AI-driven investment in insurance sector struggles amidst high AI demands

AI-driven investment in insurance sector struggles amidst high AI demands

In the second quarter of 2025, global funding for InsurTech startups experienced a significant decline, slumping to $1.09 billion, a 16.7% decrease quarter-on-quarter[1][2]. This drop can primarily be attributed to a sharp decline in funding for property and casualty (P&C) InsurTechs, which fell 68% quarter-on-quarter to $363 million, the lowest level since Q1 2018[1][5].

However, the demand for AI-driven solutions remained robust, with 57.1% of deals in Q2 going to AI-centered companies, reflecting sustained investor interest in AI technologies within the sector[1][2][3]. The funding landscape is thus evolving, favoring AI innovation and life/health coverage over traditional property and casualty.

The funding distribution shifted significantly between sectors. P&C InsurTech funding plunged to $362.2 million, with only 2 of the 10 largest deals targeting this sector compared to 9 out of 10 in the previous quarter[1][3][5]. On the other hand, life and health (L&H) InsurTech funding nearly tripled quarter-on-quarter, to $729 million, reaching its highest level since Q2 2022 and more than doubling its share compared to Q1 2025[1][5].

AI-focused InsurTechs garnered a majority of funding and deal volume, consistent with a longer-term trend where AI companies raise around 25% more capital than non-AI firms. AI is concentrated on applications such as automation, data-driven underwriting, and predictive modeling, especially useful for addressing climate and catastrophe risks in P&C insurance[1][3][5].

Notable funding rounds include Marshmallow, a car insurance provider for newcomers to the UK, which raised $45 million from investors such as BlackRock and Hedosophia[4]. AI-powered company Further secured a $0.3 million round of funding from BrokerTech Ventures, Converge, and Nexus Venture Partners[3]. Steadily, a company offering specialized landlord insurance products, raised $50 million with backing from Clocktower Technology Ventures and Matrix Partners[3].

In the life and health sector, Gravie, a health plans provider for small and medium-sized employers, closed a $144 million round in June, with support from Aberdare Ventures and FirstMark Capital, among others[6]. Descartes, a global underwriter specializing in parametric products, headquartered in Paris, has raised over $141 million and deploys AI in its risk analysis and underwriting processes[3].

Since 2012, about $15 billion (25%) of the $60 billion in total InsurTech funding has gone to AI-related technologies, with allocations accelerating in recent years[7]. AI can help parametric insurance reach previously underserved markets, such as in Africa, Southeast Asia, and Latin America. For instance, Gallagher Re has placed a sovereign parametric flood product with SEADRIF in Southeast Asia, which triggers based on loss estimates reported by the local emergency response agency[3].

Despite the overall decline in funding, total InsurTech funding has surpassed the $60 billion mark since records began in 2012[8]. The average deal size for AI-centred companies was $11.7 million, slightly below the average deal size for the entire sector[3].

In April 2025, Equal Parts, a company that acquires insurance agencies, raised $10 million in funding, with support from investors like Equal Ventures and Max Ventures[2]. Adaptive Insurance, a climate resiliency company that uses AI and data to redefine climate-based parametric insurance, has partnered with Tokio Marine HCC to offer its flagship product[3].

In summary, the slump in total InsurTech funding is attributable to the sharp drop in P&C investment despite continuing strong investor demand for AI-driven InsurTech startups, particularly in life and health insurance sectors. The funding landscape is thus evolving, favoring AI innovation and life/health coverage over traditional property and casualty.

[1] Global InsurTech Report Q2 2025, Willis Towers Watson [2] Equal Parts raises $10m to help insurance agencies go digital, TechCrunch [3] Willis Re and Aon Secure Record $15bn InsurTech Funding, Reinsurance News [4] Marshmallow raises $45m to expand UK car insurance for new drivers, TechCrunch [5] InsurTech Report Q2 2025, CB Insights [6] Gravie raises $144m to help small businesses with health insurance, TechCrunch [7] Willis Re: AI-Driven InsurTech Investments Surpass $15bn Since 2012, Insurance Business Mag [8] InsurTech funding surpasses $60bn since records began in 2012, Reuters

1. The decline in global funding for InsurTech startups in Q2 2025 was primarily due to a decrease in funding for property and casualty (P&C) InsurTechs, dropping to $363 million, the lowest level since Q1 2018.
2. AI-driven solutions continued to show robust demand, with 57.1% of deals in Q2 going to AI-centered companies, signifying sustained investor interest in AI technologies within the sector.
3. The funding landscape for InsurTech startups is evolving, favoring AI innovation and life/health coverage over traditional property and casualty, as AI-focused companies raised a majority of funding and deal volume.
4. AI is becoming increasingly concentrated on applications such as automation, data-driven underwriting, and predictive modeling, particularly useful for addressing climate and catastrophe risks in the property and casualty insurance sector.

Read also: