Capital Investment by Insurers into Tech:
The slow moving culture, non sexy image, poor customer ratings and conservative investment strategy by insurance companies has it positioned as a big whale with target on it’s back for disruption. However, maybe we should consider another position. One of the least reported numbers by the industry as a whole is the capital investments by incumbent Insurers into technology and advancing data and analytics capabilities.
Every insurer and reinsurer has hired or invested in data scientist, advanced analytics, IBM Watson, etc.
Incumbents are starting to realize they need to better engage consumers and one of their largest assets is their data. This data is both structured and unstructured data sets and incumbents own it, the data is waiting for incumbents and sitting on their servers. Finding the right people, tools, etc. to extract it is the problem to be solved. Or partner with those who can help them solve or tech them the tools needed.
The big question
Is this investment by incumbent insurers greater than the >$2.3B invested by Venture capital firms into Insurtech startups?
While we don’t know the exact number, this investment by incumbent insurers and reinsurers could be quite sizable. Just to put some scale, if 100 companies are investing on average $25M annually, we have a $2.5b investment in “Insurtech by Incumbents”. Recognizing small insurers and mutuals don’t have the resources to invest $25m and their are more than 100 insurers across all slices of insurance (personal, commercial, life, etc.)
Thoughts
While we don’t have a consolidated number for all capital expenditures by the entire industry into incumbent insurtech, if the number is close, equal to or greater than the $2.3b, well the incumbent advantage is interesting. Incumbent insurers currently have customer, distribution, capital, regulatory, etc. all in place.
Also keep in mind, the proof of concept stage of the VC investment capital – this capital can obviously expand and overpower investment by Incumbent insurers into tech, however, if it’s a matter of life or death for some carriers – I think you will be surprised how much capital investment into technology incumbents will deploy.
There has not been as much pressure on incumbents to innovate or invest in technology as now. The pressure was historically coming from investors to keep expenses low. Now some of this technology can help achieve both…
