Innovation and technology in the insurance sector, or “insurtech,” continues to attract investment, particularly by existing insurance players looking to strategically invest in the insurtech space. But there are still many opportunities for incumbents—insurance carriers, brokers, agencies and others in the insurance industry—to develop or acquire insurtech innovation.

There are multiple ways that incumbents can invest in and adopt insurance technology and innovation:

• Build insurtech capabilities in-house from the ground up.
• Collaborate with one or more insurtechs.
• Invest in insurtechs to gain an understanding of the technology and innovation that work best in the insurance sector.
• Acquire one or more insurtechs or the insurtech technology developed by an insurtech.
• A combination of any of the above.

Collaboration with insurtechs and investing in or acquiring an insurtech is usually the fastest way to access the latest insurance technology and innovation for incumbents.

Collaboration with Insurtechs

For many early- to middle-stage insurtechs, the focus has shifted from being “full stack” insurers with the intent to disrupt existing insurance players to partnering with established insurance entities. These collaborations enable insurtechs to gain access to segments of insurance markets while providing incumbents a means to adopt technology and innovation to enhance their customers’ experience and improve underwriting and claims handling functions.

There are many models for collaboration. One common structure is for insurtechs to act as managing general agents (MGAs), managing general underwriters (MGUs) and agents/producers in collaboration with insurance carriers that manage the insurance risk through writing insurance on their paper. In an MGA/MGU structure, the MGA/MGU acts as the customer interface and assumes a number of activities of a traditional insurer, such as underwriting. However, the MGA/MGU partners with a third-party carrier who becomes the risk-bearing entity named in the insurance policy. In many instances, the customers identify the insurance business with the MGA/MGU rather than the insurance carrier. See “MGA/MGU” for further information on MGA insurtech structures.

Investing in or Buying an Insurtech

While collaboration with an insurtech may provide an incumbent access to technologies that may improve customer experience or operational efficiencies, the extent of the benefits may be limited by the terms of the collaboration and may also be expensive. In addition, the collaboration will likely not be an exclusive arrangement, so the competitive edge that an incumbent may secure in the short term may erode over time.

Due to these factors, an incumbent may decide to secure the applicable technology through a series of investments in or an outright acquisition of an insurtech or its desired technology assets. Of course, investing in or buying an insurtech has degrees of risk, some of which can be assessed through due diligence. Below is a summary of some of the considerations by type of transaction that a potential investor or buyer should take into account.

Preliminary Considerations

See “Acquiring a Shell Insurance Carrier” for further information on investing in or acquiring an insurtech business.