Insurance 2026: The Industry Finally Grows Up?

The insurance industry is about to enter 2026 in a position it hasn't been in for years: profitable, technologically competent, and appropriately humble about what actually works. After burning through billions in insurtech experiments and watching combined ratios swing wildly, the market has settled into something resembling maturity. The 2024 P&C combined ratio of 96.5% was the best in over a decade. E&S carriers continue outperforming admitted markets by 5 to 7 points. And the surviving insurtechs have finally started generating cash instead of consuming it.

But here's the real story heading into 2026: the separation between what works and what doesn't has become undeniable. The wholesale brokers won. The full-stack DTC carriers mostly didn't. AI adoption reached a tipping point. And the industry's decade-long experiment with "disruption" has produced clearer lessons than anyone expected. This piece examines what the data actually shows, what the consulting firms are projecting, and what strategic positioning makes sense for the year ahead.

Insurtech Funding Has Found Its Floor

The insurtech funding collapse that started in 2022 appears to have stabilized, though at levels that would have seemed catastrophic just four years ago. Full-year 2024 saw $4.5 billion in funding across 362 deals, down 71% from the 2021 peak of $15.4 billion. Through the first three quarters of 2025, quarterly funding hovered around $1.0 to $1.4 billion, with no indication of returning to previous highs.

More telling than total dollars is where they're going. B2B SaaS providers captured 43% of 2024 insurtech investments. AI-focused companies represented 63% of Q3 2024 deals. MGAs with capital-light models continue attracting capital while full-stack carriers struggle. The investor thesis has shifted fundamentally from "disrupting distribution" to "enabling incumbents."

The investor base itself has contracted dramatically. Only 186 unique investors made insurtech investments in Q3 2025, down from 655 at the 2021 peak. Just four investors made two or more investments that quarter: American Family Ventures, ManchesterStory Group, Munich Re Ventures, and OperaTech Ventures. Strategic investors like Munich Re (which acquired NEXT Insurance in March 2025) and Zurich (which bought cyber MGA BOXX Insurance) are now doing through acquisitions what venture capital once did through funding rounds.

The median deal size fell to $4.0 million in 2025, the lowest since 2019. Early-stage deals represented just 60% of total activity, down from 72% in 2022. This matters because it suggests a thinning pipeline of new insurtech companies. The era of launching dozens of competing startups in each insurance vertical is over.

Which Business Models Actually Work Now

The evidence on sustainable business models has become definitive. MGAs work. B2B SaaS works. Embedded insurance works. Full-stack direct-to-consumer carriers struggle.

MGAs thrived because they avoided the core problem that plagued full-stack insurtechs: underwriting volatility. By paying 3 to 8% of premium to fronting carriers, MGAs transfer catastrophe risk while retaining fee income and customer relationships. The acquisition pattern tells the story: Corvus (cyber MGA) went to Travelers in 2024. BOXX Insurance went to Zurich in Q3 2025. Prima Assicurazioni sold to AXA for $1.1 billion. Carriers are buying MGAs because MGAs built capabilities carriers couldn't.

B2B infrastructure plays proved resilient because they generate recurring revenue without taking insurance risk. Applied Systems acquired AI underwriting platform Cytora in September 2025. Datavant bought AI medical review company DigitalOwl. Vista Equity took Duck Creek private for $2.6 billion. Advent International acquired core systems provider Sapiens for $2.5 billion. The buyers are private equity firms and strategic acquirers who see steady cash flows in a sector where venture returns disappointed.

Embedded insurance emerged as the fastest-growing segment, with projections ranging from $70 billion to $700 billion by 2030 depending on how you define the market. Bolttech raised $147 million in June 2025 at a $2.1 billion valuation, processing $65 billion in annualized quoted premiums. Cover Genius closed an $80 million Series E, reporting 107% year-over-year revenue growth and $500 million in gross written premium. The economics work because customer acquisition costs are near zero when insurance is bundled into an existing purchase.

The full-stack carriers present a more complicated picture. Hippo achieved its first profitable quarter in Q4 2024 and posted $98 million net income in Q3 2025, though this relied heavily on its Spinnaker fronting business. Root achieved profitability in 2024 with an industry-leading 58.9% gross loss ratio but has struggled to grow policy count beyond 400,000. Lemonade crossed $1 billion in in-force premium but still operates at a 165% combined ratio with an expense ratio above 100%. The lesson is that digital-first distribution can work, but only if paired with disciplined underwriting and realistic growth expectations.

