AI Cements Its Grip on Insurtech as Liability Questions Mount

Artificial intelligence has achieved near-total dominance in the insurtech sector, accounting for 95.2% of the $1.63 billion in total funding recorded in Q1 2026. While investment remains robust, Gallagher Re reports a critical inflection point as businesses rapidly operationalize AI without adequate risk management frameworks. This shift is driving a surge in AI-related legal disputes and highlighting significant coverage gaps in traditional insurance policies, necessitating a new era of specialized AI liability products.

The insurtech market saw a significant structural shift in the first quarter of 2026, with AI-focused companies securing $1.55 billion across 68 deals, representing nearly the entire share of global investment. According to Andrew Johnston, Global Head of InsurTech at Gallagher Re, the terms AI and InsurTech have become almost synonymous as the technology transforms industry capital deployment. The average deal size for the quarter rose to $23.23 million, the highest since late 2021, despite a slight dip in total deal volume. Notable activity occurred in the life and health sector, where funding nearly doubled to $718.99 million, led by major rounds for full-stack insurers like Devoted Health, which secured a $318 million Series F extension, and Alan, which raised $116 million.

Early-stage investment reached its highest level since mid-2022, totaling $548.5 million and signaling strong confidence in new AI applications. A standout performer was Corgi, a commercial insurer for startups, which raised $108 million in a Series A—marking only the sixth time an early-stage insurtech has surpassed the $100 million mega-round threshold. Corgi is part of a growing cohort of companies focusing on AI liability and cyber insurance themes, which collectively raised $444.84 million during the quarter. Other key players in this niche include GenLogs, Indigo, and Harper, all of which secured top-10 deals as the market begins to treat AI liability as the next evolution of digital risk coverage.

The rapid adoption of AI is creating a widening gap between technological implementation and insurance protection, with 63% of businesses having operationalized AI while fewer than half have formal risk management in place. Gallagher Re reports that one in five insurance professionals has already seen a client experience an AI-related loss, yet only about half of those claims were fully covered by existing policies. With over 200 active legal cases involving algorithmic bias, privacy liability, and false outputs, the industry is preparing to respond through specialized endorsements and standalone AI policies. Experts suggest that AI liability coverage will likely evolve similarly to the cyber insurance market, moving from silent exposures in traditional wordings to affirmative, dedicated products managed by specialized digital risk teams.