Acquiring startups is emerging as a key strategy for insurance carriers to jump-start their digital capabilities, according to recent Accenture research.
The firm surveyed 141 C-level executives at P&C and life insurance companies (registration required). Fifty-nine percent expect their industry peers to buy digital insurance startups over the next three years, and 43% have already made such acquisitions or plan to make them in the near future.
The insurance industry is looking to position itself better in a world of increasingly digital services. Nearly three-quarters of the surveyed carriers have formed or are planning to form new distribution partnerships, and 44% cited technology companies such as Google or Facebook as potential partners. Also, 61% offer or are considering offering digitally focused non-insurance products such as home security, smart sensors, and car maintenance.
"Certain insurers seem to understand that, to remain relevant in the digital world and avoid disintermediation, they must expand beyond their traditional business," Thomas Meyer, managing director of Accenture's insurance practice in Europe, Africa, and Latin America, said in a press release. "They recognize the need to develop new types of partnerships and create new products and services -- possibly outside the core insurance sector -- to position themselves at the center of an extended ecosystem, allowing them to serve consumers beyond their insurance needs."
The goal is to increase the amount of customer touchpoints and demonstrate value more often, Meyer said.
Telematics companies, insurance price comparison websites, and analytics firms are also cited as acquisition targets. P&C insurers expect to spend an average of $47 million over the next three years on digital efforts in the near term, and they expect these initiatives to increase premium income by 5% over the next three years. Life insurers plan to spend an average of $40 million and expect a premium income increase of 7%.
But in terms of effectiveness, insurers still don't see themselves fully unlocking the potential for digital. Only 22% said investments made by their organization are "focused on driving truly disruptive innovations." Commonly cited impediments to digital strategy include legacy systems and skills.
"Insurers realize that digital technology will transform the way they operate, and we believe that the industry is entering an unprecedented period of change, which will lead to totally new products, services, and business models," John Cusano, senior managing director of Accenture's global insurance practice, said in the release. "Select acquisitions can enable insurers to keep up with technological change, and are a sign that digital has become a board-level issue. Also, the growth insurers believe they can generate with digital initiatives is above industry average, and demonstrates that they are embracing digital as a key lever in their business strategies."
A clear, non-siloed digital strategy is common among leading insurers, Cusano said. But only 47% of respondents said their digital strategy covers the entire insurance value chain, including product creation, distribution, claims, and CRM.
"It's critical that insurers should not fall into the trap of simply digitizing existing channels by creating upgraded, digital, or mobile-friendly versions of existing products and services," Jean-Francois Gasc, a managing director for insurance within Accenture Strategy, said in the release. "To unlock the full benefits of digital technologies, a change in mindset is required.... Insurers need to fundamentally change their business models to become digital businesses that are truly customer-centric and that provide consumers with solutions, rather than just products."
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio