There are concerns that the global insurance industry and its technology innovators are facing new threats as the investments and strategies are stifling growth and increasing costs.

Broker Gallagher Re has published its latest Global InsurTech Report and its editor has warned there remains a number of questions as to where the Insurtech sector is heading.

Dr Andrew Johnson said the report had identified some important developments in the Insurtech funding environment.

“There is a risk that despite the general recovery in fundraising we have witnessed in recent months, the industry may be facing a narrowing of its innovation pipeline,” he explained. “The final quarter of 2025 and the first of 2026 witnessed a material jump in funding, to an average $1.65 billion a quarter – from a long-run average of $1.1 billion a quarter over the preceding two and a half years.”

The report highlighted  the median Insurtech deal size reached $10.0 million in Q1 this year, almost double the $5.3 million seen at the height of the venture-funding boom in 2021. Yet, at the same time, Insurtech deal count fell to just 81 in Q1’26 – the lowest since Q2 2016 (67 deals). Capital availability is clearly not a problem; Insurtech funding is rebounding. However, if the money is going to a smaller number of innovators, does this leave incumbent carriers with fewer options?

“There is also a human element to this story,” Johnson added. “In the lead-up to the funding peak of 2021, it was not unusual to see talent move from established insurance businesses to Insurtech start-ups. Consequently, many Insurtech’s were well-staffed, with access to experienced (re)insurance professionals.

“While it would be untrue to say that we never hear of such things happening today, it is far less frequent. In fact, we often observe Insurtech employees going in the opposite direction. To some extent this is a sign of a mature industry, and unsurprising – but it could also be a limiting factor on any proliferation of new start-up ideas.

“This leads us to consider what start-ups are spending their money on – if not people. Historically, Insurtech company valuations and funding targets were primarily based upon the perceived total addressable market (which was often very ambitious) coupled with the current size of an organization (its headcount), and its projected ability to continue to hire in and assimilate new talent.

“However, in the AI-first era, it is many people’s assumption that tech companies will require fewer staff.”

He added: “Offsetting that, perhaps, is the reality that AI tools are generally more expensive to build than non-AI tools, and therefore there is a greater requirement for capital. The difference depends heavily on the complexity, data requirements and integration depth of the project. AI generally requires specialised skills – think machine learning engineers – rigorous data cleaning and preparation, and in some cases, very powerful new infrastructure.

“However, for the innovation to make sense in the long term, the cost saving of fewer people must outweigh the additional expense of AI tools — otherwise, what would be the point? And so we return to the question: why has the average fundraise doubled in the last five years – even though Insurtech’s should require, in theory at least, less capital to grow overall?

“Is it simply because more money is chasing fewer investable targets?

“Is it general inflation and costs going up across the board? Or is it a material, AI-driven uplift in these Insurtech’s’ business cases, meaning investors are prepared to write bigger checks?

“The correct answer is probably a combination of all of the above — but the paradox is very real. AI is supposed to be making things cheaper, and yet individual Insurtech’s seem to be raising, then burning through, more cash than ever.”