The Money Went to the Wrong Place
In 2021, venture capital flooded into insurtech at a pace I'd never seen. Companies were raising at 20x, 30x revenue multiples. Some were raising with no revenue at all. The market was rewarding growth speed and TAM slides, not unit economics. I watched it happen in real time through the guests on my podcast — founders, investors, executives who believed they were going to remake a $1.4 trillion industry.
By 2024, a lot of them were gone. Companies that raised $50M, $80M, $100M in 2021 had disappeared through acqui-hires, down rounds, or outright shutdowns. The hangover was brutal and predictable in hindsight.
Here's what actually happened.
They Confused Two Very Different Statements
"Insurance is a large, inefficient market" is true. "We can capture it quickly with software" is a completely different claim — and mostly false.
Insurance has structural durability baked into it. You need admitted carrier licenses or surplus lines filings in each state you operate in. Claims require licensed adjusters. Distribution runs through 350,000+ independent agents who have client relationships that go back decades. Actuarial pricing isn't optional. None of that disappears when you build a better app. It just becomes your compliance burden, your operations cost, your time-to-market constraint.
The founders who raised the biggest rounds in 2021 saw the inefficiency and assumed the fix was to build a new insurance company on top of modern software. What they didn't account for is that traditional carriers spent 30, 50, sometimes 100 years building the infrastructure they were trying to replicate in 18 months on VC money.
Full-Stack Was the Trap
The companies that burned through cash the fastest were the ones going full-stack — trying to be the carrier, the distributor, the claims handler, the tech platform, all at once. That's not a startup. That's a regulated financial institution with a UI redesign. The capital requirements alone would have humbled them if the operational complexity hadn't gotten there first.
I had a pattern of conversations on the show that I kept coming back to. The founders who tried to replace the agent channel spent three years building what took traditional companies three decades to build. Then they ran out of money doing it. Every time.
The founders who tried to "replace" the agent channel spent three years building what took traditional companies 30 years to build — then ran out of money doing it. The founders who "augmented" the agent channel built profitable products that carriers actually bought. — James Benham
The difference between "replace" and "augment" sounds semantic. It wasn't. It was the difference between surviving 2023 and not.
The Companies That Made It
They picked one layer of the stack and built deep there. They sold into existing carriers and MGAs instead of competing with them. They became indispensable to an incumbent rather than trying to make the incumbent obsolete.
That's not a glamorous pitch. It doesn't get you on the cover of TechCrunch in 2021. But it's the pitch that was still standing in 2024. The companies building better underwriting tools for carriers, better claims workflow software, better agent-facing platforms — those businesses found buyers and customers. Some of them got acquired at real multiples. Some are growing profitably right now.
The ones trying to own the entire value chain? Most of them don't exist anymore.
What the Money Should Have Funded
The best use of all that 2021 capital would have been building technology for insurance companies — not building insurance companies that happened to use technology. Most of the money went to the second bucket. Most of the survivors came from the first.
That's not a lesson you can only learn from watching a market cycle. The signs were there in 2019, 2020. The structural constraints of insurance weren't secrets. State-by-state regulation, distribution lock-in, actuarial requirements — these are in the first chapter of every insurance textbook. The founders knew they existed. They just believed software would dissolve them faster than it did.
It didn't. It never does. The market is inefficient, yes. But inefficient markets still have rules. And in insurance, the rules have teeth.
The next wave of insurtech funding is going to look a lot more like enterprise software sales and a lot less like consumer growth plays. That's not a pessimistic take — it's actually the model where the money gets made. It just doesn't make for as exciting a pitch deck.