Insurtech investment nears $700 million in Q4

Register now

A banner year for insurtech came to a close with a bang, with $697 million invested in the sector in the fourth quarter of 2017. That’s according to Willis Towers Watson’s quarterly Insurtech Briefing, released this week.

The sum more than doubled the previous quarter’s $312 million mark. Fifty-three total companies received investment dollars, including 45 in the P&C space. Thirty-five of those investments were made by incumbent insurers – not external venture capitalists – indicating a shift in strategy for venerable companies.

“(Re)insurers, directly and through corporate venture arms, are increasing their activity in the sector and expanding their focus to invest in a broad range of technologies with potential applications to their core (re)insurance businesses,” Rafal Walkiewicz, global CEO for Willis Towers Watson Securities, writes in the report. “Incumbents sent a clear message to potential disruptive outsiders: by investing heavily in start-ups and technology, (re)insurance companies appear to have assumed a semblance of control over the insurtech revolution.”

Innovation appetite growing

As part of the Q4 report, Willis Towers Watson and CB Insights surveyed 600 insurers on their innovation plans and appetites going forward. To date, the companies note, most investment from incumbent insurers has focused on incremental improvements to the existing value chain, by about a factor of three. That will have to change as challenges mount, study authors assert.

“Further analysis of the growing number of start-ups successfully attracting capital from (re)insurers and financial investors reveals that the majority of InsurTech ventures are not focused on exiling incumbents by disrupting the pressured insurance value chain,” the report says. “We attribute this phenomenon to the tendency of incumbents to, consciously or subconsciously, encourage development of less perceptibly threatening innovation while avoiding more radical, potentially intimidating technologies and applications.”

Insurers are starting to take these lessons to heart. More than half of respondents rated their innovation strategy as average or worse compared to the market, but at the same time three in four said their company was moderately, very or extremely at risk of disruption from emerging technologies. Now, more insurers say that their companies are willing to take risks when it comes to innovation than to adopt a risk-averse innovation strategy – 41% to 26%, with the difference not ascribing a risk appetite to their innovation strategy. A little more than a quarter of respondents – 27% -- say their goal is to be a first mover when it comes to innovation.

“With technology moving forward at an unprecedented pace, incumbents are increasingly electing to outsource functions to highly specialized new entrants, renting evolving modules of technology that can be tailored to suit their individual needs, the report says. “Though this approach may be more cost effective, it further fuels the question of whether incumbents will allow value in the industry to shift towards new entrants. In time, market participants will come to understand which module in the chain generates the most value. It is plausible that automation in distribution will shift value towards efficiency of internal processes that support cutting-edge modeling and underwriting engines.”

For reprint and licensing requests for this article, click here.
Insurtech Deal flow Willis Towers Watson CB Insights