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by Zita Goldman
How can incumbents ensure that they single out the ideal insurtech partner?
The fact that investment in insurtech has been increasing at a compound annual growth rate of 36.5 per cent can make partnerships with insurtech start-ups appealing, even in the eyes of the most die- hard analogue insurance incumbents.
Technologies that start-ups can bring to incumbents range from robotic process automation and AI to machine learning, IoT and blockchain. But insurers can also benefit from integrating new business models into their legacy systems.
Rather than developing their own proprietary solutions, says the World Insurtech Report 2018 from Capgemini and Efma, around 80 per cent of insurers prefer transferring new technologies into their businesses. Typically, they either source them as a service or develop them in partnerships with insurtech start-ups – very often within the framework of a corporate incubator or accelerator that gives them access to innovation at a relatively low cost. Other ways for incumbents to incorporate cutting-edge technology into their products and services include financial investment and using white label solutions, while acquisition – a predominant strategy for big tech companies – is at the bottom of the list, at 35 per cent.
Naturally, insurance companies expect to gain higher profitability, competitive advantage and improved operational efficiencies from these partnerships. However, the highest-ranking advantages of collaboration with insurtech focus on the positive impact it can have on customer experience and time to market, as well as its potential to extend incumbents’ digital capabilities.
While insurers are already aware of the necessity to partner with disruptive start-ups, they often don’t know how to confront the complexities of finding the right partners. To address these complexities, Capgemini’s report establishes three different types of insurtech start-up.
Initially, the biggest buzz surrounded distribution: due to the soaring popularity of online marketplaces, becoming a digital distribution seemed to be the way to retain old customers and reach out to new ones via their preferred channel. Since then, new digital distribution models have been emerging, such as personal financial assistants, whose partnership potential isn’t fully appreciated by incumbents yet, but which may eventually supersede the models with a higher level of current uptake.
The second group of start-ups are the enablers: front-office, policy and claim-management solution providers, and data and technology specialists. Enabler offerings in all areas serve the purpose of personalisation and more individualised customer service, and are fuelled by aggregated and analysed customer data. They are designed to be integrated into other systems and to scale up – two qualities that the third group, full careers, tend to score low on.
No wonder, then, that it is the enabler start-ups that insurers are the keenest to team up with, with data specialists topping the list at 62 per cent, followed by technology specialists and claims and front-office solution providers, at 55 per cent and 51.9 per cent respectively.
Full careers include the most disruptive end-to-end business models such as micro-insurance and on-demand, usage-based insurance (UBI) – where the insured only pays a fee while they are at risk – and peer-to-peer (P2P) insurance. Although they are grouped under the same label, they pose markedly different integrational and opportunity risks as potential partners.
UBI, for example, presents significant benefits for the insurer. The personalised nature of the policy enables better pricing, and the model may result in lower claims costs for the insurer and less risky behaviour of clients. Integration is much easier than in the case of the other full career models – following some realignment by the incumbent to track customer data, UBI can be introduced smoothly. For the same reason, though, it has a low opportunity cost, as the insurer can decide to digitalise in-house and go it alone with the integration of the UBI model.
Meanwhile, the other models – while taking much more effort and care to integrate into a legacy system – target underinsured and uninsured customers, and, therefore, the opportunity cost of avoiding partnerships with them is considerably higher.
So, how can incumbents decide whether a particular insurtech company is actually capable of delivery? The report suggests a 360-degree qualification approach relying on the four pillars of effective collaboration (people, finance, business and technology), consisting of four consecutive phases. In the first phase, the candidate’s reputation is assessed through web-scraping (customer feedback, quality of website, financial track record), the outcome of which the candidate can augment, confirm or modify in the second phase. This is followed by an in-depth interview by the selected insurtech of subject matter experts, covering the four “pillar” areas as well as data privacy issues. The fourth phase involves collecting feedback from the candidate’s business partners and third parties to get the candidate’s full credentials.
In conclusion, let’s recap the ingredients of the formula which can guarantee that legacy insurers make the right choice of a young and agile insurtech partner: identify your digital weaknesses, such as the ones you can’t provide proprietary solutions to, and seek start-ups with offerings that can provide what you miss, always keeping the strength of their value proposition in mind as well as how scalable and easy to integrate their offerings are. If you plan to integrate highly disruptive models or solutions, it’s also worth checking how the start-up measures up to regulatory constraints. Once you have a handful of candidates matching your assessment criteria, seek the help of professionals to check their claims and credentials. And, given the current speed of technological advancement, you’ll likely have to do the same thing all over again in five years’ time.
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