As they search for new ways to solve businesses challenges, inspire innovation and create and seize new opportunities, insurers worldwide are increasingly teaming up with insurtechs and other technology startups. Yet combining the steady caution of traditional insurance with the fast-moving, fast-changing ethos of startup culture is rarely straightforward. Insurers need to be well-prepared to make sure these partnerships work for all involved --and deliver meaningful value in the end.
Since 2017, insurance companies and technology companies around the globe have publicly announced more than 180 partnerships. The number of partnerships formed each quarter has been rising as well, from less than 20 in Q1 2017 to more than 30 in Q4 2018.1 We anticipate the actual number, including non-public agreements, to be significantly larger.
Some insurers and reinsurers are more active than others when it comes to these partnerships, among them, AXA, Chubb, and QBE. Sixteen insurers or reinsurers have publicized three or more strategic partnerships since 2018 --and seven have publicized more than five partnerships.2
There are many reasons insurance companies are seeking out partners in insurtech and other technology areas. Typically, they want to overcome a challenge or solve a vexing problem. They may want to improve the experience for their agents or end customers. They may want to be able to harness the power of data to identify and respond to new, untapped opportunities. Perhaps they want to instill a greater sense of innovation within the organization and become faster and more nimble overall. The reasons behind successful partnerships often focus on persistent business needs: to help cut costs, increase revenues, or improve customer experience.
Insurers and their technology partners see the world and do business in rather different ways. Large, enduring enterprises --particularly insurance companies --are built to preserve and execute on proven business and operating models. They're designed to do what they do in a very efficient manner with a minimum of risk. The structures and procedures they use to govern their interactions with external partners typically presume the other party looks and operates in much the same way as they do.
Insurtechs and other small, nimble technology companies, on the other hand, are structured in a way to find and grow executable business and operating models with agility at their core. They double down on what works --and throw aside what doesn't --at incredible speed, making decisions very quickly to achieve a relentless forward momentum.
Not surprisingly, insurers and technology companies often view fundamental aspects of their partnerships --investment, outputs, risk, evaluation, and more --through different lenses. While this can bring a welcome, dynamic quality to the working relationship, it can also lead to friction that could potentially result in poor outcomes.
Insurers can avoid this risk by carefully and deliberately planning how they work with insurtechs and other technology partners. This structure enables insurers to adapt to and facilitate an insurtech's way and pace of working, while helping the technology partner better understand the realities of working with a large enterprise.
One of the greatest determinants of a partnership's success is whether it addresses an identified business need and use case. Too often, insurers are seen scouting insurtechs or other startups without assessing if the solution offered is a fit with the insurer's needs. This can result in insurers trying to incorporate insurtech solutions into the business even though they don't address any pressing problems or needs.
Insurers must lead with the need when exploring insurtech partnerships. Only by understanding and prioritizing the organization's problems can an insurer find the right partner --one who can help develop and deliver a solution that the organization needs and can integrate into its business.
Companies that do this well often have a more mature innovation capability --through dedicated teams or infrastructures responsible for finding solutions to the organization's emerging problems. These groups regularly interview leadership teams across the enterprise to stay on top of current and emerging issues and determine which problems or opportunities would be a good fit for organic (internal) innovation, and which would be best suited for inorganic innovation through partnership and investment. These groups can also help scope out what sort of partnership is really needed: rather than a full integration, a more agile arrangement around specific capabilities, or some form of advisory relationship might be what's required.
Before embarking on a partnership, the insurer's relevant business unit leaders need to work with stakeholders across the enterprise to make sure there's buy-in across the enterprise and alignment of incentives and accountability.
Getting buy-in from C-suite leadership is typically the first step, but it's also important to meet with leaders whose business units may be impacted by the partnership's solution --such as Claims, Underwriting, or Distribution. As well, buy-in from those who will be involved in the partnership either at its outset or while the solution is built --such as Procurement, Legal, Finance, or IT --is also important to identifying potential issues before they become obstacles. Having buy-in from CIOs and CTOs is especially key, given that solutions will often need to be “plugged in” to the insurance company's older legacy technology.
Insurance companies and other large enterprises typically have long, laborious, and highly detailed procurement processes. These arduous processes can place an enormous demand on a small insurtech or startup, who may not have the time or available resources to deal with them --which can lead to friction between the partners.
Some innovative insurers are addressing this challenge by building “accelerated procurement teams.” These teams use streamlined processes, template forms, and speedier legal and technical reviews to get partners approved faster so that the partnership's work can begin as quickly as possible.
Not long ago, it was hard for insurers to find technology startups that offered good value propositions or compelling technologies. Today it's much easier for them to scout their options and make connections, because the market has grown immensely in size and maturity.
