Adapt, assess, and align: 3-A approach for successful insurer-InsurTech collaboration

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To ease challenges, established insurers can employ a structured methodology to InsurTech collaboration. The World Insurance Report 2018 suggests a strategic 3-A approach: Adapt, Assess, and Align.

Human capital is an InsurTech firm’s greatest asset. Therefore, it is critical to verify that the right set of people will be committed to driving innovation, growth, and expansion.

InsurTechs and established insurers have a complementary set of competitive advantages that make collaboration a win-win opportunity. But, how can they partner to ensure success?

InsurTech firms are digitally agile and innovative, which helps them develop ground-breaking new offerings that address gaps across the insurance value chain. And, because they are quick to leverage emerging technologies, their solutions are often cost-effective.

On the other hand, established insurers have earned essential advantages such as customer trust, brand recognition, a broad customer base (that offers economies of scale), capital, an established infrastructure, and expertise in handling regulations.

Even with so much to gain from one another, established insurers and InsurTechs face collaboration challenges because of differences in culture, scale, and speed. Some InsurTechs consider incumbents’ lack of agility to have an adverse impact on productivity and traditional insurers may worry about newcomers’ inexperience when it comes to handling large-scale transformations. Furthermore, there are challenges in integrating new technologies with legacy systems.

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Mitigating challenges, establishing success

To ease challenges, established insurers can employ a structured methodology to InsurTech collaboration. The World Insurance Report 2018 suggests a strategic 3-A approach: Adapt, Assess, and Align.

Adapt

A critical first step to secure executive leadership’s enthusiastic support and buy-in regarding the benefits of InsurTech collaboration. Next, a clear, long-term strategic vision and tactical plan must be drafted to begin to shift the firm’s cultural mindset toward agility and innovation. Additionally, established insurers can work to overcome legacy constraints by investing in digital technologies such as cloud, open platform, and microservices.

Assess

Before forging a partnership, insurers can evaluate an InsurTech firm based on its business objectives and risk tolerance. The impact of InsurTech collaboration on incumbent insurer’s business can be assessed based on the type of InsurTech firm, according to the World InsurTech Report 2018 (WITR), which also outlines how to analyze both current-state and future potential of all InsurTech firm types.[1]

Once the firm determines which type of InsurTech support it needs, it can identify a suitable partner by considering four key factors – People, Finance, Business, and Technology.

  • People: Human capital is an InsurTech firm’s greatest asset. Therefore, it is critical to verify that the right set of people will be committed to driving innovation, growth, and expansion.
  • Finance: It is essential for the InsurTech firm to demonstrate it has the right revenue-generating model that can deliver positive cash flows in line with the established insurers’ expectations.
  • Business: The InsurTech firm should have established marketplace traction and a proven business model and offer a unique value proposition with the potential for fast customer adoption.
  • Technology: The InsurTech firm should have an active and scalable solution that can be integrated easily with the established insurer’s back-end operation. The solution should also pass necessary security tests.

Align

A decision about the right partnership model is critical for best realizing expected outcomes. More than 75% of established insurers said they prefer purchasing a Solution as a Service (SaaS) or working with an InsurTech to develop a new solution, according to the WITR 2018, followed by preferences for white-labeled solutions, and financial investments such as acquisitions or sponsorships of incubators or accelerators.

Investment in an InsurTech firm or supporting it through an accelerator/incubator are ways that established insurers can learn more about an InsurTech’s viability before purchasing a solution or partnering for new-solution development. To keep everyone on the same page, clarify objectives at the outset and be sensitive to the norms of the potential partner’s culture.

Realigning business processes and operational procedures – as well as building robust interfaces – will expedite smooth collaboration. Established insurers can particularly focus on change management to encourage the acceptance of a digital culture within their firm and adoption of agile workflows.

To solidify the collaboration, it is essential for incumbents to become deeply involved by offering guidance based on their business knowledge and expertise. Considering that InsurTechs often have limited resources, infrastructure support from incumbents may help them to stay focused on their core competencies during the partnership. And, finally, insurers might consider ring-fencing the InsurTech unit from the rest of the organization to preserve the spirit of innovation.

I’d love to hear your comments and thoughts. Feel free to get in touch with me on social media.

[1] WITR 2018 broadly categorizes three types of InsurTech firms: Enablers, Distributors, and Full Carriers

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