Reinsurers increasing insurtech investment to counter growing competition

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Reinsurers are increasingly investing in insurtech to mitigate external threats from venture capital investment, experts told Post.

Tallt's Insurtech Disruption Trends 2017 highlighted increasing investment into the insurtech space from reinsurers, with notable deals last year seeing Munich Re and XL Catlin make substantial investments into leading start-ups Bought By Many and Lemonade respectively.

Matt Connolly, founder and CEO of Tallt Ventures, told Post: "The reinsurance market is changing. Historically reinsurers have felt they are protected essentially because external threats would require access to huge amounts of capital that aren't easily and readily available.

"But now that capital is becoming more freely available with venture capitalists looking to invest elsewhere, essentially forming consortiums to put their money in that [reinsurance] space.

"The reason they feel comfortable doing this is that the data mapping has become much more transparent and they're basically able to model risk better. So they're now happier putting their money there, because they're able to genuinely identify a better return here than from other investments."

"So suddenly reinsurance companies face a threat and they're trying to understand what they need to do," Connolly continued. "And some are now moving to interface with consumers instead of just insurers.

"There's a lot of companies doing some really interesting stuff, for example innovation labs, or [making insurtech] investments. And that is now true of  the reinsurance world too."

There has been a 32% year on year increase in the number of insurtech deals with a total of $1.69bn (£1.35bn) invested into the space across 2016.

"Most companies play a three pillared strategy," said Connolly. "They acquire these businesses early before they're too expensive, they partner with them - which is becoming more and more prevalent - or they innovate like them.

"One of the big difficulties these start-ups have even with money behind them is achieving scale. When an [incument] company is innovating itself, what they have is current market traction, so they're able to achieve scale much more quickly."

Connolly said that he predicts investment into the insurtech space to continue to boom over the coming years.

"I can't see it slowing down in insurance, not for the next couple of years at least," he said. "It will continue at pace.

"Certainly with the tier one insurance companies out there, they're switched on to the world of insurtech, and they are evolving their strategies rapidly."

 

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