(Bloomberg) — Listening to Andrew Rear talk about insurers, you wouldn’t think he works for one that’s been around for 136 years.
The 46-year-old head of Munich Re’s Digital Partners unit has said the industry is “one of the last bastions of the 19th century,” a “disaster” with products that are almost “impossible to understand.” Rear’s job is to change that.
Last month he struck the first deal for Munich Re’s Digital Partners, taking a stake in Slice Labs, a one-year-old startup that offers insurance. Cross-town rival Allianz SE four months earlier invested in Simplesurance, a new firm that’s offering product protection for online purchases. The deals highlight the rush by Europe’s time-honored insurers to get in on the technology that’s changing financial services on Wall Street.
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“Insurtech is here to stay and it will bring fundamental change to the insurance industry,” Rear, who headed Munich Re’s life reinsurance operations in Africa, Asia Pacific, the U.K. and Ireland before taking the new position in May, said in an interview. “The gain for us is to build new business model approaches for Munich Re by providing capacity to these new firms.”
Fintech has attracted investors for some time, but much of the funding was focused on technologies that could change banking and investing, such as blockchain — the software that underpins bitcoin — big data analysis or robo advisers. With startups increasingly delivering products that work, and the big insurers getting in, that’s changing.
“Insurance hasn’t really been on the radar of entrepreneurs in the past because it’s so complex and opaque,” said Francois Robinet, managing partner of Axa Strategic Ventures, the venture capital unit of French insurer Axa SA. “Now they discovered that there are a lot of inefficiencies and problems that they can solve, meaning a lot of opportunities for innovation.”
Funding for insurance-focused startups hit a record $2.7 billion last year. The number of investments involving such companies is expected to exceed 75 this year, up from 61 in 2015. (Photo: Thinkstock)
Funding for insurance-focused startups hit a record $2.7 billion last year. The number of investments involving such companies is expected to exceed 75 this year, up from 61 in 2015 and just one in 2012, according to venture-capital researcher CB Insights.
Both Munich Re and Allianz have set up units in recent years for venture deals and partnerships as they seek new clients and ways to distribute their services. Axa started its venture capital unit last year, with 230 million euros in commitments.
Allianz and Munich Re didn’t say how much they invested in each deal, but amounts are usually small. Axa’s venture capital portfolio counts 22 companies, on which the firm spent about 25 million euros, according to Robinet. Investments include stakes in online insurance broker Policygenius as well as blockchain, banking and crowdfunding startups. All of them are in an early stage, where investments typically don’t exceed 2 million euros, he said.
If the experience of banks is any guidance, it could be some time before any investments pay off. Lenders have made largely incremental steps to overhaul longstanding practices, such as using digital signature applications to reduce paperwork. It’s only recently that banks have started experimenting with potential breakthroughs such as using the blockchain to cut costs and fundamentally change the way their customers do business.
Fintech for insurers is “both a long-term challenge and an opportunity, with material effects that may only start to emerge in 10 years’ time,” S&P Global Ratings wrote in a report last week.