The Wholesale Brokers Already Won

If you want to understand power dynamics in insurance distribution heading into 2026, follow the wholesale broker earnings. Ryan Specialty generated $755 million in Q3 2025 revenue, up 25% year-over-year. Amwins places $39 billion in premium annually and recently refinanced $4.6 billion in debt to fund a shareholder dividend. CRC Group, after the Stone Point/CD&R buyout at $15.5 billion enterprise value, sold McGriff to Marsh McLennan for $7.75 billion and is now acquiring Lloyd's managing agency Atrium.

The concentration at the top has intensified. The top 10 specialty distributors now place approximately two-thirds of specialty P&C premium, roughly $210 billion in 2024. Specialty distributors consolidated at approximately three times the rate of retail brokers between 2020 and 2024. Major global retailers have reduced their wholesale partners from hundreds to just three or four, which only strengthens the position of Amwins, Ryan, and CRC.

Why did the disintermediation predictions fail so completely? Several reasons became clear. Brokers acquire customers efficiently because they already have relationships. Commercial policies aren't commodities because each has unique coverages and endorsements requiring expertise to place. There are no cost savings for customers bypassing brokers because broker commissions come from carriers, not customers. And accounts above $25,000 in premium must be marketed to multiple carriers, a process that requires broker relationships and market knowledge.

The technology threat never materialized for complex risks. One wholesale executive put it bluntly: "I'm not worried about insurance companies thinking they can do sales. They can't." The surviving insurtechs pivoted to enabling brokers rather than replacing them, effectively validating the incumbent distribution model.

E&S Continues Its Structural Expansion

The E&S market posted its seventh consecutive year of double-digit growth in 2024, with direct premiums reaching $130 to $135 billion depending on the source. E&S now represents 12.3% of total P&C premium, up from just 3.6% in 2000. In commercial lines specifically, E&S accounts for 25.7% of premium, compared to 7.1% at the turn of the century.

The combined ratio differential tells the story of why capital keeps flowing to surplus lines. E&S carriers posted approximately 88% combined ratios in 2024 versus 96.5% for the overall P&C industry. Kinsale ran a 75.6% combined ratio. W.R. Berkley reported 88.8%. The gap narrowed from 10 points in 2023 to about 5 points in 2024, but this reflected personal lines improvement rather than E&S deterioration.

AM Best revised its E&S outlook from positive to stable in November 2025, citing rate softening in select classes like commercial property. But the structural drivers remain intact. CAT-exposed property continues flowing to E&S markets. Commercial auto liability premium grew 29% year-over-year in the first half of 2025. California homeowners E&S premiums increased 86% as admitted carriers withdrew.

The risks that require E&S placement aren't going back to the admitted market. Cyber remains exclusively in surplus lines due to the fast-changing nature of the risk. Professional liability requires the flexibility of claims-made coverage. Florida and California property will need surplus lines capacity for the foreseeable future. Technology enables E&S carriers to underwrite these risks profitably while admitted carriers struggle.

AI Adoption Reached an Inflection Point

The numbers on AI adoption crossed meaningful thresholds in 2025. According to Conning's survey, 77% of insurers have adopted AI in some capacity. SAS reports 49% are implementing AI at scale with another 41% planning to do so within a year. GenAI specifically is in production at 37% of health insurers and in early adoption or full deployment at 55% of carriers surveyed.

The ROI metrics have moved beyond theoretical. McKinsey cites 70% reductions in processing time and up to 30% cost savings. Underwriter productivity gains of 50% are being reported. Claims automation saves an estimated $6.5 billion annually across the industry. Decision times for standard policies dropped from 3 to 5 days to approximately 12 minutes.

AI spending is flowing to three primary areas. First, underwriting automation for standard risks, where machine learning models now achieve 99.3% accuracy on straightforward policies. Second, claims document processing, where computer vision and natural language processing extract information and flag anomalies. Third, customer service, where chatbots now handle 42% of interactions.

The AI in insurance market reached $4.36 billion in 2023 and is projected to grow to $45 billion by 2035. AI-powered underwriting specifically is expected to expand from $2.85 billion today to $674 billion by 2034, though this projection relies on assumptions about adoption rates that may prove optimistic.

BCG's research provides a reality check: 74% of companies struggle to transition AI projects from pilots to enterprise-wide adoption. Only 7% of insurers have scaled AI to full deployment. And 70% of the value from AI comes from organizational capabilities rather than the technology itself. The insurers succeeding with AI are those treating it as an operating model change rather than a technology deployment.

