Building Versus Buying: What Carriers Must Think About When Implementing Insurtech Solutions

A panel at Insurtech Insights Europe in London focused on the topic of “Build or Buy — How to Engage With Insurtechs,” producing valuable advice for both insurers and Insurtechs.
By: | April 9, 2023

In this age of growing technology and data influx, many carriers are starting to ask themselves if building out their own Insurtech solutions is the right next step — or should they buy them?

Plenty of Insurtech partners are creating new solutions constantly, and there are many options available in the marketplace. But some carriers prefer to own their solutions from start to finish, finding advantages in the homegrown option.

During this year’s Insurtech Insights Europe in London, one panel attempted to answer this common digital-age question: Build it or buy it? And if you build it, will they come?

The Build-or-Buy Debate Continues

The first iterations of technology solutions were often homegrown, built in-house by carriers because that was the only option. And legacy technology served insurers well for decades — until recently, when the digital wave hit the insurance industry.

Now, carriers have a few options as they face the reality of needing to update or replace their legacy systems.

“What made today’s giants successful was their willingness to do things differently when they first started, and most have been highly acquisitive as they grew. The need is the same today,” said Imran Akram, general partner at AXA Venture Partners and moderator to the panel at Insurtech Insights Europe.

Carriers may decide to build their solutions in-house, hiring developers, business analysts and lean management consultants.

While building in-house means carriers can customize their solutions exactly to their specifications, there are also expenses, delays and maintenance concerns once the software is deployed.

Speaker Massimo Cavadini, senior executive partner, global leader of insurance solutions, Munich Re, spoke to this. Cavadini pointed out that this option requires a large investment in people, and the cost to build is high if a carrier doesn’t already employ developers.

Carriers may also decide to purchase an out-of-the-box solution from one of the many Insurtech providers in the marketplace. Because software can range from claims platforms to underwriting insights to payments and billing dashboards, there are Insurtech solutions for just about every problem that exists. Some of these tools are customizable by each customer, while others are configurable.

Either way, a carrier gets a solution that’s specific to its needs and designed to solve its particular challenge.

There are risks involved with going all-in with one Insurtech provider or vendor, though. Sometimes, Insurtech providers that try to offer all-encompassing solutions to all of an insurer’s needs miss the target.

“Startups with all-around solutions can be quite difficult for incumbents to work with,” said another panel speaker, Hanbing Ma, head of innovation & digital transformation at ERGO Group AG. “You can have anything in life, not everything.”

Finally, carriers can host an incubator or purchase an Insurtech vendor to work in-house. This option means they can benefit from the expertise of Insurtechs but maintain some level of control over the software.

But jumping in too quickly with a purchase is a risk, too.

The final speaker on the panel, Stefano Bison, group head of business development & innovation at Generali, spoke about mitigating this risk.

“Buying the majority stake of a startup as an incumbent could be a killer,” he said. “On the contrary, a minority investment is — generally speaking — a better tool to guarantee a better alignment of interests while mitigating the embedded risks.”

Cultural differences between the incumbent and Insurtech can also cause friction, at least to start. Domain knowledge is critical to success when undertaking a technology upgrade. Cavadini explained that, while technology is important, you need to understand the industry and the product as well.

Partnerships Are the Next Big Thing

There is another option emerging in the industry, and it’s becoming a new trend. Partnerships between insurers and Insurtechs are popping up in new ways across the landscape.

In these partnerships, Insurtechs are working with each other to create blended solutions to solve complex problems, which benefits insurers — and their customers.

Bison elaborated on this idea, saying: “Buy versus build? Actually, partner! Partnerships look like the sweet spot, capable of exploiting most of the opportunities with limited risks and in a timely manner. As such, they seem to be not only an effective but even a particularly efficient manner to collaborate with startups and co-build solutions with them. That’s exactly what we are committed to doing at Generali, and also with our CorpUp studios, which are fully devoted to this.”

“Build or buy is not really a choice. You have to do both, as well as partner with, distribute and occasionally invest in startups with interesting technology and ideas,” said Arkam.

Summarizing her thoughts, Ma added, “The era of collaboration is now. Collaboration makes us move faster and innovate faster. For startups, they should try to solve real problems for companies.”

The panel agreed that if a carrier cannot find the right solution in the marketplace to meet their needs, building in-house may be their best option.

But this prompts a question: If there is no adequate solution that already exists, is the carrier’s need identified correctly?

Because there are so many technologies and innovations designed specifically for the risk and insurance industry available today, insurers may find the right tools with partnerships and smart collaborations, rather than starting anew with building their own solutions.

The panel’s closing remarks led to some advice for insurers and Insurtechs:

  • For insurers, be patient. The lead time can be long, and it takes time to find the right partner.
  • Allow time for culture shifts. Whether an insurer buys an Insurtech or brings developers in-house to build their solution, there are likely to be  differences in corporate culture between Insurtech and incumbent employees.
  • For Insurtechs, focus on doing one thing and doing it well. Make sure the intellectual property is strong. Avoid going in too many directions or mirroring an existing technology.
  • Technology security and a great user experience are top priorities for any new technology innovation.
  • A phased approach to bringing in new ideas often works. &

Abi Potter Clough, MBA, CPCU, is a keynote speaker, author and business consultant focused on Insurtech, leadership and strategy. She has over 15 years of experience at a Fortune 500 company with expertise in P&C claims operational leadership, lean management consulting, digital communications and Insurtech. As the past chair of the International Insurance Interest Group of the CPCU Society, Abi remains involved in many international initiatives and projects. She has published two books about change management and relocation. Abi can be reached at [email protected].