Channels

12:20 PM
Connect Directly
Facebook
Google+
LinkedIn
Twitter
RSS
E-Mail
100%
0%

Insurers Expect Arms Race to Acquire Tech Capabilities

Accenture research reveals that digital startups related to the insurance industry are prime takeover targets by carriers.

Acquiring startups is emerging as a key strategy for insurance carriers to jump-start their digital capabilities, according to recent Accenture research.

The firm surveyed 141 C-level executives at P&C and life insurance companies (registration required). Fifty-nine percent expect their industry peers to buy digital insurance startups over the next three years, and 43% have already made such acquisitions or plan to make them in the near future.

The insurance industry is looking to position itself better in a world of increasingly digital services. Nearly three-quarters of the surveyed carriers have formed or are planning to form new distribution partnerships, and 44% cited technology companies such as Google or Facebook as potential partners. Also, 61% offer or are considering offering digitally focused non-insurance products such as home security, smart sensors, and car maintenance.

"Certain insurers seem to understand that, to remain relevant in the digital world and avoid disintermediation, they must expand beyond their traditional business," Thomas Meyer, managing director of Accenture's insurance practice in Europe, Africa, and Latin America, said in a press release. "They recognize the need to develop new types of partnerships and create new products and services -- possibly outside the core insurance sector -- to position themselves at the center of an extended ecosystem, allowing them to serve consumers beyond their insurance needs."

[Yes, Insurers Are Innovative]

The goal is to increase the amount of customer touchpoints and demonstrate value more often, Meyer said.

Telematics companies, insurance price comparison websites, and analytics firms are also cited as acquisition targets. P&C insurers expect to spend an average of $47 million over the next three years on digital efforts in the near term, and they expect these initiatives to increase premium income by 5% over the next three years. Life insurers plan to spend an average of $40 million and expect a premium income increase of 7%.

But in terms of effectiveness, insurers still don't see themselves fully unlocking the potential for digital. Only 22% said investments made by their organization are "focused on driving truly disruptive innovations." Commonly cited impediments to digital strategy include legacy systems and skills.

"Insurers realize that digital technology will transform the way they operate, and we believe that the industry is entering an unprecedented period of change, which will lead to totally new products, services, and business models," John Cusano, senior managing director of Accenture's global insurance practice, said in the release. "Select acquisitions can enable insurers to keep up with technological change, and are a sign that digital has become a board-level issue. Also, the growth insurers believe they can generate with digital initiatives is above industry average, and demonstrates that they are embracing digital as a key lever in their business strategies."

A clear, non-siloed digital strategy is common among leading insurers, Cusano said. But only 47% of respondents said their digital strategy covers the entire insurance value chain, including product creation, distribution, claims, and CRM.

"It's critical that insurers should not fall into the trap of simply digitizing existing channels by creating upgraded, digital, or mobile-friendly versions of existing products and services," Jean-Francois Gasc, a managing director for insurance within Accenture Strategy, said in the release. "To unlock the full benefits of digital technologies, a change in mindset is required.... Insurers need to fundamentally change their business models to become digital businesses that are truly customer-centric and that provide consumers with solutions, rather than just products."

[Losing Policyholders? The Solution Is Ridiculous]

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Kelly22
50%
50%
Kelly22,
User Rank: Author
12/10/2014 | 4:14:04 PM
Re: Totally not surprising
Good point. I think as insurers really narrow their focus on broadening their tech capabilities, they will be focusing less on whether the companies they acquire are insurance-specific, and more on how advanced their technology is.
KBurger
50%
50%
KBurger,
User Rank: Author
12/8/2014 | 12:41:00 PM
Re: Totally not surprising
Those are very good points, thanks for your feedback. We should keep in mind that these deals will not all necessarily be "traditional" types of acquisitions where an insurance company buys another insurance company/distributor (e.g. Allstate/Esurance). I could see a company like Chubb buying a tech company with Internet of Things expertise, or a health insurance company buying a wearables technology firm. It's not just about acquiring market share or customer segments, it's also jump-starting the necessary technology prowess to expand products & services or to change processes.
janderson088
50%
50%
janderson088,
User Rank: Moderator
12/6/2014 | 12:15:50 PM
Re: Totally not surprising
As insurance carriers do this, one thought to consider is the integration of digital capabilities within the carriers' business model and value stream. Seems obvious but I have seen that some have not weighed this out as well - very much in a hurry-up mode ('me-too?' so they are not left behind). This becomes a missed opportunity.

Expanding on Ms. Burger's example, I expect that the market connection Allstate made by acquiring esurance (smart) would be different then one that a Chubb Group might make to bolster its position with the HVHO market. And certainly, the application (Unless Chubb was looking to grow in a segment like esurance.)

Even more intriguing in this nascent market capability is the immediate lift and learning that traditional carriers get by acquiring start-ups with their focused skills. We may also expect to see acquisition that bolster increased application of mobility in the Life Insurance segment as they use DFO mobility to enhance their distribution centric models.  
Kelly22
50%
50%
Kelly22,
User Rank: Author
12/5/2014 | 11:59:38 AM
A board-level issue
Digital really should be a board-level issue so that execs can spearhead the change in mindset that Gasc describes. While it isn't too surprising to learn that insurers are looking to acquire tech startups, it's good to learn that more of them are seeking to expand beyond their traditional businesses. This news is also good for the startups hoping to work with bigger companies.
KBurger
50%
50%
KBurger,
User Rank: Author
12/4/2014 | 4:10:05 PM
Totally not surprising
This is very interesting but totally not surprising. We are seeing a similar trend in banking and capital markets. And we've seen it in deals such as Allstate acquiring Esurance. It makes a lot of sense -- acquisition is a much faster way to get up to speed in emerging, digital areas than developing those capabilities internally (although it should still be a priority for financial services companies to do this concurrently). This trend also underscores that the emergence of tech-enabled non-traditional competition, which an issue that FIs must confront, is not necessarily all "bad", as insurers can learn from these new businesses -- and of course, the new competitors are the prime targets for acquisition.
Register for Insurance & Technology Newsletters
White Papers
Current Issue
Insurance & Technology Digital Issue
Innovation? Check. Core modernization? Check. Security? Check. Today's insurance IT challenges don't stump this year's Elite 8.
Slideshows
Video