René Schoenauer, Director, Product Marketing, EMEA at Guidewire Software takes a look at Greenfield Insurance;
Since the pandemic, insurers have been given cause to wonder whether starting from a clean slate is the best way to achieve the change needed to meet present-day challenges. With the influx of insurtechs, and the opportunities presented by modern software platforms and cloud infrastructure, insurers have already embraced the greenfield model for several years. But what lessons have been learnt and how should they be applied in a new wave of greenfield insurance innovation?
A greenfield insurer is when an established insurance company founds a separate entity or company, with its own identity or brand, to create, sell, and develop a product or set of products from the ground up. Greenfield businesses are agile and use the latest practices, processes, and systems, plus new talent, and ideas. The legacy systems holding back established businesses must be dealt with or migrated over.
An upward trend
Examples of successful greenfield insurers can be found worldwide and are part of a long-term trend. In Europe these include BeeSafe, the Polish digital brand for motor insurance set up by the Vienna Insurance Group, and FRIDAY, the pay-as-you-go motor insurer based in Germany that provides green motor insurance policies. Celent have forecast an increase in greenfield investment by insurers. In their latest Insurance Innovation Outlook, 51% of “innovation practitioners” in insurance firms surveyed said their investments in greenfield initiatives will grow. By comparison, in 2015, only 20% said they would.
Focus on customers
Increasingly, insurance customers feel disconnected from traditional insurance brands, and greenfield insurers can provide a way to connect with customers in a new and profitable way. Guidewire’s 2021 customer attitudes study confirm that a greenfield approach could address the gap between insurers and their customers. The study indicated that 26% of UK customers believed that insurers did not do enough to help during the pandemic, compared to 17% of customers at the beginning stages of the pandemic. Almost one in three (31%) respondents thought insurers sold overpriced products, are reluctant to pay out claims or are a necessary but inconvenient service. Customers who believed their insurer understands them and has valuable products have flatlined at 15% year-on-year.
Increasing profits A 2018 McKinsey study found that that the “administrative costs for greenfield insurers average half those of incumbents—sometimes even less” through shedding legacy systems and high operational costs. However, this is dependent on how the insurer approaches the venture; for example, the number of lines the new operation offers and the willingness for digitalisation.
A greenfield approach allows an insurer to identify new opportunities, but what are the best steps to ensure success?
A greenfield operation is a standalone miniature business, distant from the parent operation. A successful greenfield model should be ready to scale from the outset and identify customer needs or a gap in the market. Greenfield businesses liberate the parent firm to leverage new core technologies and cloud infrastructure. FRIDAY aimed to deliver fully digital customer service, changing the way people buy car insurance in Germany. This was achieved by the new operation right from the beginning, with a simplified infrastructure that had fewer risks than the parent firm.
Lay the foundation
Like any new business, a greenfield insurer must be resilient. These are businesses which must be self-sustaining and be able to grow and trade. Therefore, the preparation phase is essential. Those involved in greenfield brands must focus on laying the groundwork and address the necessary regulatory approvals in the market.
Invest in teams
The image of greenfield insurers may be of youth and being digital savvy, but it is important not to ignore the experience and expertise of the parent business. Time needs to be invested in establishing the right team, creating a unified entity, with a strong team culture and ethos, supported by the right skills and knowledge.
Choose the right technology
Speed and scale are key for success and are assured by technological strategies providing customer service excellence and product innovation. It is important that working applications and automated processes using low-code techniques are revised, adapted, or replaced as needed. Optimising modern software approaches including open APIs and microservices is a must.
The experience of BeeSafe illustrates how modern technology enables speed to market, using an agile architecture to facilitate rapid design and deployment of new value-generating products.
BeeSafe’s CEO, Rafał Mosionek, has said: “We are very proud that right in the middle of the COVID pandemic, starting in mid-April 2020, we developed and delivered a digital offering and platform in four months, with a first go-live in August. This a testament to the talented, agile, and creative team that we formed from scratch to launch our innovative value proposition.”
The parent insurer should leverage software platforms that deliver resiliency and robustness, enabling an ecosystem of insurtechs for plug-in innovation and a competitive edge.
Collaborating with best-in-breed providers allows greenfield insurers to prepare for future challenges and opportunities. This is made possible as greenfield businesses can operate in a cloud first structure, providing the freedom to accelerate with unrestricted growth. In this way greenfield businesses can focus primarily on new products or process refinements.
In the case of FRIDAY, they deployed their software platform on the Amazon Web Services (AWS) cloud, to build an on-premises infrastructure, avoiding up-front costs, complexity, and long-time scaling. As a result, the team was focused from the beginning on adding customer value rather than maintaining infrastructure.
Looking to the future it is expected that insurers will launch greenfield projects to address new market segments and changing customer needs. Examples of greenfield insurers can be seen worldwide, but without the necessary preparation they could encounter problems before they even start. Creating greenfield businesses like FRIDAY and BeeSafe provides a wealth of opportunities for insurers seeking new sources of growth. Such examples also underline how important it is to develop a sturdy plan and choose the right team and cloud-based infrastructure for rapid, unrestricted growth.