Houlihan Lokey – Insurtech Report, Nov 2023

The insurance industry in the US experienced a record-breaking year in 2022, with high insurance carrier cash balances, investable assets, employment in the carrier/broker/agency sector, and total insurance premiums sold. However, the industry now faces challenges in 2023 due to various factors including inflation, increased claim costs and complexity, catastrophic events, fraud, excess mortality rates, and litigation. These pressures are leading to a challenging market where even rising premiums are not keeping up with claim costs, especially in the property and casualty (P&C) sector. Despite these challenges, there is a growing adoption of insurance software and data/analytics solutions by carriers, brokers, and industry enterprises. These solutions are improving distribution, underwriting, and claims outcomes, as well as enhancing customer engagement and satisfaction. Digital carriers and distributors are also gaining market share through high-growth strategies and the shift towards digital-enabled distribution. However, concerns about slowed growth, cash burn, underwriting quality, and sustainability of customer acquisition costs are impacting investor appetite and valuation. The insurtech market has seen a slower year in terms of mergers and acquisitions (M&A) and growth/venture capital deals. This is attributed to concerns about the broader tech market, higher interest rates, and the challenging insurance environment. However, there have still been 79 reported M&A transactions and 336 growth and venture capital deals, with over 300 companies receiving funding. Despite the challenges and slower market, there are still significant opportunities for investors in the insurtech market. The industry is diverse and rapidly evolving, with business model nuances influencing momentum, valuation dynamics, and investor interest. The relative newness of modern technology adoption in the insurance value chain, coupled with inadequate legacy systems, indicates a persistent opportunity for significant investment.