What Will It Take to Successfully Integrate Insurtech into Commercial Insurance Brokerage? An Acumen for Complexity, Perhaps
Insurtech has transformed some parts of the insurance industry more than others. But while brokerages haven’t been impacted to the same extent as some other areas, that is starting to change, and in a big way.
Initially, the many Insurtechs looked to disrupt the sector, but that is changing, too.
“Initially, technology companies were all about disruption,” said Terry Tracy, executive partner, national commercial practice leader at Conner Strong & Buckelew.
“And maybe there’s a little more disruption in the small personal lines and the small commercial. As you get further up the chain, where it’s more complex, some of these disruptors have found that it’s very difficult to get in there and really disrupt. So, we’re finding a lot of them being more partners with firms like us.”
This enables the vendor and the broker to collaborate on improving the tech.
“A lot of these startups are coming to us for our assistance because they have a product that they think is good. And then we get to say, ‘Look, your product’s good, but if you did it this way, it would be great,’ ” Tracy said.
Bringing Insurtech into the Mix
Some segments of the broking sector have seen greater Insurtech penetration than others.
“On the personal side, the Insurtechs have really thrived because of the lower barrier to entry. It’s not as regulated, there’s less compliance needs there,” said Stephen Rhee, chief digital officer, global brokerage at Gallagher.
“On the commercial side … the barrier of entry is really high. There’s so much regulation and compliance requirements around data that they do a small piece really, really well, but they haven’t matured enough to be more of a complete solution.”
The greater homogeneity of personal lines makes them more amenable to Insurtech, as well.
“People are people, and they’re not that different,” said Andy Hickman, Marsh’s head of data science and platform analytics. “Companies are very, very different in the nature of their business, the size of the company, et cetera.”
Tracy agreed. “With AI, a lot of repetition is generally good. So, if you’re a small personal lines or small business, you get on, you do the click, you get your insurance. But if you’re a larger contractor, for instance, and you’re building a $400 million building, you can’t just go on and click and say, ‘Okay, I got the right insurance.’ There’s a lot of complexities to doing that.”
Some processes have seen more penetration than others as well.
“The whole procurement process has been significantly simplified,” said Craig Hasday, president of EPIC’s national employee benefits practice.
He cited a middleware product from a company called Three Flow. “It automates the process of reaching out to insurance companies, obtaining proposals, preparing analysis of those proposals, and submitting that analysis to clients. That’s one area that I think is going to benefit dramatically from automation.”
Other areas are ripe for Insurtech solutions.
“I think where there’s a lot of opportunity is data, data security, integration,” said Ryan Collier, chief digital officer at Risk Placement Services.
“Internally, there’s things that have been done manually for many years, and it’s not necessary to keep doing that,” said Taruja Deshmukh, Insurtech solutions manager at Conner Strong & Buckelew.
“So, we want to look at solutions to increase efficiency so that we can allocate our time more efficiently and spend more time on value-added services.”
“On the personal lines, there’s great innovation happening there: renters, auto, all those things. They’ve been really powerful and successful there. Affinity products have been really, really popular,” said Rhee.
“But I haven’t seen anybody really wow me yet having a complete solution. They do have some great premise and promise. I just haven’t seen it fully mature yet.”
Many see that end-to-end solution as the Holy Grail of Insurtech.
“Every Insurtech wants to be the one-stop shop,” said Rhee. “And I think that’s a little bit of where the challenge is. They’re good at one thing, but not so great at the eight other things that are associated with that. … How is that Insurtech going to integrate and scale with the volume that we have? Can you keep up with hundreds of thousands of clients? Can you keep up with the pace? Can you handle the number of data flows?”
That may be especially true for insurers who have built their own Insurtech.
“The incumbents have tech stacks that have been built over decades and they’re not necessarily good at communicating with each other, so they’re not well integrated. There’s a lot of Insurtech opportunity in integrated systems,” said Collier.
“There’s a lot of opportunity for a good, solid, end-to-end ecosystem that is all connected. Because right now a lot of the incumbents are at a disadvantage, because the systems that have been built over decades are much more disjointed and fragmented and less communicative than systems that can be built in today’s modern environment.”
Reviewing Risk and Reward
Not surprisingly, not all Insurtech solutions have lived up to expectations.
“The biggest issue I’ve been running into a lot in Insurtechs is they oversell the heck out of it, because they have a short runway,” said Collier.
“They might have a runway that gives them six months, so they’ve got to make a big splash. They’ve got to get some contracts signed. They’ve got to get some name-brand customers to put on their sell sheet. And if they don’t, they’re not going to be around any longer. Probably 80% or 90% of the Insurtechs I talked to five years ago aren’t in business anymore.”
Collier added, “People are selling themselves as artificial intelligence experts or machine learning experts. And when I talk to them, they’re really not doing any of the sort.”
