Insurtechs Seek to Transform the Industry. How to Ensure You’re Choosing the Right One
Insurtech has transformed the insurance industry in recent years, but on an individual level there have been hits and there have been misses. As tech becomes more and more essential, so too does the ability to choose the right fit for your particular company or use case.
Insurtech companies can be suppliers of tech to conventional insurance companies, or they can be disruptors, employing new technology to sell insurance themselves.
“There was definitely a trend in 2017 and 2018 of disruption, disruption, disruption, with many Insurtechs saying, ‘We’re going to go head-to-head with the incumbents,’ ” said Joseph D’Souza, CEO of ProNavigator, an AI-powered knowledge management Insurtech company.
“But in the last year or two, you’ve started seeing a shift to, ‘You know what? These incumbents know what they’re talking about. Do they need technology? Absolutely. But they’re smart. They’ve been around for centuries, [for] decades. And so, let’s figure out partnerships and ways to work together.’”
Paul VanderMarck, Chief Technology and Innovation Officer at SageSure, sees a growing focus on Insurtech vendors.
“A lot more money’s been invested in the new underwriting businesses, principally because they require a lot more capital to get off the ground,” VanderMarck said. “But the more consistent successes have been in the technology vendor side of the world, where there are many examples of companies that have brought clear new value to market and that are getting good traction.”
But the disruptors have had an impact, both directly and indirectly.
“Ultimately, the way they most disrupted the industry is by proving to the conventional insurers that they could get more involved in tech, and pressuring them to do that,” said Elad Tsur, cofounder and CEO of Planck, an AI-based data platform for commercial insurance.
“What really happened was that they kind of forced or gave the impetus to the traditional insurance companies to dive into tech.”
The Build vs. Buy Dilemma
As more and more companies take that leap, they confront the dilemma of whether to develop their own tech or buy something that’s already out there.
“’Build versus buy’ has always been the age-old debate when it comes to larger incumbents,” said D’Souza. “A lot of the core in-house underlying models, your underwriting models, your secret sauce, if you will, you’re likely keeping that in-house. … And then for everything else, find the people who are the best at what they do and work and partner with them to do it, instead of trying to build it.”
Eric Joost, Chief Technology and Global Markets Officer at CAC Specialty, agrees. “If it’s generic and scalable and it’s widely available in the external world, then those things I believe you would tend to just go buy the software. If you’re in places where the work is very close to what you think is your value proposition or unique user experience, you want to be building that stuff.”
Others, however, think that these days, pretty much whatever you need is out there.
“Build was a better option because there wasn’t anything to buy or what there was to buy wasn’t customizable enough to fit unique business needs,” said Rose Hall, Vice President, Head of Construction Innovation and Co-Founder at AXA XL Construction Ecosystem. “Now there’s anything you could possibly want to buy. The challenge is finding that needle in the haystack. It exists, whatever you’re looking for. Someone’s doing it.”
VanderMarck cites three criteria for deciding whether to build or buy.
“One is how complex is the problem you’re trying to solve and what are the odds that a technology vendor can understand the problem well enough to deliver a compelling solution, which is a real risk,” VanderMarck said.
“The second one is how widespread is the need or how common is the problem. If it’s a problem that lots of people have, an independent vendor who’s able to work across the industry to solve the problem for many different parties will inevitably be able to bring more resources to it, to maintain it better over time, and to build something better than you can justify building internally … The third one is an honest assessment of your own internal technology capabilities. Some companies have very strong capabilities to build things themselves. Others don’t.”
Hall points out another consideration.
“Many companies built their own solutions years ago because there was nothing to buy that fit their needs. After about 10-15 years, those solutions are starting to become antiquated and need a remarkable amount of maintenance and updating to stay relevant,” Hall said.
“These companies are currently facing this inflection point of, ‘Do we pour more money into this aging proprietary solution that needs an overhaul, or do we scrap it and buy new?’ And I’m finding that most are scrapping and buying new.
Another wrinkle in the Build Vs. Buy debate, for larger companies at least, is buying the tech versus buying the company itself.
“You still have to figure out a lot of stuff, but you jump over a lot of risk and get into something that’s more potentially usable earlier,” Joost said.
“Most of the ones that get bought have been in business for eight, 10 years. So there’s a lot of experience in that. it’s never instantaneous just because you buy it, but it helps accelerate your speed to get something out”
Picking the Right Technology
Companies that opt to buy must choose from a vast selection of Insurtechs. There seems to be near-unanimous agreement to be wary of a “technology first” approach.
“If a startup comes to you and says, ‘Hey, we’ve got this great technology, it allows you to do all these different things and you could do this or do that,’ that’s a red flag because they’re looking at the technology and then you need to figure out the use case,” said Bill Keogh, COO & Operating Partner, Eos Venture Partners, a strategic venture capital fund specializing in Insurtech.
“One of the pitfalls of a lot of the providers is over-promising on what capabilities the technology can deliver,” said Matt Kramer, CEO, U.S. Insurance at Ascot Group. “All too often, you have a carrier that will fall in love with the demo of a new technology only to get to the integration or implementation phase and be disappointed in the outcome.”
It is also essential that Insurtech partners understand your business.
“A very important part of assessing a vendor is how well do they understand your use case, the problem you are trying to solve, and do they actually have all the components of what is required to solve that problem,” said VanderMarck.
