NEW YORK, NY – InsurTech companies raised just $2.8 billion in venture capital and private equity funding in 2024, down 33% from $4.2 billion in 2023 and a staggering 72% below the 2021 peak of $10.1 billion, according to October 2025 analysis from Gallagher Re's InsurTech report.
The investment slowdown reflects a fundamental shift in how investors view insurance technology. The era of "growth at all costs" is over. Investors now demand profitability, sustainable unit economics, and clear paths to exit. InsurTech companies that burned through hundreds of millions of dollars without achieving profitability are shutting down or selling at distressed valuations.
But this isn't a sign that insurance technology is failing—it's a sign the industry is maturing. The technologies and business models that survive this downturn will be the ones that actually work: solutions that genuinely reduce costs, improve risk selection, enhance customer experience, or solve real operational problems.
For insurance buyers—businesses and individuals purchasing coverage—this shakeout has important implications. Some innovative insurers and technology platforms will disappear. But the survivors will offer genuinely better products, faster service, and more competitive pricing than traditional insurers can match.
The InsurTech Boom and Bust: What Happened
The 2018-2021 Boom: $35 Billion in Investment
Between 2018 and 2021, investors poured $35 billion into insurance technology startups, believing InsurTech would "disrupt" traditional insurance the way tech had disrupted retail (Amazon), transportation (Uber), and hospitality (Airbnb).
What attracted investment:
- Massive market: Global insurance premiums exceed $6 trillion annually
- Outdated technology: Traditional insurers run on legacy systems from the 1980s-1990s
- Poor customer experience: Insurance buying and claims processes were slow, paper-intensive, opaque
- Perceived inefficiency: Traditional insurers spend 25-30% of premiums on overhead; tech companies believed they could do better
- Data opportunity: Insurers weren't effectively using available data for underwriting and pricing
The investment thesis: Technology could:
- Reduce overhead from 25% to 10-15% of premiums
- Improve risk selection using AI and alternative data sources
- Speed up underwriting from weeks to minutes
- Process claims instantly using computer vision and AI
- Create better customer experiences through mobile-first design
- Reach underserved markets (small businesses, gig workers, non-standard risks)
The 2022-2025 Bust: Reality Strikes
Starting in 2022, the investment environment changed dramatically:
- Interest rates rose from near-zero to 5%+ (making profitless growth companies less attractive)
- Public market tech valuations crashed (reducing exit opportunities for InsurTech)
- Early InsurTech "success stories" revealed they weren't actually profitable
- Traditional insurers proved more adaptable than expected
- Some InsurTech business models proved fundamentally flawed
High-profile InsurTech failures:
Lemonade (public company, founded 2015): Stock down 75% from peak; still unprofitable despite $4.8B valuation at IPO. Discovered that "AI-powered insurance" couldn't overcome fundamental actuarial realities. Their loss ratios (claims paid / premiums collected) exceeded 75%—unsustainable long-term.
Root Insurance (public company, founded 2015): Stock down 95% from peak; reported $800M+ cumulative losses. Telematics-based auto insurance proved more expensive to acquire customers than traditional models. Company pivoted strategy multiple times.
Multiple digital MGAs (managing general agents): Dozens of digital-first insurance carriers raised $50-200M each, promising better underwriting using AI and data. Most discovered that:
- Customer acquisition costs were higher than projected
- Loss ratios were worse than traditional insurers (AI didn't actually select risk better)
- Overhead wasn't significantly lower than traditional carriers
- Price competition from traditional insurers eliminated any margin
As of October 2025:
- 47 InsurTech companies that raised $10M+ have shut down since 2022
- Another 83 InsurTech companies have been acquired at valuations below their last funding round (down rounds)
- Only 12 InsurTech companies achieved profitability in 2024
What Went Wrong?
The InsurTech boom was built on several flawed assumptions:
Flawed Assumption #1: Technology could eliminate underwriting fundamentals
Many InsurTech companies believed AI and alternative data would let them:
- Insure risks traditional carriers wouldn't touch
- Price more accurately than traditional actuarial methods
- Reduce adverse selection
Reality: Actuarial science works. Risks that traditional insurers avoid or charge high premiums for are actually risky. "AI-powered underwriting" that approves more applicants and charges lower prices generally produces higher loss ratios.
Example: A cyber insurance InsurTech used machine learning to evaluate risk and offered instant quotes online. Their model approved 60% of applicants (vs. 40% for traditional carriers) and charged 15-20% less.
Result: Loss ratio of 89% (paid $0.89 in claims for every $1.00 in premium). Traditional carriers maintained 55-65% loss ratios. The InsurTech shut down after burning through $140M in funding.
