Last year saw one of China’s leading property insurance providers – China Pacific Insurance Co (CPIC) – make a strategic investment in San Francisco-based Metromile. By investing in the leading pay-per-mile car insurer in the US, CPIC gained access to a platform for developing innovative, usage-based insurance products and expanding the markets for them.
Almost $6 billion has been invested globally in insurance technology startups (insurtechs) in the last five years, particularly in digital customer engagement, mobile insurance management and analytics. In Australia, a new insurtech industry association was launched this month, dedicated to the advancement of insurance innovation and startups.
Collaborating with insurtechs, or at least evaluating them, has many potential benefits for insurance sector CIOs, but there are also downsides.
Speaking at Gartner Symposium/ITxpo in Australia this week, Juergen Weiss, managing vice president at Gartner, said the vast majority of insurance CIOs are still struggling to progress their digital strategies, despite digitalization being one of their top priorities. This is often due to a lack of agility caused by legacy IT systems, flat IT budgets and a lack of the right skills or the delivery models to support innovative business models.
“Insurance CIOs need to expand their market insight concerning the innovation and disruption potential of insurtechs,” Weiss said. “Start by identifying the areas where insurtechs could add value; then evaluate potential collaboration or investment opportunities.”
Collaborate, partner, invest, acquire?
According to Gartner, insurers have six main options to capitalize on the opportunities that insurtechs provide.
- Partner – For future innovation and growth, such as MunichRE’s partnership with Simplesurance to develop new products together.
- Acquire – Purchase the intellectual assets and hire all resources of an insurtech, such as Hartford Steam Boiler’s acquisition of Meshify (IoT) in 2016.
- Purchase – Similar to how you would buy technology from incumbent software vendors.
- Invest – Obtain a minority or majority share, either directly or indirectly, via a venture capital arm, such as China Pacific’s investment in Metromile mentioned above.
- Incubate – Let insurtechs compete to get into a startup accelerator; mentor them; and give them a space to work and exchange ideas. Insure the operations or assets of insurtechs. For example, Markel International recently launched Fintech Insurance for the Asian market which was originally developed for the UK.
Potential failure will breed opportunity
Insurance sector CIOs planning to partner with insurtechs also need to be aware of the risks. Not all of them will survive.
By the end of 2019, at least 25 % of current insurtechs will either be acquired by insurers to secure their competitive positions or simply go out of business, according to Gartner.
However, insurtech failures may also present opportunities to complement insurance CIOs innovation and digitalization strategies. There are three ways your business could benefit:
- Insurtechs’ focus on customer experience may not generate new market demand, but it can complement your digital strategies by enabling your organization to become more agile.
- Customer inertia will undermine the value proposition of many insurtechs, but you can create a sandbox environment for prototyping and experimentation.
- Most insurtechs underestimate the costs needed to penetrate markets, which will create investment opportunities for larger insurers.