Digital insurers attracted the most capital in the insurtech space in 2021, helping to power the sector to a record $19.8 billion for the year in all, a 176% increase over 2020, according to the Insurtech Funding Roundup, Q4 2021, by Forrester Research. Q4 2021 in particular, saw insurtech deal sizes increase and the U.S. as the hottest market in the sector. 

Digital insurers got almost 55% of the funding among insurtech companies in 2021, with digital insurers focused on health and travel getting the most funding for that category, for a total of $1.4 billion in Q4 2021. That category, which included $1.2 billion for Devoted Health, ranked second among categories of insurtech funding, behind infrastructure and back-end companies with $1.5 billion in funding.

Forrester Research stated in the report that it expects digital insurers to continue to drive insurtech funding in the future, by making it easier for customers to buy and use insurance.

Overall in the insurtech sector, early-stage startups received $4.3 billion in funding in Q4 2021, the third-strongest quarter of the year. Forrester states that early-stage startups are an important part of the market, and that will persist in the years to come, as insurers continue to invest in digital technology. Investors will continue to be attracted to early-stage startups because the companies help drive operational efficiency, create new products and win new customers.

In Q4 2021, 50 insurtech startups received funding, with nine getting $100 million or more. The median amount of funding per company was $26 million, up from $10 million in Q1 2021. North American startups raised 75% of all funding.

Where is all this increased investment coming from? Insurance companies themselves, according to Forrester’s report. 

Life insurers are prioritizing the digital experience. P&C insurers are investing in technology to simplify business processes and reinsurers are focusing on digital platforms to diversify business. 

Forrester issued the following recommendations for the industry to focus on insurtech going forward:

  1. Evaluate the state of their business and digital maturity across their customers’ journeys.
  2. Determine what capabilities they should develop internally and which ones they should look for externally from vendors.
  3. Evaluate the insurtech space to learn what capabilities will be available.