InsurTech

Gearing Up For Transformation – Insurance Incumbents Up Their Investment Game

MEDICI

At MEDICI, we have been speaking about how the general trend in the evolving financial services landscape is shifting from disruption to collaboration. Strategic investments and acquisitions by incumbents have been on the rise. InsurTech is one such segment which leads this shift in approach. In the past few years, more than 75% of funding deals in InsurTech has been led by traditional insurance incumbents.

InsurTech startups have the potential to strengthen the tech infrastructure of incumbents and deliver value in terms of enhanced UX, data-driven decision-making, consumer-responsive product development, etc. As InsurTech startups continue to emerge across various components of the insurance value chain and business lines, incumbents and investors are evaluating opportunities to deploy these applications in the insurance industry today and in the future.

On the other hand, InsurTech startups understand that their best bet for achieving scale is to work with incumbents and solve the existing pain points in the insurance value chain by means of their superior technological capabilities. Most of these players are positioning themselves as an enabler instead of as a disruptor. According to McKinsey’s research, 61% of InsurTech companies aim to enable the value chain, while 30% are attempting to disintermediate incumbents from customers and just 9% are targeting full-scale value chain disruption.

Incumbents understand the potential of this opportunity and are increasingly looking to partner with upcoming InsurTech startups. For the past couple of years, they have been engaging with these startups through accelerators and innovation programs. However, taking a step ahead, they are now aggressively looking to invest in promising startups.

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The number of InsurTech funding deals by incumbents grew at a CAGR of 150% in the period of 2013-2017. One of the incumbent in this space, Allianz recently converted one of its innovation labs (Allianz X) into a venture capital investment arm intended to bolster digital and core technology. There are other such examples as well, with many incumbents launching their VC arms – Ping An Ventures, AXA Strategic Ventures, MassMutual Ventures, QBE Ventures, etc. Through these investment arms, incumbents are looking to build a significant portfolio of InsurTech startups.

Also, 65% of strategic investments by incumbents in InsurTech have been concentrated in companies enabling the value chain, with only 35% of incumbent investments going to startups with more disruptive business models, thus reaffirming the general trend of collaboration as against disruption.

Going forward, we anticipate a mix of investment and a strategic partnership to be the driving force in this space. Also, incumbents might be looking to acquire InsurTech startups for talents scouting and for quick product launches.

The way these trends and developments are shaping up, 2018 looks to be exciting for the InsurTech space.

Diwakar Mandal

MEDICI

Diwakar is a FinTech enthusiast and an avid researcher who spends his time learning and writing about market trends, traction and disruptions in the industry. He has been active in the financial services consulting space for over four years.