The Evolution of Insurtechs
The insurtech industry has undergone dramatic growth over the past decade, fueled by technological advancements, shifting customer expectations, and steady investor interest. As insurers grapple with new and complex risks—from climate change and cybersecurity to evolving healthcare demands—artificial intelligence (AI) is emerging as a vital tool to drive transformation.
For pioneering insurtechs, the ability to spot gaps in traditional insurance coverage presents a unique opportunity. By adopting AI-driven solutions, these firms are finding innovative ways to expand protection, improve efficiency, and deliver superior customer engagement.
A Stabilizing Insurtech Market
Despite global economic uncertainty and geopolitical challenges, the insurtech sector is showing resilience and stability. Venture capital investment in insurtechs has rebounded to pre-pandemic levels, averaging $1.5 billion per quarter. Funding patterns are also shifting, with fewer mega-rounds but a growing emphasis on smaller-scale late-stage investments. Series C+ rounds, for instance, grew from 100 in 2023 to 150 in 2024.
Europe’s insurtechs, in particular, have demonstrated remarkable durability. Of the 800 companies launched between 2015 and 2023, 85 percent remain active, 10 percent were acquired, and only 5 percent have shut down. Nearly half of the active firms now employ more than ten people, signaling a transition from startup to scale-up. This resilience positions European players as key contributors to global insurance innovation.
To continue attracting investment, insurtechs are exploring new strategies, often centered around AI. Firms capable of embedding AI into operations to address inefficiencies, model new risks, and drive profitability will likely capture the attention of future investors.
The Global Protection Gap: A Growing Challenge
One of the biggest challenges the insurance industry faces today is the protection gap—the difference between insured and actual risk exposure. Emerging threats in cybersecurity, climate, and health are intensifying this divide:
-
Cyberinsurance: Premiums have doubled since 2022, reaching $11 billion in 2024. Yet, the demand for coverage far exceeds supply, with untapped opportunities in cyber-risk analytics, connected vehicle insurance, and prevention-focused products.
-
Climate Risk: Global insured losses from natural disasters have doubled in recent decades, averaging $116 billion annually between 2009 and 2023. However, at least two-thirds of climate-related risks remain uninsured.
-
Health Insurance: With aging populations and rising chronic illness rates, vast segments such as elderly patients remain underinsured. Innovative coverage for preventive care, remote health services, and family planning could close this gap.
Despite these urgent needs, only 5 percent of insurtechs currently target such systemic risks. McKinsey estimates that in 2023, these underinsured areas accounted for less than $200 billion in gross written premiums (GWP) compared to a total of $4.1 trillion. The result: a massive opportunity for insurtechs willing to disrupt.
AI Meets Insurtechs: Driving Innovation and Closing Gaps
AI is redefining what’s possible in insurance. For insurtechs, its adoption is not optional—it’s a competitive necessity. By leveraging AI and data analytics, insurtechs can design products for emerging risks that traditional insurers struggle to model or price.
Practical applications of AI in insurance include:
-
Automated underwriting: Reducing reliance on manual processes while improving speed and accuracy.
-
Fraud detection: Identifying suspicious claims in real time.
-
Risk prevention: Predicting risks before they occur, improving loss ratios by up to 50 percent.
-
Customer engagement: Using generative AI to personalize services and anticipate customer needs.
In the UK, nearly 70 percent of insurtech firms are already piloting AI projects, with over 90 percent expecting to integrate generative AI within the next year. This rapid adoption highlights the transformative potential of AI in bridging the protection gap.
The Business Impact of AI in Insurtechs
AI adoption delivers measurable business benefits across the insurance value chain:
-
Efficiency gains: AI-driven automation can triple GWP per full-time equivalent by minimizing manual intervention.
-
Customer satisfaction: Proactive risk management powered by AI significantly boosts customer loyalty and trust.
-
Capital optimization: AI-enhanced risk modeling improves leverage in capital markets through mechanisms like insurance-linked securities.
Insurtechs that embrace AI are positioned to scale quickly, offering solutions that incumbents—with legacy systems and regulatory hurdles—struggle to match.
Key Steps for Insurers and Insurtechs
For incumbents and insurtechs alike, AI integration requires strategic planning and adaptability. Success will depend on four key actions:
-
Overcome resistance to change with strong change management and training.
-
Leverage partnerships to navigate regulatory and compliance challenges.
-
Modernize legacy systems through phased data integration and IT upgrades.
-
Balance innovation with stability via a two-speed strategy that fosters growth without risking core operations.
By addressing these challenges, the industry can accelerate adoption of AI-driven solutions and unlock new growth opportunities.
Conclusion: A Defining Moment for Insurance
The insurance industry is at a turning point. The convergence of AI and insurtech innovation offers a pathway to narrow the global protection gap and tackle emerging risks that traditional insurers have long avoided.
Insurtechs that act decisively—leveraging AI, forming strategic partnerships, and targeting underinsured markets—will not only attract investor confidence but also play a pivotal role in reshaping the future of insurance.
Discover how AI is reshaping industries in IMPAAKT, the top business magazine for global business leaders.