D’Souza recommends running pilot programs, with a narrower scope and a time frame of months instead of years, before committing on a larger scale to an Insurtech.
“You could do this fairly inexpensively and not have to run through this massive procurement cycle,” he said. “Before, I would say running POCs [Proofs of Concept] would require you almost running through the entire process, as if you were doing a full agreement. Now, many organizations have built up teams that allow you to run smaller initiatives, for a targeted user segment or business area. Longer term, it’s incredibly easy to build off and expand from there.”
VanderMarck agrees. “One mistake too many large companies make, in the insurance industry and elsewhere, is to pour money into a project with a bloated scope and to tolerate very long timelines before something of value is delivered, which is part of why so many projects fail.”
Tsur sees testing as a necessity. “A vendor that doesn’t allow you to test is not a good vendor,” Tsur said.
But even short-term pilot programs can have substantial hidden costs, including internal organizational changes.
“For potential MGU partners, I think they need to remember how important it is that an underwriting team be in place within the MGU to interpret the data and to interact with distribution partners and carriers,” Kramer said.
“Most people can’t turn their business on an overnight software code drop,” Joost said. “So for a reasonable period of time, you’re actually going to be spending more money because you’ve got to run your old business and you’ve got to run the new business.”
Making the necessary changes to accommodate Insurtech partners can mean the difference between success and failure.
“One of the biggest challenges within InsurTech is data integrity,” said Hall. “The value the tech can provide is largely predicated on the data you feed into it, which they don’t have any control over. So their tech can be innovative, and forward-thinking and absolutely the best thing since sliced bread, but if the data we’re feeding into it is based on an antiquated system, the insights are going to be about the same.”
Larger companies may seem better positioned to handle parallel operations and other adjustments, but according to Joost, that’s not necessarily the case.
“As much as it looks on paper like they have a lot of scope to do that within how the business is managed, just in terms of budget, expectations, what the investor’s looking for, what the CEO’s looking for so forth, there’s a lot of optimization in there, which makes that more of threading a needle than you think,” Joost said.
VanderMarck insists that any technology vendor have an open and API-driven approach, to interact not only with your core business systems, but also with other new tech that you may introduce in the future. “Anybody today who says, ‘My technology is a closed ecosystem, you have to buy into my complete solution,’ that should be a non-starter,” he said.
“Anything you use today, you need to be able to access via an API, plug into other systems, extract data from readily, and stitch it together with how you do business.”
“When you have a whole bunch of point solutions that do individual things but they’re not talking to each other, it’s almost as bad as having a stack of papers,” Hall said. “Because now you’ve got siloed data and more people that don’t talk to each other because they figure the tech is doing that for them, when, chances are, it’s not.”
Another consideration is balancing the allure of the latest thing with the dependability of tech that is more mature.
“If you want to be one of the early adopters of something new, you have to accept that the product is, by definition, not fully featured yet,” VanderMarck said. “There are going to be some bumps in the road … The benefit is, you get capability early, and the alternative is you wait for something to mature.”
Choosing the Right Partner
As critical as choosing the right tech is choosing the right partner.
“Adopting technology is forming a business partnership. It’s not like downloading an app on your phone, where if you get tired of it or sick of it, you can delete it and try something else,” said Hall.
“These are major investments. It’s important to look at not just the technology, but the business—including their strategy, leadership, the motivation of their team, and other characteristics that you would evaluate for a business partnership as opposed to a transactional purchase.”
D’Souza observes that, “Generally, insurance companies are risk-averse and so they do their due diligence.”
But especially with brand new startups, such diligence may not be easy. One strategy is to look at those who have already done their due diligence: investors.
“You can judge something about the company by how others have judged them by putting capital into them,” Keogh said. “If it’s from a credible VC or CVC that has a good track record and you know people around the table, that’s good. If you’ve never heard of anybody and it’s not really people who are experts in insurance and technology, that could be a red flag.”
Working with Smaller Insurtechs
Smaller or newer Insurtechs may demand special consideration.
“Big companies working with a small Insurtech need to be careful and don’t treat your Insurtech relationship like you do your Microsoft relationship or some other big vendor, because these insurance techs, in some cases they’re not used to dealing with you. In some cases, they can bankrupt themselves chasing what you want.”
Apart from forfeiting all the benefits of a well-chosen partner, a poor choice of Insurtech partner can lead to a long-term aversion to tech, and can negatively impact business decisions, customer experience, internal efficiency, and reputation.
“Our customers trust us to make good decisions and if we keep changing the players, it does not instill confidence in our strategic direction,” said Hall.
She also cites the costs of rectifying the situation. “The switching costs are just astronomical. Once you get people to make a change to something, telling them that didn’t work out and changing it again is much harder.”
Joost, however, argues that not all mistakes are bad.
“The mistakes give you a lot of experience looking at yourself like, ‘Oh, this is what I missed about me.’ So those risks are good risks,” said Joost.
“Even the Insurtechs themselves, the ones that really succeed, the ones that really sustain, if you talk to the founders or the leaders, you’re going to find they’ve pivoted four or five times, they’ve made a bunch of mistakes … If you get into the, ‘I’m trying to avoid a problem or something that fails,’ you’re going to be way too conservative and move too slow. So, one of the risks is not making mistakes, because you will, by definition, be moving too slow.” &