The insurance technology (InsurTech) wave is upon us, and insurers are under more pressure than ever to innovate for the sake of survival. With more than 200 InsurTech startups entering the market last year, this wave demonstrates a rate of growth not previously seen in our industry. Some of these incoming upstarts are positioning themselves as direct competitors, others are technology companies that propose to offer something unique to the industry.
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, notes researcher CB Insights. 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%.
In the popular view, working with InsurTech startups, incubators and boot camps magnifies the pressure to innovate faster than the competition. In addition, 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.
Not surprisingly, many insurers are responding by evaluating and updating their core systems. And because of the magnitude of importance that these systems represent, as well as the layers of business processes that have, over the years, formed the foundation of core systems’ functioning, many insurers are not sure whether to embrace InsurTech start-ups or run in the other direction.
The secret to moving forward, notes John Cusano, senior managing director, global insurance at Accenture, is in establishing an environment of cooperation between insurers and new technology firms. “Many major carriers no longer worry that InsurTech firms might erode their business. Instead they’re eager to benefit from the new insights, attitudes and technology they bring to the industry,” he says.
In the due diligence required to replace or upgrade core systems, however, many mid-tier and smaller insurers are putting their IT dollars behind trusted incumbents, technology solution providers with a proven track record. Thankfully, many of these incumbents are working behind the scenes with InsurTech start-ups to refine and improve their own offerings.
Research and consulting firm Celent notes several barriers for InsurTech newcomers to address if they are to displace incumbents. “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,” notes Andy Scurto, president of ISCS, the developer of the SurePower, a modern platform of products for property and casualty insurance organizations. “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.”
Celent’s Fitzgerald maintains that partnerships between insurers and startups represent a new business model. “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,” he says.