased, so these firms were having “to buy more conventional businesses as a way of supplementing their growth” because they “couldn’t raise the money” by other means.

Although funding in insurtechs seems to be fluctuating, based on this market feedback, it is undeniable that there is still great interest in this sector and how it can support brokers and insurers to better serve end customers.

Amid today’s sky-high inflation and the cost of living crisis, however, it appears that even digital-savvy insurtechs that often use technology to create cost efficiencies are not immune to financial pressures – especially if backers are cracking the whip on growth targets.