The nature of an Insurtech company’s funding can exacerbate this.
“As with anything that’s venture cap funded, you’re going to see a lot of things which are maybe out a little ahead of their time, overbuilt in terms of funding and development versus actual utility,” said Hickman, citing in particular, risk modeling, frontier and emerging risks, and basic operations.
“We get a lot of people telling us they’ve got off the shelf solutions to unpack, to extract information from unstructured data formats. And a lot of that turns out to be selling magic beans.”
The same can be true with private equity investors.
“I see the difference between a PE investor versus a strategic investor, that there’s more patience, there’s more definitive roadmap, less financial engineering, and that’s where you really see more innovation,” says Rhee.
“Ownership structure definitely does matter, from my early exposure to it, and I think that when you look at an Insurtech, that has to be part of your equation, of how you’re going to evaluate them going forward in terms of viability.”
Some over-promising may stem from a failure to fully understand the complexity of broking.
“Some companies underestimate the volume and breadth of how much we deal with in our space,” said Deshmukh.
“We’re not dealing with five or ten insurance companies. We’re dealing with hundreds of insurance companies. And the level of customization that’s needed to be able to adhere to the needs and expectations of all of our clients in terms of how many data points are relevant, how many carriers we work with, how many lines of business we place, the nuances between all of those lines of coverage, as well as all of the industries that we service. Sometimes people are not really taking that full picture into account. And that can lead to roadblocks.”
As with all segments of the insurance industry, brokers considering Insurtech face the dilemma of buy vs. build.
“Ten or 15 years ago, the mentality of most brokers was, ‘We’ll build it ourselves.’ And I think that dynamic is shifting rapidly,” said Lee Stevenson, president of LineSlip.
“If a broker has something that they believe is proprietary or will give them a competitive advantage, they will more than likely attempt to build. For the non-proprietary, commodity type of stuff, I think what the brokers are finding is it’s more cost-effective to engage with third-party Insurtech.”
The pace of technological advancement is another consideration.
“If you build yourself, you’re limited, because you’ve got all this investment in it and frankly technology improves every year,” said Hasday. “There’s going to be a newer and better version of whatever you’re doing in short order.”
Some brokerages are moving proactively to work with Insurtech vendors to build the kinds of products those brokers are looking for.
“A lot of the larger insurance companies are actually creating incubators and creating a venture fund on their own and spinning off and really trying to innovate on their own,” said Kate Birtch, director of marketing for Bigfoot Insurance, a division of 180 intermediaries.
Others are working in concert. One example is Broker Tech Ventures, a consortium of 14 large regional brokers representing over two and a half billion of revenue.
“We generally select 12 startup companies out of 90 candidates that we’re going to work with and invest in and then what we do that’s different is we’re coaching them, mentoring and often we become a customer of theirs,” said Tracy.
“BrokerTech Ventures is really a novel approach to innovation in that it’s the first broker-centric, broker-led innovation hub in the industry,” said Deshmukh. “Not only are we getting the benefit of working with other brokers but so are the Insurtechs. Instead of working with brokers in a silo, Insurtechs are working with BTV brokers in collaboration with each other.”
There can be a benefit to the consistency and uniformity that occurs when everyone is using the same tools.
“Maybe we could develop something better than what’s available from vendors, but there’s a certain value to talking the same language as the carriers further downstream, the reinsurers and the market,” said Hickman.
“There’s a certain value to knowing what they’re seeing, if they’re using a similar set of vendors, and a value to talking the same language. You get sort of a positive network effect in the ecosystem, if you’re using the same tools. … You don’t necessarily want to just build for the sake of building.”
Watch Out for Group Think
But there can be downsides to that, as well.
“You do have to worry a little bit about whether that embeds a little bit of group think. If we all use the same model and that model’s wrong, we’re in a lot of trouble,” said Hickman.
“You also have to think a little bit about the competitive dynamics of essentially creating monopolies, or creating undue influence in pockets of the industry. So we do like to keep that ecosystem competitive and have multiple choices in it. But all that said, it doesn’t always make sense to go off on your own. Being different for the sake of being different isn’t valuable. Being able to bring our expertise to bear, that’s where all the value comes.”
That said, it does sometimes make sense.
“There’s very little that that really makes sense to build yourself. Data security is so important, compatibility with the carrier systems is so important,” said Hasday. “We will do some build-out of some of our data warehouse assets, and the reason we’re building out is because we don’t want to have anyone else own our data permanently.”
The long-term implications of the relationship are also a consideration.
“When I’m partnering with an Insurtech, I have to ask, are they a partner or are they a competitor?” said Collier. “Four years ago, they were a competitor. Today, they say they’re a partner. Tomorrow, will they remain a partner or will they go back to being a competitor again? …If I bring them in to become my partner, am I ultimately educating my competition?”
