Corporate venture capital fuels the engine

Corporate venture capital fuels the engine

As insurers seek to catalyze transformative value from their deal investments, many have established their own corporate venture capital investment capabilities.

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Insurance companies are now starting to see the value inherent in the venture capital investment model, and it’s not just those with the deepest pockets and farthest reach.  However, what this may also suggest is that the market may rapidly become crowded and valuations for VC-type investments may quickly start to rise, thereby diminishing the value for these strategies.

Going outside the box

Sixty-two percent of insurers are either active or planning to set up a corporate venture capability. This suggests a period of swift and exciting change is upon us. All evidence suggests that insurance VC funds want to be at the forefront of this change. Spending can be split into two categories:

  1. Startups that could potentially improve the insurer’s business but are not strictly related to insurance, and
  2. Startups that have nothing to do with the insurer’s business model but could provide strong investment returns.

Roughly 25 percent of insurers said they had allocated over US$1 billion. 

Incubating innovation

Insurers have been combining a variety of approaches and models from investment vehicles and incubation models to mass engagement approaches to acquire or gain access to innovation capabilities. For example, Aviva’s ‘digital garage’ in London and Singapore where software developers, creative designers, and even games producers collaborate on innovative insurance tools and ideas. To learn more, read our interview with Chris Wei, Global Chairman, Aviva Digital, and Executive Chairman, Aviva Asia.

As noted in our publication ‘A new world of opportunity: The insurance innovation imperative’, more than 36 percent of insurers around the world already operate some form of innovation hub or lab. Some are using these hubs or labs as a way to create – and eventually replace- their current operating model. “Recognizing the challenge of costly legacy systems, and the complexity of replacing them, several players have made the conscious decisions to develop new companies that overtime will cannibalize the existing business. This frees them from creating further legacy infrastructure and gives them the ability to scale the business more effectively,” noted Matthew Smith, Global Strategy Group, Insurance Lead, KPMG in the UK. 

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