The insurance industry has become the darling of big investors around the world. They’re pouring fortunes into technology companies looking to capitalize on the digital disruption that’s starting to shake the industry.

Scores of technology start-ups, devising smart technology solutions for insurers, have pulled in heavyweight backers. They include comparison platform PolicyGenius, claims management service Enservio, peer-to-peer insurer Lemonade, small-business service provider Zenefits, health insurer Oscar and usage-based auto cover provider Metromile.

There’s no doubt that some of these firms are going to have a big impact on the insurance industry. And also earn their investors hefty returns on their capital. Which will succeed and which will stumble is difficult to predict. What is clear, is that the stampede to invest in insurance technology has already begun to change the insurance industry.

Here’s how:

Technology has moved to the forefront of insurers’ strategic planning. Investment in technology is no longer simply a matter of improving operations. Carriers are recognizing that it’s vital to their survival and success. Many realize they have underspent in the past and are budgeting substantial increases in expenditure. Cloud computing, analytics and connected devices, in particular, are attracting big investment. As insurers look to technology to help chart their future, the chief technology officer will become a more influential voice within the C-suite.

To fast-track the acquisition of essential technology, and vital skills, many large insurers are making big investments in innovative start-ups. AXA, Aviva, Allianz, American Family, MassMutual, Transamerica and Ping An, among others, have created venture investment funds. All bought into rising technology start-ups last year. Targets include PolicyGenius, NextCapital, CoverHound and Limelight Health.

The growing importance of technology is driving a slew of partnerships and alliances across the insurance industry. More than 40 percent of insurers canvassed by our recent Distribution and Agency Management Survey are already partnering companies from other industries or are eager to do so. The increasing clout of digital aggregators, most notably Google, as well as the growth of digital ecosystems will accelerate alliances. Furthermore, tie-ups with start-ups will increase. We found that 47 percent of insurers are working with start-ups and external partners or plan to soon. During the past year Progressive, American Family and Oscar Health, for example, announced links with technology suppliers as part of their push into the connected insurance market. Such partnerships will undoubtedly increase.

How long investor enthusiasm for insurance technology will last, nobody knows. We could be seeing the rise of a massive industry or the beginning of an investment bubble. What is for sure, is that the surge of investment in insurance technology has already made its mark on the industry. Technology and innovation will be driving forces in insurance for some time to come.

In my next blog post I’ll discuss why investors are shifting their spending on new technologies and how this will affect the insurance industry.

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