AI helps drive boost in insurtech funding

The use of artificial intelligence (AI) for risk pricing and underwriting is the biggest potential win for the insurance industry, according to (re)insurer Gallagher Re. The technology has also helped insurtech funding rise to its highest quarterly value for over a year. Gallagher Re’s Global InsurTech Report for Q2 2024 found that funding rose to $1.27bn, a 40% quarter-by-quarter increase. Investment in insurtechs has fallen somewhat since reaching a peak in 2021 but the latest figures from Gallagher Re’s report show the highest level of quarterly funding for over a year (since Q1 in 2023). This was partly due to a surge in investor interest in AI-centred startups, which accounted for nearly a third (32.9%) of total funding. There was also a near doubling of the average size of investments since the last quarter, from $9.81m to $18.64m, which helped make up for a fall in the number of deals during the same period, from 107 to 82. In fact, the number of deals in the latest quarter is the lowest for four years, a trend that Gallagher Re attributes to the decline in early-stage deals, which fell by 21.9% to its lowest level since Q1 2020. One of the bright spots of the last quarter was the surge in AI-centred insurtech funding, the majority of which (63%) were early-stage companies. Gallagher Re’s report also looks at the role of AI in the (re)insurance industry in four quadrants – distribution, central business operations, claims/settlement and also risk pricing and underwriting. “These functions are of crucial importance to companies’ ability to assess exposures and determine premiums, ensuring their financial stability and success,” states the report. On the use of AI in risk pricing and underwriting, the report states this as the “biggest potential win for our industry” with the possibility of better-tailored products, more appropriate cover and, ultimately, greater profitability for insurers. The report also states that the use of AI for underwriting and risk pricing has been underway for some time and the industry has “made much progress”. However, the report also states that use cases where underwriting has been left solely to AI have had limited success and often perform just as well if not worse than entirely manual processes. Consequently, the age of “bionic underwriting” may still be some way off. “It is becoming clearer that removing the human element is a mistake – to perfect the hybrid process, one needs to identify the most efficient combination of human and machine,” states the report. “Our view here is that AI should never entirely replace the human – particularly one with deep -risk experience. Rather we see underwriting, pricing actuaries and risk managers using various forms of AI to enhance their own offerings,” states the report. “The AI delivers insights for humans to interpret and then take a decision. This is bionic teamwork, if you will,” states the report. Furthermore, the paper also states that the human role will be even more important in commercial lines rather than personal lines. “Black box decision-making and instantaneous pricing are far less effective in commercial insurance than in other lines of business,” states the report.

AI helps drive boost in insurtech funding

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