Insurers consider strategies to invest in FinTech startups to create insurance innovation.
With activity in the Financial Technology sector (better known as FinTech) exploding in recent years, today’s insurers are taking a variety of approaches to secure FinTech innovation, to help them deliver more personalized customer service and compete with non-traditional players.
By running multiple FinTech initiatives at the same time, some insurance companies are finding that ‘owning’ the technology may not be so important.
The idea of leveraging technology to improve customer experience and business performance is not new to insurance companies, however competition for the newest insurance technology has become fierce. Now insurers , banks, private equity and venture capital houses are all fighting to secure the ‘next big thing’ in insurance innovation, and jockeying to provide FinTech startups with access to capital, collaboration, connections and coaching.
A growing number of insurers have started to develop their own technology incubators or venture capital funds. These organizations have seemingly recognized that their existing corporate culture may not be conducive to incubating and growing new insurance technology ideas.
Group-level labs can also help reduce the disruption that often comes with the introduction of new ideas into the insurance sector, including the risk that insurers might prioritize the protection of the existing book of business over the need for long-term change.
Another key benefit of elevating ‘labs’ to the group level is that organizations are freeing their innovation machines from the (often short-term) financial pressures of the business, thereby affording them greater flexibility and autonomy in the process of developing new insurance technology.
Other insurers are creating their own models for tapping into new FinTech innovation and partnering as investors in FinTech startups. Sydney’s new Stone and Chalk FinTech hub shows that many insurers believe that collaboration within the industry can also lead to strong commercial outcomes since the endeavor has been funded by some of Australia’s largest financial institutions.
With so much activity swirling around the FinTech sector, many insurance executives are now starting to reconsider their optimal approach to investing in insurance technology. Many of the conversations we have with our clients center around finding the right model – or, more often, models – to make the most of their FinTech investments. Most often, the choice of ownership structure comes down to what you are trying to achieve with your investments.
Many insurance companies are using a combination of strategies to maximize their investments and reduce the risk of insurance technology.
At KPMG, we are taking a similar approach to maximize our global network’s investments into D&A and FinTech. In 2013, we set up KPMG Capital as an investment vehicle to help our network develop partnerships, incubate and commercialize new ideas and technologies.
At the same time, our individual member firms and practices have also been entering into partnerships and conducting acquisitions to fill specific gaps within their own business areas. For example, KPMG in Australia recently purchased SR7, a social media ‘listening’ firm.
Our experience suggests that this type of multi-strategy approach to Fintech innovation may be the best way forward. Since the market is moving quickly, and good ideas may emerge from a range of different sources, those insurers that put all of their investment dollars and efforts into just one or two initiatives may lack the flexibility to adapt to new market changes in the future.
Read our full article (PDF 174 KB) on how insurers are approaching their optimal FinTech strategies.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.