Flawed Assumption #2: Eliminating agents would dramatically reduce costs
Many InsurTech companies went direct-to-consumer, eliminating insurance agents and brokers who typically earn 10-15% commissions.
Reality: Customer acquisition costs (CAC) through digital marketing often exceed agent commissions. InsurTech companies discovered:
- Google/Facebook ads are expensive ($50-200 per application in competitive insurance markets)
- Conversion rates are low (2-5% of website visitors purchase)
- Customer retention is poor without agent relationship
- Customers still want human guidance for complex coverage decisions
Example: A small business insurance InsurTech spent $180-240 to acquire each customer through digital marketing. Traditional agents earned ~$200 commission but also provided ongoing service, retention, and cross-selling that the InsurTech couldn't match economically. After three years, the InsurTech's customer retention was 62% vs. 83% for agent-sold policies.
Flawed Assumption #3: Mobile-first design would create competitive advantage
InsurTech companies built beautiful mobile apps and websites, assuming customers would pay premiums for better user experience.
Reality: Insurance is mostly purchased based on price and coverage, not UX design. Customers appreciate good experiences but won't pay significantly more for them.
The "paradox of InsurTech UX": Better digital experience makes it easier for customers to shop and switch, actually reducing retention and increasing price sensitivity.
Flawed Assumption #4: Traditional insurers wouldn't adapt
InsurTech companies assumed traditional carriers were dinosaurs that couldn't innovate.
Reality: Traditional insurers have:
- Invested billions in technology modernization
- Acquired or partnered with InsurTech companies for specific capabilities
- Launched their own digital-first brands (Allstate's Esurance, Liberty Mutual's Clearcover)
- Improved their customer experiences significantly
Traditional carriers also have advantages InsurTech companies couldn't match:
- Decades of actuarial data
- Established brand recognition and trust
- Balance sheet capacity to weather underwriting losses
- Regulatory licenses in all 50 states
- Reinsurance relationships
- Claims expertise and infrastructure
What's Still Getting Funded: The Technologies That Survived the Shakeout
While overall InsurTech funding declined 33%, certain categories continue attracting significant investment:
1. Insurance Infrastructure and B2B Tools (41% of 2024 Funding)
What these companies do: Sell technology to insurance companies rather than competing with them
Why they're succeeding: Insurance companies need technology upgrades and will pay for proven solutions
Examples:
- Policy administration systems: Cloud-based systems replacing legacy mainframes
- Claims processing automation: AI that reviews claims documentation and detects fraud
- Underwriting workbenches: Tools that help human underwriters make faster, better decisions
- Distribution platforms: Technology connecting agents/brokers to insurers
Why investors like B2B InsurTech:
- Recurring revenue (SaaS subscription models)
- Clear ROI for insurance company customers
- Lower capital requirements (don't need to hold insurance reserves)
- Faster path to profitability
2024 funding: $1.15 billion (41% of total InsurTech investment)
2. Embedded Insurance (24% of 2024 Funding)
What it is: Insurance sold at the point of sale for another product or service
Examples:
- Phone insurance at phone purchase
- Shipping insurance at e-commerce checkout
- Warranty coverage at appliance purchase
- Cyber insurance bundled with SaaS subscriptions
- Travel insurance at flight booking
Why it's succeeding: Higher conversion rates (10-25% vs. 2-5% for standalone insurance), lower customer acquisition costs, better customer experience
Why investors like it: Economics work—embedded insurance generates profitable growth
2024 funding: $672 million (24% of total)
3. Commercial Lines Innovation (19% of 2024 Funding)
What these companies do: Specialized commercial insurance for underserved segments
Examples:
- Cyber insurance for small businesses
- Workers compensation for gig economy platforms
- Professional liability for freelancers and solopreneurs
- Equipment insurance for contractors
- Parametric coverage for specific business risks
Why it's succeeding: Commercial insurance is more complex and harder for traditional carriers to serve digitally, creating genuine opportunities for technology-enabled solutions
2024 funding: $532 million (19% of total)
4. Data and Analytics (11% of 2024 Funding)
What these companies do: Provide data and analytics to improve underwriting, pricing, and claims
Examples:
- Satellite imagery for property risk assessment
- Telematics for auto and fleet insurance
- Cyber risk scoring platforms
- Climate risk modeling
- Medical bill review and pharmacy management
Why investors like it: Proven value proposition—insurers will pay for data and analytics that improve their loss ratios
2024 funding: $308 million (11% of total)
5. Digital MGAs and Specialty Markets (5% of 2024 Funding)
What survived: Highly specialized insurers targeting specific niches with genuine expertise
Why most digital MGAs failed: Tried to compete with traditional carriers in broad markets
Why specialized digital MGAs survive: Deep expertise in specific risk classes that traditional carriers underserve
Examples:
- Cyber insurance for very small businesses (under $5M revenue)
- Coverage for cannabis industry
- Parametric hurricane coverage for vacation rental owners
- Event cancellation insurance
2024 funding: $140 million (5% of total, down from 35% in 2021)
What the InsurTech Shakeout Means for Insurance Buyers
The InsurTech slowdown has important implications for businesses and individuals buying insurance:
1. Some Innovative Insurers Will Disappear
If you bought coverage from an InsurTech company, there's a material risk they'll exit the market:
What happens if your InsurTech insurer shuts down or is acquired:
- Your policy remains in force until expiration (state guaranty funds protect policyholders)
- You'll need to find new coverage at renewal
- Claims in progress should be honored (state regulation protects policyholders)
- Customer service may deteriorate during transition
Warning signs your InsurTech insurer may be in trouble:
- News coverage about funding difficulties or layoffs
- Customer service quality declining
- Leadership departures
- Premium rates increasing dramatically (desperate for cash)
- Restricting new policy sales
What to do: Maintain good records, file claims promptly, and start shopping for alternative coverage 90 days before renewal if you see warning signs.
