LONDON, Aug 1 (Reuters) - Global financing for insurance

technology (insurtech) firms rose 40% to $1.27 billion in the

second quarter from the previous three months, helped by money

going into AI-focused businesses, reinsurance broker Gallagher

Re said on Thursday.

The use of artificial intelligence in insurance presents

challenges, however, because of the risks of so-called

"deepfakes" in fraudulent claims and of the exclusion of

potential customers by AI models, Gallagher Re said in a report.

Global insurtech funding reached a peak of $16 billion in

2021, but funding has cooled since then as valuations shrank.

Companies are nonetheless betting on AI to help them

automate tasks and cut costs, though there are fears it could

lead to dramatic job losses.

Around 33% of total insurance tech funding in the second

quarter went into AI-focused insurtechs, according to the report

from Gallagher Re, a unit of Arthur J Gallagher ( AJG ). AI was

valuable in insurance pricing and underwriting, but "where

underwriting has been entirely delegated to AI, success has been

limited", the report said.

"It is becoming clearer that removing the human entirely is

a mistake."

AI-enabled risk assessments could drive a shift to

individualised pricing, which could benefit some customers but

leave others uninsurable, the report said.

The use of AI to create deepfakes, or convincing images and

videos, could be used in insurance fraud, the report added.

"Any ability to obscure the truth and make it look very,

very real is a problem," Andrew Johnston, global head of

insurtech at Gallagher Re, told Reuters.

However, AI is useful in analysing large volumes of data and

speeding up administrative tasks, the report said. AI could also

find a way to solve its own problems, for instance in detecting

deepfakes.