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Getting value from partnerships

Getting value from partnerships

Let's face it: insurers do not typically make the best software designers or technology developers. It's just not what the industry was designed to do.

Based on data from a recent global survey of insurance CEOs conducted by KPMG International, it seems most insurance CEOs now recognize they are struggling to drive innovation on their own. In fact, in the survey, insurance CEOs were more likely to say they see partnerships and JVs as the most important strategy for growth than other more traditional approaches (such as M&A, organic growth and outsourcing).

Even more telling, perhaps, is the fact that 58 percent of the CEOs in our survey agreed that the only way their organization would achieve the agility they need is by increasing their use of third party partnerships. The same survey found that insurers were particularly focused on developing partnerships with online platform providers, industry startups and third-party cloud technology providers.

Not your traditional partnerships

What many of these insurers are also starting to recognize, however, is that traditional approaches to partnerships are not fit for purpose when working with these types of third parties and partners. This is not like penning another Bancassurance arrangement or partnering with a local provider to gain a foothold in a new market. It requires an entirely different approach.

For one, corporate development teams, corporate venture capital groups and M&A teams will need to start thinking differently about the way they assess and evaluate new opportunities in the technology space.

As Chris Wei, Global Chairman of Aviva Digital and Executive Chairman of Aviva Asia, noted in an interview published in Accelerated evolution: M&A, transformation and innovation in the insurance industry by KPMG International, it is becoming increasingly difficult to assess a partnership or JV based on financials alone. “You can't get too hung up on financials,” he notes. “We often look at other key metrics that influence the way they engage customers or users. What is their customer proposition and are customers buying into it?”

The business will also need to play a significant role, particularly when it comes to identifying third parties that would be the `right fit' for the organization and its strategic objectives. They will also need to play a key role in driving the direction and then integrating the `output' of any partnerships that are formed.

Securing value

Yet, in my opinion, the greatest challenge facing insurers as they look to secure value from their third-party partnerships isn't in finding the right partner (there are still lots of great startups looking for new partners). Nor is it in securing the support of the business (most business unit leaders are keen to find innovative ways to solve their business challenges). The real challenge is how to keep the entrepreneurial and creative spirit of the partnership alive while still controlling risks and securing benefits.

Clearly, forcing the new partner into the existing insurance framework, controls and culture is no recipe for success. Time and again, I've witnessed insurers purchase or partner with startups only to then extinguish their creativity in a maelstrom of new controls and requirements. It's frustrating, expensive and demotivating.

I believe the better approach is to think about partnerships as an intricate spiders' web with the core insurance business at the center. Yes, some strands are connected directly to the center to ensure stability, enhance strength and improve efficiency. But, more often than not, the strands are loosely connected to each other - spreading both the strengths and the benefits across the entire web.

In some cases, this may mean incorporating the partnership into the day-to-day business - building a central strand that lays the foundation for other partnerships and strategies to succeed. But in other cases, insurers may be best served by allowing their partners to work very independently of the insurance business, thereby building those connecting strands that will (eventually) become a key component of the web.

Of course, none of this excuses the need for controls. Third party arrangements and their associated agreements will be critical to both organizations to help achieving their goals for the partnership. Controls around cyber risk will be important for the insurance organization as it increasingly becomes a focus of regulators as it relates to third party risk. The ultimate goal is to not strangle the unique essence of the start-up as you strike the right balance with optimal approach and structure.

One thing is perfectly clear: in todays' insurance environment, partnerships are key to achieving growth and transformation. Finding the right partners and the right partnership models will be critical.


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