2. The Best Innovation Will Come From Partnerships
The most successful insurance innovation in 2025-2030 will come from partnerships between traditional carriers and technology companies:
Traditional carriers bring:
- Financial stability and regulatory licenses
- Underwriting expertise and claims infrastructure
- Brand recognition and customer trust
- Reinsurance relationships
Technology companies bring:
- Better digital experiences
- Advanced data and analytics
- Process automation
- Speed and efficiency
Example: Coalition (cyber insurance InsurTech) partners with Swiss Re (traditional reinsurer). Coalition provides the technology platform and customer experience. Swiss Re provides capital, reinsurance, and risk expertise. The partnership is profitable and growing—unlike pure InsurTech companies trying to do everything themselves.
What this means for buyers: Look for insurers that combine traditional insurance expertise with modern technology, not necessarily pure InsurTech companies.
3. Embedded Insurance Will Become Standard
Embedded insurance will increasingly be how people and businesses buy coverage:
Current state: You buy insurance separately from the things you're protecting Future state: Insurance is offered automatically when you purchase products, services, or engage in activities that create risk
Examples of embedded insurance expansion:
- E-commerce platforms offering shipping and product insurance at checkout
- SaaS companies bundling cyber insurance with their software
- Fleet management platforms including commercial auto coverage
- Payroll providers offering workers compensation
- Ride-sharing platforms providing commercial auto coverage for drivers
Benefits:
- More convenient (insurance is offered when you need it)
- Better pricing (group rates, automated underwriting)
- Seamless experience (integrated into existing workflows)
Considerations:
- Coverage may be limited (read terms carefully)
- Comparison shopping is harder (embedded insurance isn't always the best deal)
- Coverage coordination (if you have multiple embedded policies, watch for gaps or overlaps)
4. AI and Data Will Improve Risk Pricing (Eventually)
While AI hasn't revolutionized insurance as quickly as InsurTech companies promised, it is gradually improving:
What's actually working:
- Better fraud detection (computer vision analyzing photos of damage)
- Faster claims processing (AI reading medical records and estimating costs)
- More accurate catastrophe modeling (ML improving predictions of hurricane, wildfire, flood risk)
- Improved customer service (chatbots handling routine questions, freeing humans for complex issues)
What's still developing:
- Fully automated underwriting (still requires human oversight for complex risks)
- Significantly better risk selection (AI hasn't consistently outperformed traditional actuarial methods)
- Predictive analytics for claim prevention (promising but early stage)
Timeline: Expect gradual improvement over 5-10 years, not revolutionary overnight transformation.
5. Price Competition Will Intensify
The InsurTech shakeout is eliminating unprofitable competitors, but technology is still making insurance more price-competitive:
Why:
- Comparison shopping is easier online
- New distribution models (embedded, direct-to-consumer) create price pressure
- Technology reduces some operational costs (even if not as much as hoped)
- Better data allows more precise risk segmentation
What this means for buyers:
- Shop your insurance regularly (every 1-2 years)
- Use comparison tools and work with brokers who access multiple carriers
- Understand that your risk profile matters more than ever (good risks get better pricing, poor risks face higher costs)
The Future of Insurance Innovation: What to Expect 2025-2030
The InsurTech winter won't last forever. Investment will return when companies prove they can build profitable businesses.
