Over the past 2 years, FinTech has emerged as one of the most active deal arenas for insurers around the world. Competition for the latest financial services technologies has become fierce. FinTech financing rose four fold to US$12 billion in 2014 alone as banks and insurers battled Private Equity and Venture Capital houses to secure the ‘next big thing’.
The rapid introduction of new technologies such as telematics and the importance of data and analytics also demonstrated to insurance executives just how quickly the market could be disrupted by a ‘good idea’ or non-traditional competitor. Yet the approach to driving innovation through FinTech partnerships is far from unified. Indeed, many of today’s more innovative insurers take a variety of approaches – often simultaneously – to secure the right portfolio of FinTech innovations.
With so much activity in the FinTech sector, insurance executives are now starting to rethink their ‘optimal’ approach to investing in outside innovation. Many of our client conversations center on finding the right model or models to maximize returns from FinTech investments.
While, once again, there is no simple ‘one-size-fits-all’ solution, the choice of ownership structure most often comes down to what insurers are trying to achieve with their investments:
The reality is that the marketplace is always changing, and good ideas may emerge from different sources. Putting your investment dollars and efforts into one or two initiatives, or tying your future to a specific investment model, may limit your flexibility to adapt to new market conditions in the future.
We expect to see insurers take a variety of approaches going forward to maximize their potential to succeed.