2023 has been a tough year for InsurTechs to raise the Venture Capital they need to grow.

Investors turned their backs on whole categories like full-stack carriers and direct-to-consumer startups. Insurance companies focused on risks and losses in their own businesses.

But InsurTech entrepreneurs demonstrated their resilience by adding new words to their vocabulary, like “profitable growth” and “breakeven”—and investing is picking up for outstanding business models and teams.

Here are eight trends to look for in 2024.

1. The Word of the Year Is AI

Generative AI is capturing the imagination of the insurance C-suite, and InsurTechs are starting to deliver solutions. This senior-level focus is also good news for InsurTechs that already have solutions driven by well-established AI technologies like natural language processing, machine learning and computer vision. These proven technologies deliver great results without risk of hallucination and will grow faster in 2024 because of the AI buzz.

In 2024, AI will be everyone’s copilot. Engineers are already coding 55 percent faster with copilot. Who doesn’t want their workforce to work 55 percent faster? The insurance industry is looking for ways to leverage experienced staff across the entire organization, from distribution to underwriting to claims. InsurTechs will be competing with Big Tech and systems integrators but will bring the advantage of a deep understanding of insurance workflows along with nimble tech development.

2. Data Finally Gets the Attention It Deserves

Insurance runs on data. Internally generated and externally sourced data guides every decision, including which customers to underwrite, which claims to pay and which lines of business to grow. AI and other tech implementations are forcing the whole insurance ecosystem to assess the state of all the data it uses and generates. No one is getting an A.

InsurTechs are leading the way in finding new ways to source, ingest and analyze data. A simple approach is feeding data into existing systems—for example, more accurate data leads to more accurate underwriting and higher profits. Other InsurTechs will deliver high value by solving more of the problem for insurers by combining more accurate and comprehensive data with analytics that recommend better decisions. InsurTechs will deliver data solutions for underwriting, claims and distribution.

3. Embracing Brokers

Early InsurTechs focused on selling direct to the end user, disintermediating brokers. That effort is over. The brokers won. InsurTech MGAs already leverage existing wholesale and retail brokers for distribution. Now, InsurTechs are delivering products to help brokers digitize their distribution, as well as making their placements more efficient by understanding the characteristics of the customer and appetite of each carrier. InsurTechs no longer attempt to replace brokers or change their objectives; the new focus is on enabling brokers to be better brokers.

4. Technology Innovation, Yes. But Make It Painless and Profitable

The market has moved beyond innovation for the sake of innovation. Today, insurance business leaders are evaluating InsurTech solutions in terms of ROI and ease of implementation. There is a lot of appetite for APIs and very little for rip-and-replace projects.

Incumbents’ resources are more limited due to layoffs and budget reductions. Those reductions are forcing honest assessments of what the organization can achieve internally versus finding a trusted partner. The result will be close working relationships between customers and InsurTechs, with aligned interests and a shared long-term view.

5. Embedded Everywhere All at Once

Embedded insurance is on the predictions list for the third year because the market keeps demanding more. Even as interest in other InsurTech distribution plays has diminished, investors and insurers see value in embedding insurance into more experiences. The value comes from finding channels with high relevance and a clear value proposition.

In 2024, embedded insurance will extend from the consumer world into corporate buyers, starting with small businesses. Carriers like embedding in channels where the user overestimates the risk and is satisfied with a standard product, resulting in profitable sales.

6. Climate: Extreme Insurance

The extreme weather in 2023 is driving interest in multiple kinds of climate insurance solutions. On the risk side, InsurTechs are offering parametric insurance, wildfire cover, and MGAs focused on climate and flood. On the analytics side, there are offerings in climate, flood and fire modeling, as well as data on the climate risk by specific property. The industry is now facing catastrophic-level attritional losses from extreme weather events that are not classified as cats, such as convective storms. In 2024, insurers will be working with InsurTechs to address all of these extreme weather risks.

7. Quality, Not Quantity

Employees of early InsurTechs are now starting their own InsurTechs, and these repeat entrepreneurs are creating high-quality startups. Teams often include a mix of experience from InsurTech and traditional insurance. They are keeping the speed and agility of startups and leveraging their networks in insurance. Launching in lean times for capital, they are testing and learning with live prospects early and quickly. Watch for the current crop of InsurTechs to deliver high-value solutions based on experience and insight.

8. InsurTech + Incumbent = Delivering Innovation at Scale

2024 will see more mergers and acquisitions. InsurTechs will combine with other InsurTechs, aiming to gain scale and efficiency. Traditional players will buy InsurTechs, aiming to import technology innovation and spread it across their existing operations. The good news is that many of these relationships are already in place. Incumbent insurers have been getting to know InsurTechs over the past eight years, through their corporate venture capital groups and on the business side. Traditional insurers are already clients of InsurTechs, as well as providing paper, reinsurance and acting as fronts for InsurTech MGAs. Well-executed acquisitions could accelerate technology adoption for the acquiror, and could change the competitive landscape among incumbents.