The Rate Environment Is Turning

After seven years of hard market conditions, commercial lines pricing has inflected. Marsh's Q3 2025 Global Insurance Market Index showed US rates declining 1% overall. Property rates declined 8% globally. Cyber rates fell for the ninth consecutive quarter, down 6%.

The exception is US casualty, where rates increased 8% in Q3 2025. Commercial auto has seen 54 consecutive quarters of rate pressure. Social inflation and nuclear verdicts continue driving severity. Swiss Re forecasts combined ratios deteriorating to 99% by 2026 as rate adequacy gains slow.

Capital availability explains the pricing pressure. Global reinsurer capital reached a record $715 to $769 billion at year-end 2024. Alternative reinsurance capital hit $115 to $121 billion. The cat bond market saw $17 billion in issuance in 2024 alone, with $17 billion more in the first half of 2025. Oversubscription at January 2025 renewals exceeded demand by 5 to 10%.

For 2026, carriers should expect property rates to continue softening for non-CAT-exposed risks while CAT-prone regions see flat to modest increases. Casualty will remain firm, with excess and umbrella seeing double-digit increases. Workers' compensation will stay soft. Cyber pricing will likely stabilize after prolonged declines as loss experience catches up.

M&A Valuations Remain Elevated

Deal activity presents a tale of two markets. Total insurance distribution deal value reached $49.4 billion in 2024, up 72% despite fewer transactions, driven by mega-deals like the $15.5 billion Truist Insurance Holdings buyout. But Q1 2025 collapsed to just 101 deals worth $1.73 billion, the lowest quarterly performance in four years.

Valuation multiples remain historically high. Insurance distribution transactions averaged 16.7x EV/EBITDA from 2022 to 2025, up from 13.1x in 2019 to 2021. Private capital-backed buyers represented 73.5% of 2024 transactions, up from 59.3% in 2019. The top three buyers (BroadStreet Partners, Inszone Insurance, and Hub International) accounted for 25% of all deals.

Insurtech M&A accelerated as venture funding declined. Q2 2025 saw a record 50-plus acquisitions, the highest ever. Q3 2025 had 21 M&A deals, the most since 2022. The acquirers are predominantly incumbents seeking capabilities: carriers buying MGAs for distribution and underwriting expertise, software buyers acquiring AI platforms, and private equity rolling up adjacent capabilities.

The implication for 2026: M&A will remain the primary exit path for insurtechs, with strategic acquirers paying premiums for proven capabilities while venture-backed companies find fewer options for late-stage funding.

The Takeaway: Strategic Positioning for What Comes Next

So what themes can we takeaway on the whole? Firstly, the bifurcation between commodity and specialty risks will accelerate. Simple, standardized risks will see continued automation, margin compression, and direct distribution gains. Complex risks requiring judgment and relationships will command premium pricing and sustain broker value.

Second, AI capabilities will separate winners from losers within three years. Insurers achieving enterprise-wide deployment will realize 10 to 20% productivity gains and 1.5 to 3 point improvements in technical results, per McKinsey's estimates. Those stuck in pilot mode will fall behind permanently.

Third, the MGA model will continue gaining share from both traditional carriers and full-stack insurtechs. The capital efficiency and underwriting focus of well-run MGAs positions them for the current environment better than either alternative.

Fourth, embedded insurance represents the most significant distribution opportunity since the rise of independent agents. But success requires true integration into purchase flows, not just partnerships for marketing purposes. The winners will be platforms that make insurance invisible, not companies that make it merely convenient.

Finally, the wholesale broker consolidation is approaching its logical conclusion. Three firms will dominate specialty distribution for the foreseeable future. Retailers will have little choice but to work with them for complex risks. And the technology investments these wholesalers are making will create additional barriers to entry.

The insurance industry in 2026 will reward discipline over disruption. It will favor operators who understand risk over marketers who understand customer acquisition. And it will continue demonstrating that for all the billions spent on innovation, the fundamentals of underwriting profit and loss haven't changed.

Fabio Faschi is an InsureTech leader, Chief Revenue Officer at PolicyBound and Board Member of the Young Risk Professionals New York City chapter with over a decade of experience in the insurance industry. He has built and scaled over a dozen national brokerages and SaaS-driven insurance platforms. Fabio's expertise has been featured in publications like Forbes, Consumer Affairs, Realtor.com, Apartment Therapy, SFGATE, Bankrate, and Lifehacker. For more information, visit his website: fabiofaschi.com.