The insurtech industry has evolved rapidly over the past decade because of technological advancements, changing consumer expectations, and investments. As new risks evolve across climate, cybersecurity, and healthcare, AI has emerged as a critical tool that can modernize insurance processes and offer opportunities to improve efficiency, accuracy, and customer engagement.
In this changing environment, insurtechs can spot gaps that the industry has yet to address and capture the opportunity by incorporating new technologies, especially AI, into their operations.
The insurtech industry is stabilizing
Macroeconomic and geopolitical volatility has affected all industries, but the insurtech industry is showing signs of stabilizing nonetheless. Global venture capital investments in insurtechs have returned to pre-COVID-19 levels ($1.5 billion per quarter), with an increase in funding rounds across various growth stages. However, the market remains divided: While some insurtechs are successfully scaling, others continue to struggle to find sustainable business models.
In this context, the funding landscape has shifted, with a decline in megarounds and a growing focus on smaller-scale late-stage investments. Series C+ funding rounds in particular have seen significant growth, rising from 100 rounds in 2023 to 150 in 2024.
Over the past eight years, European insurtechs have exhibited remarkable operational resilience. Of the roughly 800 insurtechs founded across Europe between 2015 and 2023, 85 percent remain active, 10 percent have been acquired, and only 5 percent have ceased operations. Among those still operational, nearly half have grown to employ more than ten people, signaling a transition into the scale-up phase. This progress and this resilience highlight the region’s strong capacity to drive growth and innovation within the sector.
Insurtechs are exploring new investment sources and strategies to navigate the evolving market landscape. In the future, insurtechs that harness AI and other advanced technologies to drive innovation and growth may be more attractive to investors.
Insurance innovation should account for new and emerging risks
Emerging risks in areas such as cybersecurity, climate change, and health insurance are exposing wide gaps in coverage.
Cyberinsurance. The global cyberinsurance market has experienced rapid growth, with premiums doubling since 2022 to reach more than $11 billion in 2024. Market demand for cyber insurance is bigger than 2024 baseline by several orders of magnitude, but carriers’ risk appetite is lacking. Significant opportunities abound in areas such as cyber-risk analytics, vehicle cyberinsurance, and cyberattack prevention.
Climate risks. The impact of climate change is intensifying: Global insured losses from natural catastrophes doubled from an average of more than $58 billion per year in 2000–09 to more than $116 billion per year in 2009–23. Market data show that at least two thirds of global climate risk is currently uninsured (probably more).
Health insurance. Demographic shifts, such as an aging global population, are reshaping the health insurance landscape. Insurers have opportunities in critical-illness coverage, preventive healthcare, remote healthcare, fertility and family plans, and more. Large and growing segments such as chronic patients and elderly are currently considered uninsurable and deserve innovative products.
Despite the increasing need to address these systemic risks, only around 5 percent of insurtechs are focused on them. According to McKinsey analysis, these areas accounted for less than $200 billion in gross written premiums (GWP) in 2023, compared to $4.1 trillion of total GWP, highlighting a significant global protection gap—and a substantial opportunity for the industry.
Insurers and insurtechs continue to focus on underwriting traditional risks and are not exploring emerging risk markets due to challenges with modeling and pricing, high volatility, limited data, and regulatory uncertainty. Consequently, no insurtech has yet succeeded in creating an entirely new market that addresses these emerging risks, which has prevented top companies from reaching $1 trillion in valuation, unlike other industries where tech-shapers changed the rules of the game. Even traditional insurers are far from that milestone. Without taking these opportunities to disrupt the market, traditional insurers’ max market cap sits at less than $200 billion. However, advancements in AI are beginning to address these challenges and are playing a pivotal role in narrowing the underinsurance gap.
AI meets insurtechs
Insurtechs are uniquely positioned to disrupt the market by addressing emerging and underinsured risks. By using advanced technologies, such as AI and data analytics, insurtechs are developing innovative products tailored to these new risks. The agility and flexibility of insurtechs allow them to rapidly iterate and scale solutions, making them well suited to address these complex challenges and capture untapped market opportunities.
AI is revolutionizing the insurance industry by automating underwriting, detecting fraudulent claims, and predicting customer behavior. Insurtechs are harnessing AI to create innovative solutions that improve risk assessments, streamline claims management, and enhance customer engagement. In the United Kingdom, approximately 70 percent of insurtech firms are already running AI pilot projects or advancing beyond them, and more than 90 percent expect to use gen AI in their operations within the next 12 months, according to McKinsey analysis.
AI can also help to revolutionize important insurance metrics. For example, insurers can dramatically enhance their customer satisfaction scores by using AI to proactively prevent risks. AI-driven automation can also triple GWP per full-time-equivalent employee by minimizing the need for human intervention. Further, using advanced risk assessment capabilities prior to underwriting can lead to a 40 to 50 percent improvement in loss ratios, driving greater efficiency and profitability across the insurance value chain.
AI enables the scale use of data, which is key to increasing current leverage on capital markets to get required risk capacity (e.g., through insurance-linked securities).
In this transformative landscape, incumbents have the potential to rewire their operations by taking four actions:
- Overcome resistance to change and develop the ability to integrate these tools through effective change management programs.
- Use strategic partnerships to navigate regulatory uncertainties and compliance complexities.
- Manage legacy systems with phased and automated approaches to data integration and IT migrations.
- Mitigate risks and prevent disruptions to the core business through a two-speed strategy that balances innovation and operational stability.
The insurtech industry is at a crossroads, with significant opportunities for growth and transformation. AI and advanced technologies are expected to be key enablers in closing the protection gap and addressing the evolving needs of the insurance market. Insurtechs that can effectively harness these technologies and form strategic partnerships with incumbents will be well positioned for success in the future.
Piero Gancia is a senior partner in McKinsey’s Milan office, Simon Kaesler is a senior partner in the Frankfurt office, Esther Fernández is an associate partner in the Madrid office, and Pietro Richelli is an associate partner in the London office.
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