Private Equity Investment in Insurance Surges, While Global Deals Decline in Value

While global private equity deals and deal volume declined sharply in 2023, private equity investments in insurance have been surging and were 42% higher during the first seven months of 2024 than all of last year, according to a recent report from consulting firm McKinsey & Co.

As of the end of July, private equity investments in insurance in 2024 totaled $27 billion, compared with $19 billion for all of last year and $21 billion in all of 2022, according to the report. At its current rate, investment deal value could top the $45 billion worth of deals made in 2021 during the early aftermath of the COVID-19 pandemic and reach its highest value over at least the past 10 years. Meanwhile, total global private equity deal volume and value fell 21% and 24%, respectively, in 2023, according to McKinsey.

“When it comes to insurance, though, PE investments are rising,” the report stated. “While consolidating distribution remains the dominant theme—especially among brokers—the areas of claims services, specialty underwriters, and insurance software have all become more of a core focus for PE investors.”

Insurance distribution has been the most resilient sub-segment within overall private equity financial services investing, according to the report, despite the impact of increased debt costs due to higher interest rates. This in a segment that relies heavily on debt financing and mergers and acquisitions.

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The report also stated that investors are looking to use artificial intelligence and other technologies to “reduce expenses, improve technical performance, and reduce the loss ratio or propel growth.” McKinsey estimated $50 billion to $70 billion of insurance industry revenue will come from the impact of generative artificial intelligence productivity improvements. The report cited a survey the firm conducted in February of more than 50 insurance companies, more than half of which reported they believe generative AI could lead to productivity gains of 10% to 20%, with premium growth of 1.5% to 3.0%.

“Gen AI is no magic bullet, but it has immense potential to shape future performance,” the report stated, adding that “while several established insurance software players are already PE-owned, investment opportunities remain.”