Growth vs. opportunity in insurtech strategy
Insurers are continuing to invest in insurtech in a variety of ways, working out how to best leverage the financial and technological growth of this emerging marketplace. An interesting case is that of Allianz, with the recent announcement that the company is switching models from a startup incubator to a venture fund.
In a previous blog post, I discussed the difference between “labs” and “funds.” The former is focused on fostering innovation to be directly utilized by the insurer, and the latter is focused exclusively on financial goals that are separate from the larger organization. While that’s generally true, it is still possible to have a fund that keeps an eye on curating technology companies that they can leverage internally, and Allianz still references a broader mandate to bring innovation into our core business.
But can an investment fund truly focus on leverageable innovation while also maintaining financial targets for portfolio growth? There are plenty of specialized funds out there, such as “green funds” or “social responsibility funds,” that invest in a portfolio of companies that meet certain environmental and social criteria. But it’s questionable whether these funds exist because of a belief that they can achieve better financial growth or because they can raise more investors through their specific mission. An insurer that establishes an investment fund that is hitched to a mandate of potentially beneficial technologies should also recognize that those limitations will also impact financial targets.
In addition, investing in a company via a fund versus incubating a startup means a different level of involvement. Large investors with an ownership (but non-majority) stake often get a seat on the board, but as a voting board member their fiduciary responsibility is to the growth of the startup, not to the goals of the large insurer that is backing the fund that is backing the startup. If it’s in the best interest of the startup to switch directions and go down a path that is tangential to, or even detrimental to, the insurer, that’s likely going to happen. Such divergent paths may occur for an incubated company as well, but there’s a tighter level of control when that startup sits inside an insurer’s lab with the insurer’s people working with them on a day-to-day basis.
Both approaches are good for the industry , and even insurers who don’t invest directly (either via labs or funds) will benefit from the explosion of insurtech. In fact, some venture funds will no doubt lose money themselves, while at the same time helping to spur on emerging technology that everyone can leverage. That doesn’t mean insurers can sit back and wait for opportunities to fall in their lap. Insurers need to monitor the space, choose categories of technology that are particularly important to their strategy, follow startups (and incumbent tech companies) as they announce new products, and be ready to partner when the time is right.
This blog entry has been reprinted with permission from Novarica.