Insurers embrace ‘sexy’ new trend: Why ‘venture clienting’ could overtake traditional investments

Sabine VanderLinden (pictured), co-founder and CEO of Alchemy Crew, understands better than most the evolving dynamic between technology ventures and large insurers – particularly where digital transformation is concerned.

Speaking to Insurance Business, she explains there’s been a significant shift of late in how startups and corporations collaborate.

“Corporate venturing is a sphere in which a corporation sets up an environment where they can invest in startups,” she says. This space, however, is undergoing disruption, especially in terms of investment, particularly in the fintech sector – with VanderLinden highlighting a drop in funding as a key concern for traditional corporate venturing models.

“There used to be 140,000 fintech startups just last year. Today there are 153,000 startups in fintech – 25 to 30% of these startups have raised $824 billion. However, when you look at 2024 investment trends $36 billion has been invested in fintech startups – 50% of 2023 and 50% of 2022.”

‘Corporate venture clienting is a little bit more sexy’

It’s this steep decline that’s putting pressure on corporations which rely heavily on these investments to fuel innovation. Amid this funding decline, VanderLinden sees the rise of corporate venture clienting as a promising alternative. This model allows corporations to work with startups without financial investment, focusing instead on commercializing new solutions. VanderLinden describes corporate venture clienting as “a little bit more sexy” because it allows for corporations and startups to engage in commercial dating exercise, bypasses the often slow, risk averse and multi-party approval processes required with traditional corporate investment approaches.

“Corporate venture clienting is when a corporate decides to work with startups without having to invest in them. It’s about the commercialization of the solution,” she says. Corporations like 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 influenced these collaborations. Research from Zoom, 75% of leaders whose teams use AI say they collaborate better, 75% say they make more informed decisions, and 74% say they’re able to work better when they’re not in the same location.

“Despite the fintech patterns, one of investment trends that is doing well is remote tech or enterprise collaboration technologies with nearly $2B in investment this year (twice as much as last year’s funding.)  It’s all about remote working collaboration tools, you know, efficiency at the desktop or on the edge (e.g. the laptop), for employees… it’s also about integrating artificial intelligence and ensuring that we remain cybercrime safe,” VanderLinden says.

AI’s impact on the world of underwriting

AI, in particular, is transforming key processes in insurance, especially in underwriting and customer service. With AI, insurers can process simple risks more quickly and accurately, allowing them to focus human resources on more complex tasks. According to data from WorldMetrics, 88% of insurers believe that AI will improve the accuracy and speed of underwriting decisions, with 70% of insurance executives seeing AI as a key part of their company’s strategy.

“Artificial intelligence and algorithmic technology enable insurers to literally dynamically price or provide a quote to a customer fast and accurately for those simplest risks, it means that the technology takes over,” VanderLinden says. This technology allows insurers to efficiently handle high volumes of simpler policies, such as those for small businesses, streamlining operations in ways that were previously impossible.

Yet, the rise of Business AI, or Generative AI also brings challenges, particularly around ethics and transparency. VanderLinden stresses the importance of ensuring that emerging AI systems are both explainable, transparent and trustworthy. She warns that reliance on historical data, especially from developed markets like the US and the UK, could introduce biases, potentially overpricing certain demographic groups, including minorities.

“We want to make sure it is trustworthy, it is explainable,” she says – because insurers must navigate these ethical considerations while still taking advantage of the efficiency gains AI offers.

‘I don’t think you will see a lot of insurers going for open source platforms’

Despite its potential, new AI model adoption remains slow among insurers. VanderLinden observes that although there are “thousands of POC (proof of concept) on the go… maybe less than 1% are being really implemented by insurance companies when looking at Generative AI models.” This reflects the industry’s cautious, risk-averse nature, particularly when faced with technologies that could dramatically alter long-standing processes.

VanderLinden also highlights insurers’ hesitance to embrace open-source platforms and generative learning, preferring instead to collaborate with established tech giants like Microsoft and Google.

“I don’t think you will see a lot of insurers going for open source platforms,” she says.

Startups entering the insurance industry face unique challenges as well. VanderLinden observes that many tech ventures are founded by individuals who believe they can solve problems with technology, but they often underestimate the complexities of the insurance business.

“What often young ventures face is a little bit of [an] arrogance problem… thinking that they can actually solve the problem without talking to the customer, the buyer,” she says.

Ultimately, VanderLinden sees enormous potential for technology ventures interested in the insurance space, this includes adjacencies, but success requires a nuanced understanding of the industry’s challenges. Startups need to be patient, adaptable, and ready to collaborate closely with insurers to address their specific needs.

“The challenge for insurers is to actually continuously innovate despite market shifts [and] at the same time, leverage the right technology to drive this efficiency,” she says.