The majority of insurance firms expect a surge in acquisitions of startups over the next three years, as the sector gets to grips with digital transformation.
Research carried out by Accenture, based on a survey of executives at 141 insurers across the globe, showed that more than half (69 percent) believe industry peers will buy-up innovative firms to boost their own digital services.
The most widely cited acquisition targets were: telematics firms (47 percent), insurance price comparison sites (43 percent) and analytics firms (38 percent). Meanwhile, the survey claims that 43 percent of firms surveyed have already invested in startups.
The reason for interest in the startup community is clear – three-quarters (75 percent) of insurers believe that digital will be a major disruptor of their industry within the next five years, driving up revenues in areas such as personal and casualty premiums.
“Insurers realise 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,” said John Cusano, senior managing director of Accenture’s global Insurance practice.
“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.”
Google and Facebook – potential partners?
Like other areas of the financial sector, the insurance industry is facing the potential of disruption from non-traditional firms – with large technology companies expected to move into the sector. A separate survey this year showed that companies such as Amazon and Google are a growing threat to the sector.
However, the Accenture report shows that many insurers see these companies as way to diversify their business, rather than purely as competition.
For example, three quarters (72 percent), of insurers have formed new distributions partnerships or plan to do so, and, of these, just less than half (44 percent) see Google or Facebook as potential partners.
There are also indications of insurers expanding their core products, with 61 percent offering services such as home security, smart sensors and car maintenance.
Upping investment in digital technology
However, companies face a number of barriers in achieving these transformation aims.
While property and casualty insurers plan to invest an average of $47 million (£30m) in digital services over the next three years - $40 million (£25m) on average for life insurers – 60 percent of respondents viewed their spending as “exploratory” at this stage.
This compares to only 22 percent who believe they have invested in innovations that are truly disruptive to their business.
The common reasons cited for delaying digital strategies were legacy systems (42 percent) and lacking the right skills (30 percent).
In addition, much of the investments made were targeted solely at sales and distribution (32 percent), with less than half (42 percent) putting in place a digital strategy that covers their entire value chain.
“It’s critical that insurers should not fall into the trap of simply digitising existing channels by creating upgraded, digital, or mobile-friendly versions of existing products and services,” said Jean-Francois Gasc, a managing director for Insurance within Accenture Strategy.
“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.”