Insurers' tech-start up investment indicates growing importance of digital technology in the industry, says expert

Insurance law specialist Alexis Roberts said that many insurers have "stepped up the pace" in deploying new digital services in the past year as there has been "a number of innovative propositions developed and launched".

Roberts said that insurers have had to grapple with both commercial and regulatory issues which have inhibited their appetites to offer products and services through digital channels. However, he said there is now a "real sense that the sector is working through those challenges and getting more comfortable as they test the boundaries with real propositions".

"Insurers, like banks, have had to respond to the challenge posed by innovative financial technology (fintech) companies entering the market," Roberts said. "The nimble new entrants are starting with a fresh slate in terms of technology and systems, helping them to avoid many issues that incumbents in financial services markets have had to grapple with, from historic legacy systems to customer data being held in silos."

"However, insurers are embracing the opportunity to innovate and to collaborate with fintech businesses and others where there is an opportunity, for example, to enhance customer services. A good example of the proactive steps being taken on innovation by insurers is the 'digital garage' Aviva has established in London and also, recently, in Singapore," he said.

Aviva has described its digital garage as "a dedicated space where technical specialists, creative designers and business leaders explore, collaborate and test new insurance ideas and services which make financial services more tailored and accessible for customers".

Roberts was commenting after a report by the Financial Times said that insurers had committed to investing in excess of $1 billion in technology start-up companies.

Market analysts and researchers CB Insights recently said that more than $2.6 billion had been invested in insurance tech start-ups in 2015. It predicted insurers would become more heavily involved in investment deals.

"We expect the current crop of corporate VCs in the insurance industry to become more active, but we also expect to see new active corporate VCs in the space as more insurance firms move from smaller-scale efforts – including innovation labs, hackathons, and accelerator partnerships – to formal venture investing arms," it said.

Roberts said that the growth of insurers' investment businesses was an indication of the "increasing sophistication" of insurers' digital and innovation strategies.

"One area that will be worth keeping an eye out on will be on how insurers' approach the opportunities presented by blockchain technology," Roberts said. "Insurance business is about who holds assets and what the value of those assets is. A distributed ledger, reflected in blockchain technology, could be used to record this information, potentially revolutionising the way claims and applications for insurance are handled. It will therefore be interesting to see whether the increasing investment of insurers in technology start-ups extends to companies developing new uses for blockchain technology," he said.