Insurtech Development and Technology Investment of Insurers: The Perspective of the Catfish Effect

Abstract

This study empirically examines whether InsurTech development leads to technology investment engagement in the US property-liability insurance industry by utilizing a combined dataset from the Venture Scanner and the National Association of Insurance Commissioners (NAIC) from 2006 to 2019. Interestingly, the empirical results suggest that the development of InsurTech induces insurance companies to allocate more resources to expense-side technology investments; however, it decreases their investment in asset-side technology. The results suggest that insurance companies prioritize profit maximization and performance enhancement over cost reduction and efficiency improvement due to the constraints of limited resources. This paper demonstrates that incumbent insurers are stimulated by InsurTech startups, resulting in the catfish effect. To enhance their competitiveness and withstand disruption by InsurTech newcomers, insurance companies are increasing their technological investments and embracing digital transformations.

Keywords: InsurTech development, technology investment, the catfish effect, the stimulation effect