Being one of the InsurTech startups that are trying to provide, innovate and create a platform where smart contracts can be used to transact with full transparency and speed, and that can be used by distributors, insurers and insurance customers, we sometimes encounter bumps along the way. And that is due to the fact that sometimes or if not, most of the time, Insurers and InsurTechs have to be more accommodating and attuned to one another’s needs.
According to those on the front lines forging a new, mutually beneficial fintech ecosystem reveal a host of challenges hindering cooperation between incumbent companies, such as insurers, and startups. The goal is to combine the best of both worlds — the technical know-how, transformative thinking, and entrepreneurial culture of InsurTechs with the industry expertise, capital, and brand power of long-time carriers. Yet realizing this vision often turns out to be quite complicated and even frustrating, to the detriment of both parties.
Many insurers and other financial institutions (including banks and investment management companies) are still struggling to interact effectively with the fintech community, where players often have less industry-specific experience; the operating model is generally fast-fail, and entities usually aren’t as tightly regulated. Fintechs (including insurance-focused entities) had their own set of complaints as outsiders looking in, citing difficulties striking and executing development deals with more bureaucratic and compliance-focused incumbents.
Deloitte’s report — Closing the gap in fintech collaboration: Overcoming obstacles to a symbiotic relationship — goes into detail about roadblocks that undermine productive co-development of fintech solutions, while offering potential workarounds. Among these are the key takeaways:
Incumbents are avoiding startups that don’t understand their industry.
One point we heard repeatedly is that insurers and other financial institutions are becoming much more demanding about what they expect from fintechs pitching investment opportunities. The focus has shifted from “cool” generic ideas in their earliest stages to practical solutions addressing problems specific to a particular industry, such as insurance.
To overcome this hurdle, InsurTechs need to refine their pitches to align to real-world challenges for insurers, while demonstrating both industry and technical expertise. One investment management fintech whose founders already had extensive experience in the industry touted this as a big competitive advantage, enabling them to make proactive decisions early on about how their architecture should be built. Knowing ahead of time where legal and compliance issues might arise could save a year in the development cycle, they said.
Fintechs confront organizational barriers in having proposals considered and executed.
Incumbent companies are often siloed, with each business unit or department making their own decisions on whether to invest in, buy, or partner with a fintech. Sometimes it’s hard to find out who to speak with to learn how to reconcile what one unit may be doing versus another or to resolve some other internal conflict that arises. Basic internal awareness and communication about fintech initiatives within incumbents are often lacking as well.
To overcome such structural inhibitors, incumbent carriers should consider establishing a precise engagement path for InsurTechs, with a single point of contact who is aware of development efforts across the enterprise, able to coordinate efforts by the various departments involved, and positioned to help navigate around any roadblocks that arise.
Insurers struggle to set benchmarks projecting results and determining success.
Most incumbents said they prefer to see evidence fintechs can deliver on what they promise, rather than place their bets on purely theoretical pitches — one factor likely explaining the recent surge in later-stage investments in existing companies, rather than financing of additional startups. Yet insurers and other financial companies also indicated that establishing quantitative benchmarks can be challenging when dealing with fintechs, which often lack a lengthy track record or employ relatively untested technologies. In the insurance industry, imprecision — particularly in calculating results — is unconventional. Such ambiguity could potentially complicate or even paralyze collaboration, investment, or acquisition decisions.
Insurers may benefit from taking a broader, longer-range, and more qualitative view in measuring the success of InsurTech investments. Some may want to define ROI as a “return on innovation.” What is the impact of an InsurTech solution on ease of doing business and the client experience? Which business units are changing their platform or products because of engagement with InsurTechs? As one global bank told us, “Success is really measured by how this relationship helps move our vision forward.”
Changing the mindset
Despite these obstacles, InsurTechs will likely continue to drive transformation, serving as a marketplace for innovation. Still, incumbents and InsurTechs still have a long way to go before settling into a more systematic, truly symbiotic relationship.
A big part of the problem could be that too many incumbents see InsurTechs as just another type of vendor. That may be natural, as insurers seek to normalize relations with those they might have once seen as threatening disruptors or potential competitors. But in the long run, treating InsurTechs as just another product peddler is likely to be a less effective approach than dealing proactively with them as collaborative co-developers. Indeed, some incumbents told us it’s often easier to just acquire a fintech outright, rather than deal with all the potential friction a partnership with an outside firm could generate.
In any case, insurers and InsurTechs will both likely need to be more accommodating and attuned to one another needs to facilitate, rather than hamper, efforts to work together. By realizing a mutual need for collaboration, the old and new guards are more likely to thrive in a competitive landscape being disrupted not only by emerging technologies but by evolving customer expectations.