Insurance Companies Will Hunt For Complementary Tech-Startups: Gartner

by CXOtoday News Desk    Oct 24, 2016

Insurance Technology

Insurance companies would have to seek out technology companies specializing in the domain and possible partner or acquire them if they aspire to grow and gain the competitive edge in the market for business related to the segments of life, property and casualty, a recent study report has suggested. 

Gartner study report suggests that about 80% of Insurance companies will chase ‘insutech’ (insurance-tech) companies to maintain their competitive advantage in the market and further points out that 64% of the world’s largest 25 insurance companies have already invested directly or indirectly via their venture capital arms, in the insutech startups.

In fact, the trend shows, that insurance companies will continue to hunt for new companies which help maintain and gain their competitive market positions. All these happenings point towards a common point; that insurance company CIOs need to keep a watch on potential tech start-ups and other enterprises in the segment, just to ensure that the innovation factor and the disruption potential is realized to the fullest. 

Crunching some numbers

According to details on CBN Insights, the first half of 2016, had seen deals deals worth $1 billion being carried out in the area of insurance tech. If this pace is maintained, it would ensure that the end of 2016 will have a 42% jump over 2015, when it comes to deals in the ‘insutech’ sector.

To get more insight, the first half of 2016, saw 47% deals take place in the Angel funding category, 15% deals in Series A, 7% in Series B, 9% in Series C, 1% in Series D, 12% in other categories and 9% in corporate minorities, which include a select few deals including Alliance’s investment Simplesurance, and Intact Financial’s investment in Metromile.      

The way forward

Juergen Weiss, the Managing Vice-President at Gartner, told delegates at the Gartner Symposium/ITxpo in Australia, that “Gartner has seen growing interest among insurance business and IT leaders in collaborating with insurtechs or making them part of their overall innovation policies, but the research has also found that most insurance CIOs are not familiar with these companies or their value propositions.

“We advise CIOs to identify areas where insurtechs could complement their digital insurance strategies, and evaluate potential collaboration or investments.” It is clear that going forward, if insurance companies are to stay in the competition or look to beat their other competitors in terms of market share, technology is something where they do need to be more aggressive, as the current market situation shows a saturation witnessed very little before.

Gartner is defining insurtech as technology companies that are (a) in their early stages of operation (b) drive specific innovation across the insurance value chain by leveraging new technologies, user interfaces, business processes or business models, (c) leverage different forms of funding, including, but not limited to, venture capital.

The number of technology startups in the insurance industry has more than doubled globally during the last three years, according to Gartner’s analysis of the sector conducted in the second quarter of 2016. Digital customer engagement, mobile insurance management and analytics are the most common technology focus areas of insurtechs. It was also found, that 60% of insurtechs have been founded within the last 3 years, and 2/3rd of them have their headquarters in the U.S.

EMEA is the second-most important region for insurtechs, with 27% having their headquarters there, mainly in Germany and the U.K. In Asia, countries such as Singapore and China (mainly Hong Kong and Shanghai) have begun to promote the development of their local insurtech ecosystem as well. Henceforth, going forward, Gartner has a 6-point set of Dos for insurance companies to bring on their A-game. These are:

       1. Partnering (eg: AXA partnering with BlaBlaCar for carsharing)

       2. Acquire, ie purchasing the intellectual assets, and hire all resources of an insurtech company

       3. Purchase (like one would buy technology from an incumbent vendor such as SAP)

       4. Invest (obtain a minority or majority share, either directly or indirectly, via a VC arm, such as Allianz’s investment in Simplesurance)

       5. Incubate - e.g. let insurtechs compete to get into a startup accelerator; mentor them; and give them a space to work and exchange ideas

       6. Insure the operations or assets of insurtechs.

Having said that, Weiss was quick to point out, that taking random decisions to purchase or acquire insutech companies wont cut it, as with the current status, a lot many may not really really survive, thus prove to be a liability in the longer run. A cautious approach on financing vis-a-vis the core technology or value addition is what will prove to be the actual deal breakers.