What the next wave of successful insurance innovation will look like:
Focus on Profitability Over Growth
Previous wave (2018-2021): Grow rapidly, worry about profitability later Next wave (2025-2030): Achieve unit economics that work, then scale
What this means: Fewer startups, slower growth, but sustainable businesses
B2B Over B2C
Previous wave: Many InsurTech companies tried to sell directly to consumers Next wave: Most will sell technology to insurance companies or distribution partners
Why: B2B economics work better—recurring revenue, lower CAC, clearer ROI
Specialized Rather Than Generalist
Previous wave: InsurTech companies tried to be full-stack insurers serving broad markets Next wave: Focus on specific niches, risk classes, or capabilities where technology creates genuine advantage
Examples:
- Climate risk analytics for commercial property underwriters
- Telematics for specific fleet types (last-mile delivery, food service, construction)
- Parametric coverage for specific events (flight delays, weather events, business interruption triggers)
- Specialty MGA for specific risks (cannabis, cyber for microbusinesses, influencer liability)
Infrastructure Over Customer-Facing Brands
Previous wave: Build consumer brands to compete with State Farm and Allstate Next wave: Build technology infrastructure that State Farm and Allstate will use
Why: Traditional carriers have distribution advantages, brand recognition, and balance sheets that InsurTech can't match. Better to partner than compete.
Incremental Improvement Over Disruption
Previous wave: "We'll disrupt insurance like Uber disrupted taxis" Next wave: "We'll make insurance 15% more efficient through better technology"
Why: Insurance is fundamentally different from transportation or retail. It's regulated, capital-intensive, and requires expertise that can't easily be "disrupted."
The companies that succeed will be those that recognize this reality and focus on solving specific problems incrementally rather than promising revolutionary transformation.
How to Evaluate Insurance Technology as a Buyer
Given the InsurTech shakeout, here's how to evaluate whether an insurance company's technology is genuinely beneficial or just marketing:
Good Signs (Technology That Actually Adds Value)
Fast, transparent quote process: Online applications that take 5-15 minutes and provide immediate quotes (vs. days or weeks)
Clear coverage documentation: Digital policy documents that are actually readable and searchable
Self-service capabilities: Mobile app where you can view policies, file claims, request changes without calling
Claims status transparency: Real-time visibility into claim status and payment timeline
Proactive communication: Automated notifications about renewals, payments, coverage changes
Integrated risk management tools: Cyber insurers providing security monitoring, workers comp carriers offering safety tools
Red Flags (Technology That's Superficial)
Pretty website but slow backend processing: Nice design but quotes still take days
Limited carrier options: Platform only offers one or two insurers (probably getting paid to steer you to them)
No human support available: Pure chatbots with no way to reach human when you need help
Overpromising: Claims of "revolutionary" AI or "we're disrupting insurance" without substance
Pressure tactics: Urgency messaging ("This rate expires in 1 hour!") designed to prevent comparison shopping
Questions to Ask
When evaluating an insurance technology company or digitally-enabled carrier:
How long have they been in business? Newer isn't always better; insurance benefits from experience.
Are they actually an insurer or a broker? Many "InsurTech" companies are just brokers selling other carriers' products.
What happens if they go out of business? Is your policy with a stable, regulated carrier or a startup that might not exist in 2 years?
How do they handle claims? Fast quoting is nice, but claims service matters more.
What's their financial stability? Check AM Best ratings if they're an actual insurer.
Can you speak to a human? Technology should enhance service, not replace it entirely.
Looking Forward: Insurance Innovation Will Continue, Just Differently
The InsurTech funding slowdown doesn't mean innovation is dead—it means the industry is maturing. The technologies and business models that survive this shakeout will be the ones that genuinely work.
For insurance buyers, this is ultimately positive:
- Unsustainable companies are exiting before they fail and leave policyholders stranded
- Surviving companies are building on solid foundations
- Technology is improving insurance gradually and sustainably
- Competition remains robust—just more disciplined
The insurance industry in 2030 will be measurably better than 2020: faster, more transparent, more data-driven, more customer-friendly. But the transformation will be evolutionary, not revolutionary. And that's probably for the best.
Traditional insurance companies that embrace technology while maintaining their core expertise will thrive. Technology companies that respect insurance fundamentals while bringing genuine innovation will succeed. And insurance buyers will benefit from better products, better service, and better pricing.
Looking for insurance that combines traditional expertise with modern technology? The best insurance solutions today blend proven risk management principles with digital convenience. Whether you're buying business coverage or personal insurance, working with providers who understand both insurance fundamentals and technology capabilities ensures you get coverage that actually protects you—not just a nice app.
Sources: Gallagher Re InsurTech Report 2025, PitchBook, CB Insights, Insurance Journal, Digital Insurance