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The many ways to form InsurTech alliances

A few years ago, insurance companies tended to look at InsurTech as a competitive, disruptive threat. Now, they see tend to see a growth opportunity. But what does this really mean? There are a variety of ways to structure a working relationship, and there are tradeoffs involved in each. In some cases, the form of the relationship may depend on the degree of control that either is willing to give up; in others, it comes down to the size of the investment involved.

There are a variety of options in between “we’d like to acquire this company” and “we’d like to purchase these InsurTech services.” In some cases, insurers will find structural alliances to be most appropriate, such as:

  • Joint ventures
  • Limited partnerships and LLCs
  • Minority equity investments

Others will find that contractual alliances are more useful, in whole or in part, including:

  • Virtual joint ventures
  • Long-term contracts
  • Seller financing

Key takeaways

Understand the trade-offs. There’s no single best way to structure a joint business relationship. When you begin to think about working with an InsurTech company (or with an insurer, if you’re not a legacy firm), start with strategy. The form of the relationship will vary, based on what you want to accomplish.

Use corporate venture capital (CVC) wisely. Legacy insurers often use CVC as a mechanism to source and evaluate potential investments. It can be very effective, but you’ll want to use rigor when making investment decisions and considering how to benefit beyond a purely financial return.

The growth of corporate venture capital

In the early days of corporate venture capital, insurers tended to focus on strategic investment. The bounds were rather loose, and strategic investments were never pushed hard for a financial or economic return. That has changed.

Increasingly, we’re seeing insurers participate as lead investors in InsurTech startup deals. We’ve also seen some significant new investments in industry CVC funds. For many carriers, CVC’s appeal is the structured discipline it brings to sourcing, gathering, filtering and selecting ideas that are worth pursuing.

Leaders are now bringing effective controls to the practice. There are clear boundaries on how to make InsurTech investments, decision authority definition and investment theses, and leaders are appropriately coupling these investments with the core business.

In 2018 and 2019, we have seen a number of significant corporate venture capital (CVC) investments from insurers looking at InsurTech opportunities:

  • AXA Venture Partners raised $150 million early-stage fund
  • Allianz boosted VC fund to $1.1 billion for tech, insurance deals
  • MassMutual Ventures launched $50 million Southeast Asia fund
  • Aflac Corporate Ventures Fund increased from $100 million to $250 million
  • Cigna launched a $250 million venture fund

Getting the most from InsurTech

When insurance companies start exploring InsurTech, they often zoom in on the tech first, looking for new systems to revolutionize procedures such as claims processing. Leaders look beyond features and functionality. These are the key components that take an InsurTech plan from strategy to execution:

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Matt Adams

Insurance Practice Leader, PwC US

Ellen Walsh

Insurance Advisory Leader, PwC US

John Fosbenner

Insurance Assurance Leader, PwC US

Julie Goosman

Insurance Tax Leader, PwC US

Richard de Haan

Actuarial Leader, PwC US

Eric Trowbridge

Insurance Marketing Leader, PwC US

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