Will 2024 be Better? Reflection on 2023 Venture Capital in InsurTech

By David Gritz and Camila Faria

As 2023 comes to a close, it’s safe to say that the InsurTech investment landscape underwent a significant transformation this year, reflective of broader shifts within the tech and insurance industries. Amidst a backdrop of global economic recalibration, venture capital infusion into InsurTech startups witnessed a discernible contraction, marking a departure from the previously bullish years. This year’s investment climate, while cautious, has not dampened the innovative spirit that drives the sector forward, and strong startups continued to receive support while strengthening strategies to optimize costs.

Many founders have asked us in 2023, did investor pacing slow down? So, we tapped our network to get you access to the live data. And, we will use that data and our discussions with VCs in InsurTech to help you understand why and where we are going in 2024.

InsurTech Investment Trends in 2023

The insurtech sector of 2023 has been a crucible of challenge and change. Investment patterns have taken a sharp detour from the exuberant heights of previous years, as highlighted by a report by Dealroom.co, Mundi Ventures, MAPFRE, NN Group, and Generali. A 45% plummet in venture capital funding to $2.4 billion in the first half of the year marks a retreat not seen since 2018. This mirrors a broader 51% decline in overall venture capital funding, signaling a reevaluation of investment strategies across the board.

Despite the downtrend, the resilience of “good” startups, as noted by Mapfre’s global head of transformation, Joan Cuscó, is evident in their ability to secure capital. This selective endurance reveals a pivotal theme of 2023 — quality over quantity.

Despite funding headwinds, the sector’s commitment to digital transformation and enhanced customer experience remains unshaken. Insurers continue to embark on core systems upgrades, making it easier for InsurTechs to work with them. And, almost any life insurer you speak to is looking for new forms of distribution to close the uninsured and underinsured gap. Distribution-centric startups continued to attract interest from investors as long as they could prove traction.

Data from the Trenches – InsurTech Investment Pacing

Most reports on InsurTech are published with secondhand data from CB Insights and Crunchbase that is not 100% validated. So, we decided to contact the VCs directly for the data after an initial review of Crunchbase and their websites.

For our research, we contacted 20 Venture Capital firms that explicitly have InsurTech investing as part of their strategy or are primarily funded by single insurer LP. 18 of the firms shared their data with us and 11 allowed us to publish their data. The data is current as of January 10, 2024.

The data below shows the number of new investments (excluding follow-ons) per partner

InsurTech NY’s examination of top VC funds pacing in 2023 unveils a landscape of discernment and precision. Most funds focused on supporting their existing portfolio companies to get them to default alive status instead of funding the next wave of startups.

Markd‘s pronounced increase in investments illustrates a bold and strategic assertion of confidence in the industry’s potential. In contrast, other seasoned investors like Munich Re Ventures and Nationwide Ventures have recalibrated their portfolios, indicative of a broader investment community treading with caution as funds are increasingly seeking out ventures that not only innovate but also demonstrate a clear path to profitability and scalability.

The consistency from firms such as Sure Ventures, which neither increased nor decreased their investment frequency, reflects a considered approach in an unpredictable market. Looking back on the year’s trends, partner Gopi Rangan commented, “Insurance is a large industry with many opportunities for innovation. Unlike in the years past, startups with healthy unit economics will build a strong foundation to transform the industry. I am excited to see many positive trends in the upcoming year ahead.”

The data reflects that InsurTech Fund, our fund was the third most active on a per partner basis. While it may seem like an anomaly, it is directly in line with our strategy to support 5 – 8 new startups per year from our fund. Since we sit in the seed stage, we must act as a feeder for many of the later-stage funds and our pacing reflects that trend.
Forecasting 2024: Expectations and Opportunities

We are also excited about positive trends in 2024. We are looking forward to the next generation of Insurance products in niche and specialty markets like those who have gone through our MGA Lab. Parametric solutions like Sola and Otonomi can simplify cover; cat-exposed solutions like Greenshield Risk and SPIN can support policyholders in states where larger insurers have left the market; and new category solutions like Batteryze and 5×5 can expand or enable commercial markets to function. This trend for new products will coincide with deeper integration with big data, AI, and predictive analytics to improve risk selection and workflow automation.

With all of the opportunity ahead of us, we see Venture Capitalists pivoting in 2024 to make new investments once their current portfolio is protected.

If you are a founder who is actively raising money in Q1, we want to hear from you about your experience. Happy to add your experience or quote to the bottom of this article. Please respond to our LinkedIn Post or reach out at contact@insurtechny.com.