Decoding Insurer and Insurtech Collaborations - The Missing Rosetta Stone
Traditional models for life insurance are increasingly under threat as the environment in which insurers operate is disrupted and transformed by new technologies that resonate better with the demands of modern consumers. But do established providers really face a future of declining market share as customers shift their attention in favour of novel digital offerings?
The multiple startup and insurtech ventures would like to think so. These innovative entities burgeon with skills and ideas and claim readiness to help insurers modernise processes and cast aside their legacy chains. Despite their confidence, the pace of tech adoption remains glacial.
An explanation for the generally slow progress is that collaboration happens best when there is a shared narrative. With the marketplace awash with startups all claiming their ideas to be the best, insurers want to be sure to select those most likely to succeed.
In their business roadmaps, startups might overlook important product development cornerstones, such as compliance, distribution or the application of their offering in an insurance wrapper. Their need for funding to secure survival means startups focus on gaining investor confidence, often by highlighting user experience in their proposed solutions - at the expense of insurance concepts.
Most opening discussions with insurers are shaped by a typically successful investor pitch. However, it may meet with a subdued response as the insurer seeks different measures of success than the venture capitalist.
For insurers, implementing tech ideas requires not only significant investment but internal change management. Incorporating any idea requires a full understanding of the risks, costs and benefits involved in taking on the proposition. How a technology may be used, how it will influence the profit stream or bottom line, and anything that may be needed to mitigate from a risk standpoint are important factors to consider.
Insurtech offerings represent novel and niche collaboration opportunities for carriers that are different from the existing insurance value chain. However, the dichotomy of operational contexts between the enterprises may clash when initiating a partnership.
While insurers may like the ideas that insurtech startups offer, the ideas present unknown risks and often lack solid use-case data on which to base answers or back up claims. This lack of proof and experience can overshadow the potential of what the offering might bring in future so that a proposition falls flat before it can spread its wings.
The insurtech may paint a fantastic picture, an image that the insurer buys into, but the insurer requires the fundamentals to move the collaboration forward. This often leads to communication breakdown, especially when the insurtech has only a broad understanding of how insurance works and are unable to overcome the information asymmetry.
How do we overcome this gap in understanding between the two? Translating the approach for the other side’s understanding seems like a step in the right direction to creating a winning combo.
Perhaps a good working combo entails the insurtech presenting some traditional insurance product development concepts once it has established a feasible proposition. In addition, asking the right questions earlier can facilitate a common understanding; translating the proposition into a unique selling point for an insurer requires some understanding and adoption of the traditional insurance framework.
On the other hand, carriers must shift their thinking to what works in a technology-enabled digital world. This may mean adapting existing risk frameworks to make them future-fit. Furthermore, insurers need to accept that some operational uncertainty is a feature of employing new technology. Indeed, a leap of faith may be required - focussing on the potential of the idea to take things forward and trusting in the known information rather than focussing on what is unknown. Perhaps the only way to move forward is to acknowledge the fact that new technology brings new risks; mitigate what risk you can and do not dismiss the technology out of hand just because it has an element of uncertainty.
Both parties need to get on the same page, using whatever form of Rosetta Stone is available to translate their efforts, to move forward and exploit this space before they become out-dated in this fast-paced environment. A host of opportunities wait to be unlocked once a common understanding between insurer and insurtech is reached.
At Gen Re we are facilitating this process with the growing network of insurtech companies we are working with. Through this collaboration, we can help an insurtech optimise its proposition in the context of insurance, where we act as the translator between insurtech and insurer, helping to engender partnerships through a common understanding.