Carriers seeking to build up their InsurTech capacity face a number of choices to get there—some quite pricey. In the short term, partnerships may be the most cost-effective and least risky way to go, said Tom Super, vice president, Insurance Intelligence for J.D. Power.
“Partnerships are less risky than building in-house or purchasing InsurTechs outright,” Super told Carrier Management via email. “This does not mean partnerships are the best way to go in the long run, but they commit the fewest resources from the large insurers while also not missing out on the immediate benefits of these companies and obtaining a lot of knowledge that you can incorporate into your own corporate digital culture.”
To be sure, existing InsurTechs offer competition to carriers in terms of insurance offerings and delivery of service. Super argues, however, that because they’re not a direct competitive threat to existing insurers, carriers more easily gravitate to partnership deals with them anyway.
“This is not a case of Amazon showing up to edge out Barnes and Noble or CompUSA with a new business model—inventory-less B2C sales. These are companies using the same business model and providing a better [user experience],” Super said.
Still, partnerships in this scenario aren’t without risks. One big one, according to Super: Partnerships can end up making InsurTechs more competitive [and more of a threat] in the long run than they were at first.
“A partnership can raise the profile of these [InsurTech] companies and end up raising their competitive threat or increasing the purchase price down the line,” Super said. “Other risks are the same with any partnership: You are dependent on another organization that you do not have control over.”
Super’s comments stem from follow-up questions about the J.D. Power 2019 Insurance Digital Experience study, which, in part, predicted more carrier/InsurTech partnerships this year. The study also found that carriers have stunted their “digital maturity” due to a lack of resourcefulness, despite technological progress internally and with customer-facing systems. Asked to explain further, Super reaffirmed carriers have come along way with technology. He added they’re not getting an “A” grade just yet.
“We’ve found that insurers in general are pretty good at digital. Insurers are customer facing, with heavy investments in marketing and service, two items that digital is very good at supporting,” Super said. “Many insurers, particularly over the last two years, have implemented effective apps, updated their websites, have good social channel management and generally have digitized most of the critical components of their offerings: claims, quoting, etc.”
But there is a caveat: Most other industries have done the same things, even those with far fewer and less pressing customer needs. With this in mind, Super said that old-fashioned carriers could do more thinking outside of the box than they do currently.
“The insurance industry is mostly just converting its traditional processes to digital, basically making analog processes on digital systems,” Super explained. “In general (all of this is a generality, of course), insurers aren’t thinking about how translating these to digital can create net new and improved experiences.”
That’s where J.D. Power’s “lack of resourcefulness” comments in its Digital Experience study come in. Super said that carriers in general “have a lot of simple pieces” they’re good at but still need to explore “how combining them in interesting ways” can generate significant value.
“For example, many insurers use [insurance] agents, but their agents don’t integrate with any of their digital systems. Why not? Why can agents not chat through my app? Why can they not push personalized [recordings] and information directly to customers through many channels? These are not fringe technologies. They are just being underutilized,” Super said.
Super, in his comments, also put customers’ online quoting experience into perspective and knocked it down to size.
“The online quoting experience is simply filling out an online form. The most advanced insurers simply use dynamic menus instead of flat boxes,” Super said. “InsurTechs like Lemonade are not reinventing the business model; they are simply realizing that insurers haven’t leveraged the things they are already good at to make a better experience.”