Insurance companies are embracing technology -- for investment

Celent frequently observes that many insurers, particularly in the Life space, are running aging, if not antique, software systems. They rely heavily on mainframe systems, often in languages such as COBOL that are becoming more difficult to support. The positive news is that our research shows continued growth, if modest, in IT budgets with modernization and innovation a frequent focus. With this as the foundation, it is interesting to see continued growth in insurance company’s venture capital arms in financial services oriented technology, or Fintech. Industry research shows an incredible growth path in Fintech start-ups, from a modest 400 or so in 2010 to over 12,000 in 2014. While the numbers are not yet in, we expect the 2015 numbers to continue this dramatic growth path. The insurers with venture capital arms are too numerous to list, but are a who’s who in the industry. Examples include AXA Strategic Ventures, MassMutual Ventures, American Family Ventures, and Transamerica Ventures. While many of the examples are US-based, it is a global phenomenon. A great example is Ping An Ventures, a subsidiary of the Chinese insurance company Ping An. Celent tracks many of the insurance related investments and we see several focus areas. One is in financial management and modeling, such as Roboadvisors, across both Life and Health. Good examples include Northwestern Mutual’s acquisition of Learnvest and AXA Strategic Ventures and MassMutual Venture’s investment in Limelight Health. MassMutual is also the parent company of Haven Life, a fully online sales organization dedicated to Life insurance. Other hot areas, not surprisingly, include analytics and the ever popular Internet of Things. The most recent investment, announced just yesterday, is AXA Strategic Ventures’ investment in Neura. Neura’s tagline is “Enrich your products with personalized insights from the lives of people who use them”. While a little heavy on the buzzwords, the basic view is that Neura analyzes data about you and recommends personalizations based on that information. The basic premises appears to link the Internet of Things, such as your Fitbit, to your social media presence, to your calendar and more. There are, of course, other companies overlapping this space (with 12,000 new companies, you would expect competition), such as Vitality and Life.io. The competition is encouraging, as it fosters continuous innovation. As the Millennials now outnumber Baby boomers (at least in the US), new technologies to engage them in insurance can be game changers. I am particularly intrigued with the technology companies, like these, that are focusing on changing the entire approach to Life insurance. The life insurance sale has always been focused on a negative experience – death of a love one. No one wants to talk about dying, and everyone wants to believe they will live many more years. When I talk to people that are just reaching an age where they really need life insurance, I get push back, and a lot of it, about everything else more important in their lives. My response that they need to protect their family often falls on deaf ears. By changing the discussion from “you are going to die”, to “how can we help you live longer”, we are opening up a much more comfortable discussion. In addition, this is a generation that will share everything on social media, to the point of embarrassment, so asking for more information to make their experience more intimate should be fairly easy. The investments and technology are exciting. It is wonderful to see insurance organizations finally catching the technology wave, after lagging for so long. Whether it be the Internet of Things, Usage based insurance, Micro insurance, behavioral underwriting or more, the staid insurance industry is breaking out. Some technologies are even a bit fun, such as the expanded usage of drones. Now before I get you too excited about the reinvention of insurance, I suggest you read a counterpoint to this post, from my colleague Donald Light, entitled A long time ago in a galaxy far far away, I went to a two hour meeting to reinvent insurance. He makes some very valid points about the managing our excitement. Another colleague, Craig Beattie, shares a similar bit of skepticism in his post What if… the insurance industry didn’t innovate? I guess I am forever the optimist and want to believe the excitement and change is real.