Insurers should continually monitor the market and develop relationships with potential partners by attending conferences, building relationships with venture capital investors and tech accelerators, and working with data and insight providers. This will help insurers to better understand the solutions available in the market and keep an eye on trends around products, business models, emerging technologies, and more.
Once an insurer has identified a potential partner that can help address an identified business need, it's important to ascertain whether there will be a good fit between the organizations. Questions to ask include:
The answers to these and other questions can help insurers decide whether, and how, to move forward with a partnership.
Insurtech partnerships often work on the periphery of the insurer's main business, in order to work faster and more freely away from the organization's day-to-day bureaucracy. To ensure the partnership stays on track, insurers should consider assigning a “partnership success manager.”
The partnership success manager is a dedicated resource --it can be an individual or a team --whose role is to “own” a partnership and track, measure, and manage the relationship with a partner. Typically, this individual or team is drawn from the insurer's innovation team or a relevant business unit, and handles coordination and communication between internal insurer stakeholders and the insurtech partner.
The partnership success manager is responsible for understanding the business opportunity, the objectives and structure of the partnership, and the partner company itself. He or she has sufficient organizational clout to steer the relationship, overseeing pilots and proofs of concept and facilitating the eventual successful scaling of the solution. At the same time, he or she is able to shut a partnership down when it's clear that the relationship isn't working or if the solution isn't fit for purpose.
Effective partnerships need funding, but that funding should be structured in a way that reflects and supports progress. In this regard, insurers can take a staged approach for budgeting and deploying funding, similar to that used by venture capitalists and other investors. Using a staged approach enables partnerships to get started with a small initial investment; funding increases are tied to reaching development milestones and achieving predefined key performance indicators. As well as ensuring that investment capital is used efficiently and in a way that encourages and supports project momentum, taking a staged approach also enables insurance companies to shut failing projects down and preserve remaining investment capital.
Several insurance companies have established their own venture capital arms in order to access this market and find potential partners. For example, American Family Insurance's early stage venture capital arm, American Family Ventures, started investing in 2010.3
Insurers embarking on partnerships with insurtechs should also make sure they set up a dedicated testing environment for the solutions being built. These typically involve sandbox environments in which the team can deploy and test the new technology on anonymized data sets that can be used to evaluate various solutions.
A dedicated testing environment allows innovative ideas to be built, iterated, and tested rapidly without putting the insurer's day-to-day data and operations at risk - a key concern for carriers as they move to modernize their technology and operations without sacrificing the pragmatism and risk aversion that drove their success to date.
Insurance companies should be clear on what they're trying to achieve through a partnership and identify the right metrics to use in order to track not only progress --but the value of the partnership's solution to the business. Potential metrics include growth in existing or new markets, customer experience feedback, employee engagement, reduced losses or LAE, and operational efficiency. It's important that the metrics are meaningful in terms of the insurer's business strategy; don't choose a metric just because it's something that can be tracked.
Insurer -insurtech partnerships can sometimes break down once the parties move from proofs of concepts, pilots, and testing to scaling the solution in preparation for a wider rollout. For various reasons --e.g., technology infrastructure, the nature of the business model --solutions can falter at scale.
Leading insurance companies establish a clear, predefined process to moving projects through proofs of concept and into the broader business. They set out how the solution will move through the production pipeline, what investment will be made and by whom, which party owns which responsibilities, what metrics will be used, where the decision making points are, and so on. Establishing a clearly defined scaling process from the outset ensures the partnership operates with a mutual understanding of what must be achieved in order to continue moving ahead.
Partnering with insurtechs and other startups is helping a rising number of insurers harness innovative thinking to spark growth, improve customer experience, and tackle tough business problems. To get the most out of these partnerships, it's important that insurers lead with the need --and prepare their organization properly. By establishing a solid foundation for success at the outset, insurers will be well-positioned to unlock new routes to success.
Authors: Pat Kneeland, Manager, Innovation & Enterprise Solutions at KPMG in the US and Kabir Sadarangani, Senior Associate at KPMG Innovation Labs at KPMG in the US. At KPMG's Innovation Lab, Pat and Kabir help insurance carriers understand how their industry and customers are changing, and determine where and how to evaluate, structure, and measure organic (internal) and inorganic (partnership & investment) opportunities to innovate across their business.
Article originally published in The Digital Insurer's August 2019 newsletter.
1 “Which Insurers Are Actively Partnering With Tech Companies?”. Retrieved July 16, 2019.
3 “Insurtech Partnerships: What Insurers Want and Get.” Retrieved July 16, 2019.