Innovation and technology in the insurance sector, or “insurtech,” continues to attract investment, particularly by existing insurance players looking to strategically invest in the insurtech space. But there are still many opportunities for incumbents—insurance carriers, brokers, agencies and others in the insurance industry—to develop or acquire insurtech innovation.

There are multiple ways that incumbents can invest in and adopt insurance technology and innovation:

  • Build insurtech capabilities in-house from the ground up.
  • Collaborate with one or more insurtechs.
  • Invest in insurtechs to gain an understanding of the technology and innovation that work best in the insurance sector.
  • Acquire one or more insurtechs or the insurtech technology developed by an insurtech.
  • A combination of any of the above.

Collaboration with insurtechs and investing in or acquiring an insurtech is usually the fastest way to access the latest insurance technology and innovation for incumbents.

Build/Collaborate, Invest or Buy?

Collaboration with Insurtechs

For many early- to middle-stage insurtechs, the focus has shifted from being “full stack” insurers with the intent to disrupt existing insurance players to partnering with established insurance entities. These collaborations enable insurtechs to gain access to segments of insurance markets while providing incumbents a means to adopt technology and innovation to enhance their customers’ experience and improve underwriting and claims handling functions.

There are many models for collaboration. One common structure is for insurtechs to act as managing general agents (MGAs), managing general underwriters (MGUs) and agents/producers in collaboration with insurance carriers that manage the insurance risk through writing insurance on their paper. In an MGA/MGU structure, the MGA/MGU acts as the customer interface and assumes a number of activities of a traditional insurer, such as underwriting. However, the MGA/MGU partners with a third-party carrier who becomes the risk-bearing entity named in the insurance policy. In many instances, the customers identify the insurance business with the MGA/MGU rather than the insurance carrier. See “MGA/MGU” for further information on MGA insurtech structures.

Investing in or Buying an Insurtech

While collaboration with an insurtech may provide an incumbent access to technologies that may improve customer experience or operational efficiencies, the extent of the benefits may be limited by the terms of the collaboration and may also be expensive. In addition, the collaboration will likely not be an exclusive arrangement, so the competitive edge that an incumbent may secure in the short term may erode over time.

Due to these factors, an incumbent may decide to secure the applicable technology through a series of investments in or an outright acquisition of an insurtech or its desired technology assets. Of course, investing in or buying an insurtech has degrees of risk, some of which can be assessed through due diligence. Below is a summary of some of the considerations by type of transaction that a potential investor or buyer should take into account.

Preliminary Considerations

   Venture/Minority Investment  Majority Investment Full Company Acquisition 
Diligence   Least Amount  Higher level (virtually the same as Full Company Acquisition)  Highest level of diligence
 Regulatory Burdens  Can be structured to minimize regulatory burdens  Insurtech company will generally be a "Subsidiary" of Acquirer and may be subject to regulatory supervision and oversight  Insurtech company will be a "Subsidiary" of Acquirer and may be subject to regulatory supervision and oversight
 Control Rights  Very limited  More control (but potentially subject to minority "veto"), which also brings responsibility  Full control
 Exit / Liquidity  Critical consideration, but value may be discounted for lack of control, and timing/ability to exit may be subject to restriction (e.g., ROFR)  Drag/Tag /ROFO typical approach  Full control and responsibility for seller indemnities
 Culture/Fit/synergies  Not as important  Culture "fit" and key employee retention concerns

Ability to achieve some synergies
 Culture "fit" and key employee retention concerns

Full realization of synergies


See “Acquiring a Shell Insurance Carrier” for further information on investing in or acquiring an insurtech business.