Incumbent Partnerships are Key to InsurTech Success
By Andy Scurto
The insurance technology (InsurTech) wave is upon us, with some reports citing more than 200 startups as entering the market just last year, and a possible total of nearly 900 startups now focused on InsurTech overall.
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This rate of growth, fueled largely by an infusion of funding from both internal and external sources, is unprecedented in our industry.
CB Insights estimates this wave comprises some 20 completed investment deals by insurers in the first quarter of this year, compared to that same group of insurers finalizing only eight deals in the first three months of 2015. Funding by big insurers of emerging technology firms is predicted to climb this year, says the firm. And, in total, funding to InsurTech startups topped $1B in the first half of 2016. The deal volume of 80+ deals in the first two quarters combined puts the year on pace to top 2015′s total by more than 42 percent.
While a large number of these incoming upstarts are distribution channel disruptors, many are developing new business models and positioning themselves as direct competitors to traditional or incumbent insurers. Others are technology companies targeting process improvements in critical areas such as claims and underwriting, as opposed to total industry disruption. All this, plus news about accelerators, studios and labs making strides in innovation magnifies the pressure for insurers to innovate faster than the competition. Additionally, insurers are now being compared to other industries that have fostered levels of customer care that insurers could only dream about, making it difficult for insurers not to respond.
“Many major carriers no longer worry that InsurTech firms might erode their business,” said John Cusano, senior managing director, global insurance at Accenture. “Instead they’re eager to benefit from the new insights, attitudes and technology they bring to the industry.” Cusano’s statements intimate a belief that the secret to moving forward is in establishing an environment of cooperation between insurers and new technology firms.
Recognizing that core administration systems have been and continue to be the foundation upon which the business of insurance runs on a daily basis, some insurers are responding to this increased pressure by evaluating and updating core systems. Thankfully, many incumbent technology providers are working behind the scenes to refine and improve existing offerings. Modern core systems, with open and flexible APIs, will help insurers to truly embrace InsurTech startups by enabling needed integration. Partnership between incumbents in the existing insurance industry and InsurTech startups is key to successful innovation iniatives going forward.
“Celent’s analysis of what has happened to date in InsurTech concludes that the need to overcome these challenges results in a model of cooperation rather than destruction,” notes Celent senior analyst Mike Fitzgerald in an Insurance Innovation Reporter blog.
Against the enormity of a core system implementation, the innovation required is really about collaboration and partnerships that meld in a way to provide the greatest possible value to the insurer. However, desire to take advantage of the latest technology trend or to jump on the InsurTech bandwagon should not outweigh prioritization of core systems’ technology initiatives with tangible business value that are the result of those collaborative efforts.
“Unlike supplier-buyer relationships of the past, where a contract is negotiated through an extended procurement process, these partnerships must be governed by a common vision and controlled through active communication from both sides,” concludes Fitzgerald.
Andy Scurto is president of ISCS. He can be reached for further information or comment via email at email@example.com.