October 26, 2016 by Canadian Underwriter
Insurance sector chief information officers (CIOs) should expand their market insight concerning the innovation and disruption potential of insurance technology startups, or “insurtechs,” to complement their digital insurance strategies, according to Gartner, Inc.
The Stamford, Conn.-headquartered information technology research and advisory company predicted in a press release on Monday that 80% of life and property and casualty insurers worldwide will partner with or acquire insurtechs to secure their competitive positions by the end of 2018.
According to Gartner research, 64% of the “world’s 25 largest insurance companies” have already invested directly or indirectly via their venture capital arms in insurtech startups.
Speaking at the Gartner Symposium/ITxpo in Australia on Monday, Juergen Weiss, managing vice president at Gartner, said insurtechs can stimulate or accelerate innovation among incumbent industry players and complement existing digital insurance strategies.
“Gartner has seen growing interest among insurance business and IT leaders in collaborating with insurtechs or making them part of their overall innovation policies, but the research has also found that most insurance CIOs are not familiar with these companies or their value propositions,” Weiss said. “We advise CIOs to identify areas where insurtechs could complement their digital insurance strategies, and evaluate potential collaboration or investments.”
Gartner defines insurtechs as technology companies that are in their early stages of operation; that drive specific innovation across the insurance value chain by leveraging new technologies, user interfaces, business processes or business models; and that leverage different forms of funding, including, but not limited to, venture capital.
The number of technology startups in the insurance industry has more than doubled globally during the last three years, according to Gartner analysis of the sector conducted in the second quarter of 2016. Digital customer engagement, mobile insurance management and analytics are the most common technology focus areas of insurtechs, the release said.
In addition, 60% of insurtechs have been founded within the last three years, and two-thirds of them have their headquarters in the United States. Europe, Middle East and Africa is the second most important region for insurtechs, with 27% having their headquarters there, mainly in Germany and the United Kingdom, the release said. In Asia, countries such as Singapore and China (mainly Hong Kong and Shanghai) have begun to promote the development of a local insurtech ecosystem.
Digitalization is one of the top priorities for insurance CIOs, Gartner surveys suggest, although the vast majority of insurance CIOs are still struggling to progress their digital strategies. The company’s research indicates that only 12% of insurance business and IT leaders consider their organizations to be digitally progressive, while the majority believe that their organizations are digital beginners or intermediate, at best. Reasons for this include a lack of agility caused by legacy IT systems, flat IT budgets and a lack of the right skills or the delivery models to support innovative business models.
“Collaborating with insurtechs, or at least evaluating them, could therefore provide a number of potential benefits for insurers,” Weiss said.
Gartner suggested that insurers have six main options to capitalize on the opportunities that insurtechs provide:
Insurance CIOs who are planning to partner with insurtechs also need to be aware of the risks, Weiss said. “Not all of them will survive,” he cautioned. “Insurance CIOs will need to develop a fail-fast approach and an exit plan that secures intellectual property and critical resources.”