Insurers are jumping on the ‘sexy’ new trend: Why the ‘venture client’ may outperform traditional investing

Sabine VanderLinden (pictured), co-founder and CEO of Alchemy Crew, understands better than most the evolving dynamics between technology ventures and large insurers – especially when it comes to digital transformation.

In an interview with Insurance Business, he explains that there has recently been a significant change in the way startups and corporations cooperate.

“Going into business is the sphere where a corporation creates an environment in which it can invest in startups,” he says. However, this space is being disrupted, especially in terms of investment, particularly in the fintech sector – and VanderLinden highlights the decline in funding as a key problem for traditional corporate venture models.

“Last year there were 140,000 fintech startups. There are currently 153,000 startups in the fintech industry – 25 to 30% of these startups have raised $824 billion. However, if you look at investment trends for 2024, $36 billion has been invested in fintech startups – 50% in 2023 and 50% in 2022.”

“Corporate clienting is a little sexier.”

It is this sharp decline that is putting pressure on corporations that rely heavily on these investments to drive innovation. Amid declining funding, VanderLinden sees increased interest from corporate clients as a promising alternative. This model allows corporations to cooperate with start-ups without financial investments, focusing instead on the commercialization of new solutions. VanderLinden describes the venture capital client as “a little sexier” because it allows corporations and startups to engage in commercial dating while bypassing the often slow, risk-averse and multi-party approval processes required by traditional approaches to corporate investing.

“Corporate clienting occurs when a company decides to cooperate with start-ups without having to invest in them. It’s about commercializing the solution,” he says. Corporations such as Zurich Insurance in Zurich and Ergo in Germany are already adopting this approach, leveraging innovative solutions while avoiding the bureaucracy associated with demanding investment committees.

The push for digital transformation, driven by trends such as remote work and artificial intelligence (AI), has significantly impacted this collaboration. Zoom research shows that 75% of leaders whose teams use AI say they collaborate better, 75% say they make more informed decisions, and 74% say they are able to work better when they are not in the same place.

“Despite fintech patterns, one of the strong-performing investment trends is remote or enterprise collaboration technologies, with nearly $2 billion invested this year (twice as much as last year). It’s about remote collaboration tools, you know, productivity on a desktop or edge device (e.g. laptop), for employees… it’s also about integrating artificial intelligence and ensuring security against cybercrime,” says VanderLinden.

The impact of artificial intelligence on the world of underwriting

In particular, artificial intelligence is changing key processes in insurance, especially in underwriting and customer service. Thanks to AI, insurers can process simple risks faster and more accurately, allowing them to focus human resources on more complex tasks. According to WorldMetrics data, 88% of insurers believe that artificial intelligence will improve the accuracy and speed of insurance decision-making, and 70% of insurance executives see artificial intelligence as a key element of their company’s strategy.

“Artificial intelligence and algorithmic technology allows insurers to literally dynamically price, or provide a quote to the customer, quickly and accurately, for the simplest of risks, which means technology is taking over,” VanderLinden says. This technology enables insurers to efficiently handle large numbers of simpler policies, such as those for small businesses, streamlining operations in a way that was previously impossible.

However, the development of business artificial intelligence, or generative artificial intelligence, also brings with it challenges, especially related to ethics and transparency. VanderLinden emphasizes the importance of ensuring that emerging AI systems are both understandable, transparent and trustworthy. It warns that relying on historical data, especially from developed markets such as the US and UK, can introduce bias, potentially overpricing certain demographic groups, including minorities.

“We want to make sure it’s trustworthy and explainable,” he says, because insurers need to be guided by ethical considerations while benefiting from the efficiency gains that AI offers.

“I don’t think many insurers will choose open source platforms.”

Despite its potential, the implementation of the new artificial intelligence model among insurers is slow. VanderLinden notes that while “there are thousands of POCs (proofs of concept) underway… maybe less than 1% are actually being implemented by insurance companies when it comes to generative AI models.” This reflects the cautious and risk-averse nature of the industry, especially in the face of technologies that have the potential to radically change long-standing processes.

VanderLinden also highlights insurers’ reluctance to use open source platforms and generative learning, preferring instead to partner with established tech giants such as Microsoft and Google.

“I don’t think many insurers will opt for open source platforms,” he says.

Startups entering the insurance market face unique challenges. VanderLinden notes that many technology ventures are started by people who believe they can solve problems with technology, but often underestimate the complexity of the insurance industry.

“Young companies often struggle with the problem (or) arrogance… of thinking that they can actually solve the problem without talking to the customer, the buyer,” he says.

Ultimately, VanderLinden sees enormous potential for technology ventures interested in the insurance space, including connections, but success requires a detailed understanding of the challenges facing the industry. Startups must be patient, adaptable and willing to work closely with insurers to meet their specific needs.

“The challenge for insurers is to continue to innovate despite market changes (and at the same time) leverage the right technology to increase efficiency,” he says.