When it comes to innovation, incumbent insurers have three main options: build, buy or partner. In general, only the largest firms with the deepest pockets opt to build technology solutions in-house. It’s a risky strategy because the technology will not have been tried and tested elsewhere, and it can be extremely costly to maintain and upgrade. Therefore, most insurers are choosing to buy solutions from specialty vendors or to partner with start-ups, insurtechs and fintechs to develop solutions for specific pain points.
The old and the young don’t always get along. In the case of the incumbent insurer and the insurtech start-up, initial tension is to be expected given the widely spread narrative that the new kids on the block were out to disrupt and potentially destroy incumbents. But that narrative hasn’t come into fruition. Both sides have quickly come to realize that they need each other and now they’re trying to figure out how they can best work together.
“When it comes to building a successful partnership between an incumbent and a start-up, alignment is very important,” said Rowan Saunders, president and CEO, Economical Insurance, and panellist at InsurTech North 2019 in Toronto. “Insurtech organizations have great agility, great innovation, deep customer insight, and neat and often cool technology – all of which can be quite enviable for an incumbent or a legacy insurer. On the other hand, we have hundreds of years’ worth of experience in managing, assessing and pricing risk. We have the customers and the capital. A successful partnership will bring all of those things together in a way that everyone’s clear about the roles they play.”
Once everyone is clear of their roles in the relationship, a common mission needs to be defined and agreed on. Everyone needs to be pointing in the same direction and striving for the same outcome, explained Rino D’Onofrio, head of Canadian insurance business, RBC Insurance, and fellow InsurTech North 2019 panellist. It’s also helpful if the mission is focused on a specific business issue rather than targeting something broad.
“Focus is really important. The insurance company can’t ask an insurtech: ‘Can you help us with our efficiency?’ That’s just way too big a question,” Saunders commented. “Where partnerships work well is when you find a specific business partner … and then you pump your focus, effort and resources [into one precise pain point] rather than spreading thins out too widely.”
Another thing companies need to think about is culture. The culture at an incumbent, legacy insurance firm is going to be different to that of an agile, fast-paced insurtech start-up. If the partnership is focused towards a point solution and everyone knows the roles they’re expected to play, this helps to establish a cultural blend, according to D’Onofrio.
“If you keep it tight, you can really ensure that the cultural fit is there,” he said. “At the end of the day, the cultures between the insurer and the insurtech are not going to identical, but it is possible to work together. The tighter you make the scope, the more likely it is that you can gel the culture. On that note, it’s also important to create a culture within the organizations where everyone wins or loses together. The insurer and the insurtech need to work together and succeed together. It’s really a common mission.”
When developing a “common mission,” it’s important for all parties to enter these relationships with “an element of tenacity and realism,” according to Saunders. Innovation doesn’t succeed overnight. Sometimes it takes multiple trials to get the first win, and the need for updates and upgrades is incessant. Saunders pointed out: “If you don’t enter a partnership with your eyes wide-open and with everyone clearly aligned and aware of their responsibilities, things can get frustrating.”