Insurers stake claim in startup scene

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One of Canada's most conservative industries is making an unlikely push into the startup scene: the insurance sector.

Canada's largest insurance companies are hiring tech experts, making more trips down to Silicon Valley and building out their relationships in the startup community. But unlike venture capital funds, insurers are placing more focus on learning from startups to stay apace with trends in their business rather than just aiming to generate investment returns from backing entrepreneurs.

Insurance companies cite the fast pace of change in financial technology, or fintech, and the threat of digital disruption as reasons for ratcheting up their hunt for investment opportunities in emerging businesses. Insurers are aiming to secure their future growth at a time when companies such as Netflix, Uber and Airbnb have proven they can shake up entire industry business models, and new online insurance sites, mobile apps and data processing services are circling the industry.

Intact Financial Corp., the largest property and casualty insurer in Canada, has earmarked as much as $300-million for investments in financial technology and other startups that can improve the way it analyzes data, prices policies and responds to customers – all while helping it keep tabs on digital upstarts that could threaten its business model.

Manulife Financial Corp. has also put stakes in the startup scene. The insurance giant recently hired experienced fintech executive Linda Mantia as its chief operating officer and head of innovation, luring her away from Royal Bank of Canada where she helped to launch Apple Pay in May. Manulife also created the role of chief innovation officer for Timothy Ramza last year. His mandate now includes keeping track of "disruptive trends" and he frequently travels to Silicon Valley, seeking partnerships, investments or joint ventures.

Not all partnerships include money initially. Manulife's recent agreement with three-year-old Boston-based startup Indico Data Solutions will see the two work on new ways to analyze certain kinds of financial information. Manulife could become a customer in the future, depending on the results, it says.

Sun Life Financial Inc. recently joined the MaRS Discovery District as a corporate partner and created a new group to invest in health and fitness startups. "We're in a kind of a position to go out, look at all these companies and curate them and bring the best of the best to our clients," said Kevin Dougherty, president of Sun Life's Canadian business.

Insurers are also seeking to broaden their wealth-management businesses through these investments. Great-West Lifeco Inc. controlling shareholder, Power Financial Corp., through a venture-investing subsidiary, has been an active player in the scene, backing fintech startups including Wealthsimple and Borrowell.

Meanwhile, Toronto-based insurance conglomerate Fairfax Financial Holdings Ltd. is looking to invest not only in technology that could benefit its businesses, but also produce investment returns, through its newly formed FairVentures initiative.

For Intact, returns are less of a motivation. "Because we're not simply investing money to generate a return, we don't need to have a sign on the door that says 'insurance partner money here,'" said Monika Federau, chief strategy officer at Intact. "It's much more oriented toward creating partnerships and potentially small investment stakes in organizations where we can accelerate our learning, where we have some shared competencies," she said.

Earlier this year, for example, Intact made an investment in a U.S. car-insurance startup called Metromile with an unusual model where customers pay for insurance based on how far they drive.

For Intact, investing directly makes more sense that hiring another fund or venture capital team to source investments because it gives the company a clear sense of the pace of change and competition, says Ms. Federau, who got a better sense of how driverless cars are evolving while attending electronics and technology trade show CES this year.

"What you find once you start working with some of these organizations, they tend to connect you to others, typically in Silicon Valley," Ms. Federau said.

Areas of partnership interest for Intact include looking at data to improve pricing and customer service, the sharing economy and so-called "deep learning" where companies use algorithms and artificial intelligence to make sense of unstructured data, such as social media, weather or traffic.

Intact's potential financial commitment is significant in Canada, where the venture capital arm of pension fund Ontario Municipal Employees Retirement System became a leading investor by raising $480-million for two VC funds, most of that money coming from the pension fund itself.

Mike Woollatt, head of the Canadian Venture Capital & Private Equity Association, said that the insurance industry is "ripe for disruption" because applying for home, auto, health and other types of insurance is such a clunky process, and the network of brokers who sell insurance adds a layer of costs that could be trimmed by new technology. "I'd be pretty wary right now in the traditional insurance business," he said.