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By Simon Hull, Head of Financial Services at BJSS
In the face of pressures like Covid-19, shifting customer expectation, increasing competition and ever-changing regulations, the insurance industry is accelerating its digital ambitions to stay relevant. Effective Insurtech and ecosystem partnerships have proven instrumental in helping insurers fast track business model and product innovation, develop new customer propositions, and drive digital transformation. So it’s no surprise that in 2021, global investment into Insurtech passed the $10Bn barrier by the end of Q3 alone, which was already 48% up on the 2020 total.
Insurers and Insurtechs can work together in numerous ways – through acquisition, non-exclusive investment, technology partnerships, underwriting partnerships, and so on. Regardless of the nature of the partnership, the fact remains that Insurtechs tend to be small startups, whereas insurers tend to be large, complex organisations. As a result, there needs to be a clear strategy to navigate the organisational, operational and cultural differences between the two.
In this post, I share five approaches that will help insurers realise the benefits of working with Insurtechs and ensure these partnerships are successful.
1. Adopt the right internal approach
Partnering with an Insurtech can be an effective way of accelerating innovation activity. But you can only unlock those benefits by having the right approach internally. Innovation should be a strategic priority, with objectives that align with the business's overall strategic goals and, ideally, its own P&L or ring-fenced budget.
There should also be a single person in charge of innovation, someone well-established within the business, with strong relationships with senior stakeholders, and a detailed understanding of the organisation’s procurement, due diligence and legal processes. This individual should have a high degree of decision-making authority, be empowered to spend their budget as they see fit, and be afforded flexibility in how they engage with Insurtechs.
Of course, this is a lot easier said than done! And you’ve got to be realistic about what’s achievable within your structure and culture. But aspiring to this approach will help insurers deliver tangible benefits to the business through Insurtech partnerships.
2. start small with a low-risk, low approval proof of concept
Large organisations usually have complex processes with multiple stakeholders needing to give approval. There are good reasons why that’s the case, but it jars with startups’ more agile ethos of building digital products and services quickly, failing fast, iterating, and moving rapidly onto the next thing. If you’re working for a large insurer, the delivery process might not be so dynamic. In fact, we often see larger organisations take a long-term, risk-averse approach to tech delivery, favouring ‘big bang’ launches over incremental change. Unfortunately, this isn’t conducive with the more nimble and agile approach of startups.
One way to bridge this gap is to engage Insurtechs to deliver a low-risk Proof of Concept (PoC). The objective of a PoC project should be to address a well-defined problem or opportunity - one that supports the organisation’s strategic goals and will demonstrate clear value. The focus should be on helping to build a business case, gaining enough evidence to validate the opportunity and convincing internal stakeholders to pursue the opportunity further.
The low-risk aspect is crucial; it should let you apply fewer and more focused requirements to the project and the Insurtech partner. Lower risk PoC projects shouldn’t require exhaustive due diligence, procurement or approvals processes, which should remove some of the barriers that impede Insurtechs from demonstrating value to your business.
3. be clear about where you fit into each others lives
You need to communicate to Insurtechs where they fit into your strategy, how they’re contributing to your goals and the nature of their impact. Setting appropriate expectations will make the whole experience better for everyone involved.
Insurtechs are used to working in terms of days, sometimes hours or minutes, whereas in large insurers things can take months, even years. Clear communication on this front is vital. Be honest with Insurtechs about the realistic timeline for a deal.
This allows you to have a more transparent conversation about the value you’re bringing to one another. A partnership with an Insurtech could help you bring more innovative, customer-centric products and services to market or deliver efficiencies throughout the value chain. For their part, Insurtechs can gain access to significant resources, huge datasets, a massive customer base to test their products, and a shot at scale.
But, at the end of the day, the majority of Insurtechs are small, early-stage businesses. They may reasonably need to derive more immediate value from the partnership, particularly in terms of short-term cash flow. This is something to be aware of when having those conversations about working together.
4. invest in incubator or accelerator programmes
Sometimes an Insurtech has an innovative product or solution but lacks the industry knowledge to turn it into a commercial-ready solution. It can require a huge investment of an insurer’s time and effort to help the Insurtech build a compelling business case. Many Insurtech partnerships fall down for this reason.
This is where incubator or accelerator programmes can help, whether it’s partnering with existing external programmes or developing one internally. Programmes such as Insurtech Gateway can help Insurtechs develop appropriate industry knowledge (for example, understanding key regulatory requirements) that will inform better, more relevant products that meet the existing needs of businesses.
5. understand that partnerships are just one piece of the digital transformation puzzle
Ultimately, digital transformation is a multifaceted endeavour for insurers. It starts with a holistic vision to become a more customer-centric, innovative, and agile company. It then involves transforming the organisation, the operating model and the technology platform to align to this new vision of how to do business.
Collaboration with Insurtechs and other ecosystem partners is one way in which insurers can meet customer expectations, produce and deliver relevant products, improve risk modelling, streamline operations and adjust to regulatory changes, among other things.
In the BJSS White Paper, Accelerating Insurance Digital Transformation, we discuss Insurtech partnerships as one of three priorities that insurers must consider when meeting the challenges facing the insurance industry.
To learn more about all three priorities in detail, including what they look like in practice, you can download the white paper here.