Why Incumbents should Build Partnerships with InsurTechs
Largely frowned upon as competitors by the traditional insurance firms, InsurTech disruptors are now finding favour in the eyes of the incumbents.
The market is witnessing an increase in collaboration between InsurTechs and the insurers, and more partnership is expected to grow over the coming years.
Interest into the InsurTech space has skyrocketed, with last year witnessing $3.1bn being invested into the sector, according to data by FinTech Global. This figure is almost double the $1.6bn, which had been funded over the course of 2017.
A survey by Capgemini, dubbed World InsurTech Report 2018, says these digital insurance start-ups are redefining customer experience, developing new business models and improving efficiency from product conception to claim settlement.
InsurTechs have agile structures, streamlined operational costs, risk-taking mindsets, and data-driven experience models, hence are proving themselves better and faster at addressing customer needs, says Elias Ghanem, FINTECH Lead for Continental Europe at Capgemini.
“The days are gone when insurers communicated with customers only when claims were filed. InsurTechs have altered the traditional low-interaction model between insurer and customer by leveraging connected devices and Internet of Things (IoT) to drive product innovation and reinvent customer engagement,” he says.
The Capgemini’s survey points out that almost 96% of insurers seek to collaborate with InsurTech firms, in order to improve their services and keep up with consumer demand for digital capabilities and better customer service.
Through Artificial Intelligence, InsurTechs are able to monitor extensive risk factors, enabling insurers to engage in proactive risk mitigation services, and to provide timely care interventions. This, in essence, deepen their relationships with customers.
Better customer retention, new revenue streams, and operational efficiency improvements are just some of the benefits that make InsurTechs attractive partners for insurers.
InsurTechs, on the other hand, look to traditional insurers’ extensive customer bases as the key to scaling their offerings.
In its Insurtech: the new normal for the insurance industry?, PricewaterhouseCoopers have summarised InsurTech competencies across several areas of the value chain and ranked them in importance as follows:
- Meeting changing customer needs with new offerings
- Leveraging existing data and analytics to generate deep risk insights
- Offering new approaches to underwrite risks and predict losses
- Enhancing customer interactions to build trusted relationships
- Empowering insurers with sophisticated operational capabilities
- Leveraging broader ecosystems
For insurers, says the report, it will be crucial to build closer relationships, bridging the contrasting cultures and focusing on the joint opportunities. Being an investor alone in InsurTech will not be sufficient.
“It is important to be a true partner in an innovative, new value proposition combining the long-term experience of incumbent players with the creativity and agility of an insurtech,” says the report.
KPMG, in its Insurtech 10: Trends for 2019, a research undertaken jointly with The Digital Insurer, says that InsurTech is the means to transform insurance from an arcane policy-led industry into one that succeeds by placing the customer at the heart of everything it does.
“Executives must embrace this change — and rapidly — if they are to benefit from the opportunities and not get left behind as the industry is transformed,” says Will Pritchett, Global Head of Insurtech KPMG International, in the research.
And for insurers to survive in the increasingly digitialised, they should start to recognise that disruption and innovation can ultimately benefit them, should they seize the opportunities presented by new technologies and business models. As much as InsurTech firms are in some cases challengers, they also offer excellent partnership opportunities.
According to KPMG, the main hurdle to insurance- InsurTech partnerships is in the area of business integration, and this may explain why some traditional players are unwilling to make the collaboration move.
The integration obstacle is in the areas of advisory, engineering or architecture. This has been the missing link, and for InsurTech to succeed, both innovators and insurers will need to work with business integration specialists in a three-way partnership.
“We know that plugging in technology isn’t going to make it happen all on its own; it must be part of a program to reengineer the whole organization into a fully connected digital business. Insurers must think in terms of running a two-speed business that preserves the qualities of the old, while placing their talent, focus and digital energy towards the new model, which will become the engine of their transformed business,” adds KPMG’s Mr Pritchett.
This requires leadership to recognise it is not just about changing technology, but also about shifting the business model. It is expected to become the new business as usual, but this requires many of the old skills to navigate the data and security controls that must be in place to build products and platforms that operate in a new global marketplace.