Working With Insurtech: How You Can Level Down The Risk And Maximize The Value?
Every day, there are new insurtechs that are funded and ready to partner with insurance carriers. Insurers shouldn’t allow their risk-averse nature or concerns about a potentially difficult integration road ahead to lead them to ignore upstart insurtechs. The best is providing new technologies that will rapidly give their partners significant competitive advantages in this era of rapid claims technology advancement.
That said, there’s no denying that working with startups entails risk. Plenty of newer insurtechs has technology that’s too underdeveloped, a value proposition that’s too undefined, or leadership that’s too inexperienced to overcome the gauntlet of obstacles that stands between startups and success. What if the startup folds unexpectedly? Will they protect your sensitive data adequately? Will they deliver on their promises or cause your company to lose trust in adopting new technologies in the future because of a perception that they never produce the results they initially promised?
Insurers can and do work with young insurtechs very successfully. But they cannot interact with them like established companies. The long-held norms for working with a vendor don’t apply. While many “hot” startups come to the table with eye-popping advancements that promise to provide almost unbelievable gains in cycle time, cost savings, and customer experience, not all will deliver on these promises on day one. Some will even intend to build their product as they go, and a few of these will even succeed. While this is far outside the comfort level for how most established companies operate, it’s also how the most successful technology companies got their start.
The advantages of working with startups can be compelling. With strong startups, their small size and scrappy culture make these teams extremely nimble, enabling them to turn on a dime and make almost instant changes to their product as if they’re building it just for you. As an experienced technology executive with both startup and insurer partnership expertise, I’ve forged the most successful partnerships when insurers seek a very transparent, hands-on relationship. In these cases, organizations are in near-constant communication at a product and engineering level from early testing to a full launch. Most of the vetting early on is focused on making sure teams on both sides can work together successfully with the right mix of talent, resources, and culture to bring to life a product that delivers results.
Unlike established vendors, startups will continue to develop and refine their solutions while the teams are working toward a pilot. After all, they’re breaking new ground, working with cutting-edge technologies and novel use cases. Unless an insurtech is in a late stage of its lifecycle, it’s very unlikely that they’ll approach you with a fully polished solution that’s ready to deploy. It’s a sign of a strong startup partnership when the carrier is investing much more time in product discovery mode than it would with established vendors. This up-front investment is critical to startup success. Once startups have a thorough understanding of the problem set and the personas who will interact with the solution, both parties can hit the ground running with a piece of technology that’s tailored to your needs and delivers value the day you launch it.
The first big mistake that insurers make is to underestimate the speed at which tech companies work. There’s often a mismatch in velocity. Tell a startup that you’d like to see a certain capability in their solution, and they might very well reply, “Sure! We’ll get that done this week!” Insurers often cannot move that fast, so it’s important to set expectations on both sides about priorities, deliverables, and timelines at the outset.
Second, especially during early discussions with the startup, an insurer should make sure that it has a product person or, at the very least, someone who is technically literate in meetings available to work as a liaison between the two companies. All too often, insurers send a line of business managers to talk with an insurtech. Without a comprehensive and intricate understanding of how the tech works, an insurer may sign on to a project prematurely, creating a problem for their engineering team down the road. Eliminate the back and forth of, “Well, that’s what I heard, but let me go back to the insurtech to make sure.”
The tech people should be talking directly to each other from the very beginning.
Startups will often bite off far more than they can chew because they’re ambitious and confident, but insurers oftentimes don’t share the same appetite for risk. To deal with this mismatch, an insurer should begin with a small manageable project that can be completed in a relatively short period, and manage the project closely. Startups are always trying to keep multiple balls in the air, and they often wait until the very last minute to deliver. Starting small limits your risk gives you a firsthand look at how well your teams work together and enables you to determine whether the results live up to their initial promises.
Security and technology evaluation
When first meeting with a startup, there are some questions an insurer should ask upfront before committing:
- What’s innovative about this?: An insurtech should be able to crisply explain the advantages of their solution vs what’s already on the market. If they can’t, then there’s no reason to accept the risk of working with a startup — especially if what they offer is largely already available from established vendors.
- What does deployment look like?: What does it entail and how long will it take?: Modern software is almost always delivered as a service, and installation should be pretty quick. A six-month deployment timeline is very “old school” and usually a big red flag. If extensive on-premises deployment is required, there should be a very good reason.
- How does your solution integrate with other technologies?: Are they using an existing API or are they in the process of building one? Get a clear understanding from the very beginning of what integration will entail and what stage they’re at when it comes to integration.
Also, don’t neglect to put an insurtech’s solution through a security audit, but be aware that they probably won’t be able to tick off every one of your boxes. If you have concerns, voice them. Startups are often willing to work closely with you to resolve any outstanding security issues.
As for data, an insurer should only give a new potential partner the bare minimum needed to accomplish the current goals, especially when dealing with personally identifiable information (PII). For instance, if an insurtech needs customer names, do they need the full name? Would only the first name be sufficient? Taking a conservative approach can reduce your exposure and risk.
The importance of transparency
Remember, when working with a startup, especially one that’s very early in its life, you will be co-developing a solution alongside the new vendor. Transparency is vital. An insurer should be very clear about what it wants to achieve, should keep the initial scope small, and should structure the project incrementally. Have the vendor deliver the hard stuff first. Even the most successful startups promise the moon without really knowing for sure whether they can deliver. This ambition may drive them to succeed, but it’s risky. Take an agile approach. A new partner should deliver something of value regularly. Keep the focus on value.
Insurtechs are remaking the way that insurers conduct their business, bringing new technologies to solve age-old problems and providing efficient, powerful solutions. But these nimble and audacious insurtech startups can’t be managed in the same way as an established, global vendor. By starting small, working closely and transparently with them, and keeping goals achievable, you can limit risk while maximizing the potential upside for innovation.
Inmediate is an insurtech startup from Singapore that is using the latest technology such as Artificial intelligence, Distributed Ledger, and NLP, making insurance processing and underwriting fast, cheap, and flexible. That gives for better processes, lower costs, improved time to market, and new revenue opportunities.