Investment in insurance technology, insurtech, is climbing fast. It’s going to have a big impact on insurance providers around the world. What is your strategy to stay abreast of the new opportunities and threats posed by insurtech?
Global investment in financial technology, fintech, continues to soar and insurance is emerging as its next big target market.
Investors around the world poured US$22.3 billion into fintech deals last year – a 75 percent leap from 2014. Insurance technology, insurtech, attracted around $2.6 billion of this outlay. This is still a small slice of total fintech spending but it’s a big step up from the previous year’s $800 million. And spending on insurtech looks set to surge.
In the first quarter of 2016 more than 45 insurtech deals were sealed, with funding totaling $650 million, according to researcher CB Insights. This is the most deals in any quarter and the second highest amount of investment for such a period. Insurtech firms that attracted funding included Oscar Health, Next Insurance, Lemonade and Slice Labs. Backing came from venture capital firms, private equity companies and the investment arms of big insurers.
Why the big interest in insurtech?
One of the reasons is that the fintech market is maturing. The illustration below shows that in the clamor for funding, early investment targets such as retail payments and merchant acquisition are being overtaken by new growth sectors, particularly retail lending and retail investments. Insurtech is fast-emerging as a new investment opportunity.
Another reason is that fintech investors realize that the insurance industry is ripe for disruption. With annual premium revenue of around $5 trillion and assets under management heading towards $15 trillion, the global insurance industry is a huge market. It lags other sectors, notably the banking industry, in adopting digital technology. Insurers need to up their spending on innovation to ward off rising competition and lure much-needed new customers.
The upswing in investment in insurtech firms will have a major impact on the insurance industry around the world. Expect a host of new arrivals to appear in the insurance industry in the next 12 to 18 months. Some of these firms will be marketing niche solutions to established carriers and brokers. Others will be looking to grab a slice of the insurance market by offering specialized insurance products and services built around digital technology. Bottom line…if you haven’t done so already, it’s time to make a proactive decision on how you will respond to insurtech.
In my next blog post I’ll discuss how insurers are responding to the insurtech boom and offer some suggestions you might consider in your strategy. Until then, take a look at these links. I think you’ll find them useful.