Collaboration, change, and the insurance revolution
This post takes learnings from Insurtech Insights, Ernst & Young, and Insurtech Australia to explore how incumbents and insurtechs are working together to revolutionize the insurance industry, and what sustainable partnerships between the two look like.
This is the third post in a four-part series on the insurance industry and its use of emerging ecosystems. The first part of this series discusses insurance ecosystems, and the second part highlights customer obsession as the key to customer success.
Last week, Ernst & Young and Insurtech Australia published a report on insurance industry participants from April onward, offering insight into how incumbents and insurers are working together due to COVID-19. The report looks promising for the future of innovation in the industry at first glance, showing that 80% of insurers are already collaborating with insurtechs (that’s up from 45% of survey respondents in this 2017 PwC report). Two-thirds of incumbents also agreed that such partnerships would become more ubiquitous in the coming three years. This recent push towards ‘random acts of digital’ has gained momentum in response to the panic of the global pandemic, with some industries handling the change better than others. As PwC expert Berry Driessen put it,
“Organizations that have always given thought to their customer experience have been less affected by the crisis than organizations that only recently started thinking about this.”
This is good news for companies that have invested in tech and innovation, but there are still some big barriers to overcome for partnerships between incumbents and insurtech to be fruitful. The same Ernst and Young report noted that 81% of insurtechs would say that insurers are not prepared to innovate at scale, and that insufficiently detailed implementation plans only add to the red tape surrounding digital transformation.
The truth is that ‘no single enterprise needs to own or operate all the component parts of an insurance solution’ – a reality that is becoming increasingly clear as consumer expectations evolve to expect service that centers their needs.
What incumbents are looking for in insurtechs
A recent Insurance News Australia article outlines four major areas in which friction occurs: use of legacy systems, differences in business culture and practices, tedious onboarding, and lack of plug-and-play capabilities. Incumbents are often wary of onboarding new solutions, thanks in no small part to poor experiences with partners that could not solve for the use cases in question, and were also difficult to plug and unplug from preexisting systems. These experiences cause decision-makers at incumbents to move with caution, but innovation is still a priority for effective problem-solving. The most important thing that incumbents need to justify an investment in insurtech is proof of concept, which is validated if the insurtech’s technology has solved similar use cases, or led to changes in metrics that the incumbent values.
Finally, incumbents are seeking partnerships with insurtechs who can provide ‘a different access to the customer’, as Bernie Hickman of LGI elaborated in a recent Insurtech Insights webinar. Incumbents are rich in terms of data, and a symbiotic relationship with insurtech in these instances gives both parties context and insight.
How insurtechs are bridging the gap between the consumer and the incumbent
As for insurtechs, most are eager to partner with incumbents and to aid in the growth of industry infrastructure that provides seamless experiences. In order to do that, the incumbent must believe in the solution that the insurtech provides; as Graeme Dean put it in the same webinar, the incumbent needs to ‘buy into the value proposition’ in order to lay the foundation for a fruitful collaboration.
Another trait that some – but not all – insurtechs look for is agility, which translates across different capabilities for traditional insurers. This could be in terms of resource allocation, quick decision-making, and most importantly, the ability to execute. But while ‘it’s ideal to have partners that can really just execute quickly’, there’s also a need to value incumbents who are proactively working to develop these capabilities. Insurtechs can offer clients added value with services that relieve administrative burden, such as reporting and data analysis that make it easier to act on insights – the value of which Anurag Bhatta expanded upon earlier this year, saying:
‘a focus on innovative predictive analytics technologies that enhance our ability to more accurately measure risk factors (e.g., historical performance, type of exposures and other quantifiable risks) will help address the challenges businesses will face in 2020 and the years beyond.’
True digital versus stop-gap solutions
While more and more providers are open to transformation today, experts are urging them to invest empirically instead of tactically; collaboration isn’t an end on its own, but rather a means to provide more valuable experiences to all stakeholders. As Andrew Parton of EY Oceania succinctly put it,
“For the sector to fully realise the transformative potential of insurtech, insurers will need to move beyond random acts of digital and put the right infrastructure in place so that their legacy systems can connect with technologies and support plug-and play integration capabilities.”
COVID-19 has been a catalyst for this transformation, and insurers are already coming together to collaborate with insurtechs that can demonstrably improve customer experience through a combination of big data, machine logic, consumer insights, and expert instinct. And the most successful partnerships with insurtechs will give incumbents access to an enriched level of data, as well as more channels to tap into – factors that could be the difference between becoming obsolete, or owning the industry as a leader.