This latest insights piece is by René Schoenauer, Director, Product Marketing, EMEA, Guidewire Software. Rene takes a look at how insurtechs and insurers can work together on new products, refine and grow existing ones, plus aim for the long terms gains, not short term wins.
Insurers wanting an injection of innovation into their products and processes are being tempted by a fast-growing community of insurtechs, who are also looking to insurers for their own growth. Yet insurers and insurtechs are very different, so their partnership comes with challenges but potentially, also, huge opportunities.
So how to get it all right?
Insurtechs as the spark of innovation Insurtechs have seen tremendous growth in recent months, with estimates of 1,700 insurtechs globally. According to CBI Insights, insurtechs raised $7.4 billion of funding during the first six months of 2021, compared to $7 billion throughout 2020.
Technology can be leveraged to transform the way insurance customers are serviced and how products are made, distributed, and managed. Many insurtechs are now positioning themselves as a friend, offering help traditional insurers innovate with new services. These include streamlining business processes, boosting customer acquisition, or managing risks more effectively.
For example, Dutch insurtech, FRISS, automates approximately 200 general insurers’ fraud and risk detection processes with AI-powered detection solutions. Insurers using its AI delivered over $2 billion in fraud savings in 2021. Similarly, French insurtech, Shift Technology, delivers AI-native fraud detection and claims automation solutions, allowing insurers to achieve faster and more accurate claims resolution.
Leveraging insurtechs for innovation
Insurtechs seek strategic partnerships with insurers, but an exact number of partnerships remains unknown. CBI Insight, estimated that since 2017 there have been 180 partnerships between insurtechs and insurers and re-insurers like Axa, Munich Re, and Allianz. The rate of growth means that around 20 to 30 new partnerships are forged every quarter.
There is more than a generation gap affecting these partnerships.
Insurers are often large traditional businesses with roots stretching back centuries. They are characterised by how they have endured, taking calculated risks and being conservative in their actions. Most insurers understand the need to adapt and introduce transformative innovations, but this is challenging and does not happen fast enough.
Comparatively, insurtechs are younger than most insurers, move faster and take more risks with investments and product developments. While many are better at designing technology, some are less capable of selling or supporting deployment on a larger scale.
How to forge a successful innovation partnership
At the early stages of the partnership, insurers may manoeuvre into a relationship without clear goals. Some even embrace the woolliest of motives like, “let’s hang out with the cool kids”.
For insurers, analysing their exact need for innovation must be the first step in evaluating whether an insurtech can deliver what they need. A mistake to avoid is over-fixation on technology, wanting a fast track to AI or data science analytics risks disappointment. The right path is to concentrate on the business goals, consider how to get there, and then how technology will assist.
Bringing together different workplace cultures
An insurer’s procurement process can be off-putting. Old fashioned bureaucratic processes place a burden on an insurtech. The solution lies in how insurers create fast tracks for their technical and legal reviews and set-ups to begin the partnership as quickly as possible. It is certainly helpful if the insurer creates a dedicated innovation unit that can work closely with the insurtech and build experience in this area of business.
It is important to assess whether their own technology stack is ready to marry with what a potential innovation partner uses. Key elements to be looked at include assessing a traditional insurers’ current cloud computing infrastructure and DevOps expertise. From that, it shows which applications and processes should be adapted for this partnership.
Take the time to build relationships
Part of the job is to identify and build relationships with insurtechs. Insurers should make sure that due diligence is done, including, understanding insurtech capability to fill a gap. Relationships should also be built with the venture capital and other firms behind the insurtechs; giving insight into why and who they are funding.
Once the partnership has been struck, the focus should shift to the insurer’s own audience, such as stakeholders in the C-suite or the technology leadership arena. These people need to be onboard as to why this partnership makes sense and if it can deliver measurable benefits from the innovation.
When an insurer finds suitable insurtech partners to help address their core business problem, they need to start with a small scope, and gather some evidence of success within a realistic timeframe; this requires insurers to work flexibly with insurtechs.
Work to maintain a long-term relationship
It is important to evaluate the insurtech for the long term especially if their technology is pivotal to how the insurer’s business develops, sells, and manages core product lines.
Insurers need to be tough on understanding how well the insurtech can grow and be a source of innovation for the future.
Assigning someone as a partnership success manager is crucial to keep this partnership on course. A success manager should oversee the relationship, ensure it delivers value and can bring a partnership to a close when necessary.
Create a long-term success
In connecting with insurtechs for innovative capabilities, the importance of common software platforms has increased. These offer the best way for insurtechs to interconnect with insurers.
The extent to which insurtechs can operate on the same platform irons out a significant obstacle to new technology adoption, speeds up deployment, and avoids the need to train insurance staff on an unfamiliar dashboard.
Further, when the platform provides an environment for testing new processes or capabilities in a pilot phase, this helps to introduce and then scale up an innovation for wider use. Ahead of solidifying this partnership, insurers should make sure that they are properly set up to identify, nurture, and integrate with another organisation.
Clearly, there is a healthy appetite among insurers to tap into the insurtech community for new ideas and innovations. By leveraging the technology which insurtechs bring, insurers can differentiate themselves in a competitive market, improve business processes, and outcomes for both their staff and customers.