Fintech has attracted investors for some time, but much of the funding was focused on technologies that could change banking and investing, such as blockchain — the software that underpins bitcoin — big data analysis or robo advisers. With startups increasingly delivering products that work, and the big insurers getting in, that's changing.

"Insurance hasn't really been on the radar of entrepreneurs in the past because it's so complex and opaque," said Francois Robinet, managing partner of Axa Strategic Ventures, the venture capital unit of French insurer Axa SA. "Now they discovered that there are a lot of inefficiencies and problems that they can solve, meaning a lot of opportunities for innovation."

Record funding

Funding for insurance-focused startups hit a record $2.7 billion last year. The number of investments involving such companies is expected to exceed 75 this year, up from 61 in 2015 and just one in 2012, according to venture-capital researcher CB Insights.

Both Munich Re and Allianz have set up units in recent years for venture deals and partnerships as they seek new clients and ways to distribute their services. Axa started its venture capital unit last year, with 230 million euros in commitments.

Allianz and Munich Re didn't say how much they invested in each deal, but amounts are usually small. Axa's venture capital portfolio counts 22 companies, on which the firm spent about 25 million euros, according to Robinet. Investments include stakes in online insurance broker Policygenius as well as blockchain, banking and crowdfunding startups. All of them are in an early stage, where investments typically don't exceed 2 million euros, he said.

Related: Maximize the potential and avoid pitfalls in developing and implementing InsurTech

If the experience of banks is any guidance, it could be some time before any investments pay off. Lenders have made largely incremental steps to overhaul longstanding practices, such as using digital signature applications to reduce paperwork. It's only recently that banks have started experimenting with potential breakthroughs such as using the blockchain to cut costs and fundamentally change the way their customers do business.

Distribution costs

Fintech for insurers is "both a long-term challenge and an opportunity, with material effects that may only start to emerge in 10 years' time," S&P Global Ratings wrote in a report last week.

For insurers, some of the technology's appeal is that it can help reduce the cost of distribution. The companies have used direct sales through online platforms for years, yet they still spent most of their non-claims costs on distribution.

"We see a huge amount of potential change," said Jason Richards, the head of property and casualty business management at Swiss Re AG, the world's second-biggest reinsurer. "With reducing cost of distribution being one of the focus areas of insurtechs, there will be increasing challenges for the agents who will all need to reinvent themselves."

Trov, So-sure

But the startups can also open new groups of potential clients. Allianz made its first investment in one of these new ventures in June when it acquired a minority stake in Berlin-based Simplesurance. The company, founded in 2012, sells point-of-sale protection for products like phones, bikes and laptops. Allianz sells insurance through the company. 

Munich Re followed suit and announced it would partner with Simplesurance and help it develop new products and markets. Munich Re's Digital Partners has also announced partnerships with U.S.-based insurtech startups Trov and London-based So-Sure, which insures mobile phones. The reinsurer helps some of the new companies cover claims, allowing them to grow faster than if they would relying just on their own capital.

Munich Re's U.S. subsidiary belongs to a group of carriers backing startup Lemonade, which has eliminated brokers and sells renters and homeowners insurance in direct competition with primary insurers. The company, which began to sell homeowner insurance in September, promises clients low cost services and the ability to submit claims in minutes through their mobile devices. Backers, which include Berkshire Hathaway Inc.'s National Indemnity and XL Group Plc, will backstop contracts arranged through the startup.

Related: Lemonade starts insurance sales in N.Y. a year after founding

Bermuda-based XL, like Axa, has set up a venture capital fund to invest in technology startups. The unit, XL Innovate, was among a group of investors backing a $3.9 million funding for Slice Labs in March, and invested in business insurance startup Embroker in May.

"We are still early in the game," said Tom Hutton, who heads XL Innovate. "Insurance is a business where there is a reason for scale and carriers that are truly open for change will probably absorb the leading new ventures."