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For most leading carriers, the push to leverage efficiencies offered by new technologies has become increasingly urgent, as have the variety and efficacy of those new technologies. Rapid innovation has been hard to achieve, however, and the pace of digital transformation has been slow and reactive. As executives have embarked on the journey, they have found a number of challenges that they first have to surmount in order to make meaningful progress.
Whether it's a skills gap affecting their technology leaders' ability to fully grasp emerging technologies, legacy architecture, heavily siloed technology infrastructure, or a corporate culture that does not foster innovation, forward-thinking carriers have recognized that the path of least resistance is partnering with or acquiring insurtechs.
As loss ratios and expense ratios continue to rise, the case for rapid digital transformation has become more acute. Opportunities to drive operational improvement across the enterprise are increasingly apparent. Some are:
- Adding enough new products and expanding in markets enough to, at minimum, defend market share and revenue growth.
- Creating a more compelling, beautifully designed customer user experience, or UX.
- Automating processing and servicing activities, including document ingestion, intrafirm data flows, and insured notice generation and mailing.
- Modernizing the tech stack to facilitate internal operations, by building workflows to connect distribution teams to underwriters, underwriters to support teams, and so on.
- Adopting more sophisticated data ingestion and integration capabilities, whether that be through new application programming interfaces (APIs) or leveraging artificial intelligence and machine learning.
At any insurer, these are all capabilities executives want to have internally but are slow to build in-house. Several recent transactions in the insurtech space demonstrate that carriers are willing to deploy significant capital towards buying the capability in an effort to stay ahead of the competition.
1. Prudential Financial and Assurance IQ
In agreeing to acquire Assurance IQ for $2.4 billion in the third quarter of 2019, Prudential gained a platform with superior customer engagement capabilities. A dynamic direct-to-consumer platform, like Assurance IQ, allows the sales organization to be more effective in driving top-of-the-funnel sales volume, thereby increasing front-office efficiencies. Prudential stated that it expects to realize upwards of $100 million in savings by 2022 because of the acquisition.
2. Aon and CoverWallet
Aon acquired CoverWallet for $300 million in January, in an effort to expand its product offering: specifically, in the small business commercial space. As players in the insurance space seek new ways to grow top-line revenue, certain under-served and emerging segments have become increasingly attractive. Small business, cyber and the gig economy have emerged as key opportunity areas. The CoverWallet transaction was the first of what we expect to be a flurry of deal activity in the coming years. CoverWallet will also provide massive amounts of new data streams generated via customer quotes that Aon can leverage across its portfolio of businesses.
3. Bold Penguin and RiskGenius
Bold Penguin agreed to acquire RiskGenius in October for an undisclosed amount, to help reinforce its commercial technology insurance platform. This marks the second acquisition announced by Bold Penguin this year. (Bold Penguin announced the acquisition of Xagent, a business insurance quote platform, in January).
