The insurance merger & acquisitions (M&A) market is becoming increasingly sophisticated as the sector transforms in response to the impact of technological innovation, driving convergence between sectors and the growth of digital ecosystems.
Lines in both InsurTech application and investor-types have become blurred as digital ecosystem-based distribution platforms open up industries to a range of both new possibilities and new competitors, EY highlighted in a report on 2018 Global Insurance M&A themes.
EY said the challenges require ongoing flexibility and innovation on the part of the insurer, and it is critical that “any venture fund set up is supported as part of a re/insurers’ wider approach to innovation and transformation.”
Thomas Korte, EY EMEIA Insurance Transactions Leader, said proof of scalability will be a key test in 2018, “a critical question as Insurtechs move from early-stage funding is whether solutions can be scaled to meet projected demand.”
Dustin Ball, EY Asia-Pacific Insurance Transactions leader, added that insurance groups investing into InsurTechs is about far more than simply access to emerging technology: “We see the most progressive insurers increasingly looking at transactions through the lens of innovation.
“The challenge is to avoid the erosion of innovation value post acquisition i.e., how to achieve an “infusion” of innovation into the mature parent without stifling the smaller entity.”
According to EY, InsurTechs that move from proof of concept to proof of scalability and demonstrate the ability to achieve scale across multiple insurance lines, geographies and value chain components, will be the target for investors looking for M&As.
“Investment in Insurtech disruptions (such as sensors, AI, wearables, analytics) will increasingly be a medium to build and access emerging consumer-centric digital ecosystems. This will in turn accelerate convergence through business partnerships between innovative companies in very different sectors,” said EY.
Re/insurers continue to invest in InsurTechs, often via venture fund structures established by major insurers, however, they’re expected to be up against increased competition in 2018, with investor types potentially ranging from incumbent insurers, large technology companies, and institutional and retail investors.
Furthermore, EY highlighted that it’s not just investor types that have expanded in the realm of insurance M&As; InsurTechs themselves could drive cross-sector expansion as some innovators find insurance-related use cases as just one of the many potential applications of their technology.