Another consideration is severability of the relationship.
“Whenever I enter into a deal with anybody, part of my focus with all these agreements is, how do I get my data back?” said Hasday. “How do I get out of this agreement? How do I replace it? Because I know I’m going to need the next vendor at some point. …The exit strategy with any vendor you choose is critically important.”
“Tighten up your contracts,” Collier said. “Data is probably as big of an asset as any brokerage house has. Our relationships with our customers and our carriers are also valuable assets and we can’t give that away.”
Making the Right Call
Deciding which product to buy in the first place can be a massive undertaking.
“I probably talk to between two and 10 Insurtechs a week, every single week,” said Collier. “And my junk mail gets about 500 hits a week. There’s so much noise in the Insurtech space, that it’s really hard to separate the wheat from the chaff. … So there could be some really good innovative companies out there that I miss, just because there’s so many and I don’t have enough time in the day to sift through them all. …We actually have a person that does nothing but monitor Insurtechs. That’s his full-time job. And even he has become overwhelmed.”
Brokers can end up relying on the tried and true.
“The best way right now for anybody to get my attention or any of my peers’ attention is through true, old-school networking,” said Collier.
“If I get an email from an old friend or a cohort or somebody who I respect and trust, that’s the way to get in. That’s where I’ve actually met most of my best Insurtech relationships, through people I’ve met and relationships I’ve made before Insurtech was even a term.”
And even with so many choices, it is important to do your research.
“We’ve started a much more formalized vendor procurement and authorization process,” said Hasday. It includes looking at the business need, analyzing who else is working in that particular space, and querying coworkers working with relevant tech.
“Then we go through the process of vetting them: financially, business operations, how they service clients, numbers of clients, connectivity with which vendors. It’s an enormous process to vet vendors,” said Hasday.
“We’ve also involved our information security officer, because the new rules with clients as fiduciaries really do require a higher level of scrutiny of vendors who we are either endorsing or implicitly endorsing by not suggesting alternatives.”
Another wrinkle in the buy vs. build dilemma is whether to buy the product or the company, which brings a whole other set of concerns.
“The issue you have on a particular true niche product is the valuation in the marketplace, especially if they’ve gone public, is way beyond what their revenue actually is,” said Martin Burlingame, contract binding practice leader, One80 Intermediaries. “Quite often, they’re losing money,”
Different types of Insurtechs companies may be more or less attractive acquisitions.
“Insurtechs that are focused on claims are getting gobbled up because the larger TPAs are looking for innovative ways to reduce their cost structure in handling claims,” said Burlingame.
He added, “One area that we haven’t seen gobbled up, that we really need is a tax filings solution. If we could get somebody that could handle surplus lines’ due diligences, they would probably get gobbled up really fast.”
Bringing Insurtech into Existing Operations
Whether Insurtech solutions are built or bought, it is important to be thoughtful about how they are integrated into existing operations.
“As good as a solution can be, you really need to have a plan for change management in place,” said Deshmukh.
“Otherwise, it’s not going to succeed. Having the support from a training standpoint, support from leadership, and keeping employees engaged whenever you’re introducing a new solution, that needs to be there. Otherwise, you’re setting yourself up for failure.”
Integrating a tech company into an insurance company can also raise cultural challenges.
“An Insurtech is usually a very young, very nimble crowd of people who are rolling out software and technology,” said Burlingame. “And they’re getting assimilated into an insurance company that is much more methodical and slower in their process. And sometimes those two don’t go together very well.”
Hasday thinks there may be less skepticism among younger workers.
“I think one of the problems with the younger people in our industry is that they may take these claims at face value,” Hasday said. “They don’t apply the same healthy skepticism that really needs to be applied.”
There may also be a natural tension between certain job types.
“Actuaries, developers, and product people probably have friction at times because the product people and the developers are trying to push product and the actuaries and underwriters are like, ‘Hang on, wait a minute, we’ve got to think of all these sell-through risks,’ ” said Birtch.
But economic trends may be contributing to a wave of acquisitions.
“I think that you will continue to see some M&A in the Insurtech space, largely driven by the current correction taking place in the capital markets,” said Stevenson. “For opportunistic brokers looking to scoop up Insurtechs, there could be pockets of opportunity to accelerate their technology initiatives with both talent and technology.
The growing importance of tech in insurance may be changing the way younger talent views the industry.
“Insurtechs have maybe helped some people open their eyes to insurance as a career,” said Collier. “One of the byproducts of Insurtechs that people don’t talk about is I think insurance is getting a little more glamorous compared to the stodgy insurance industry of the past.”
Changing the Broking Business
Insurtech is also changing the way brokers do business, in a number of ways.
“It’s creating the ability for the agent to provide quotes to consumers much faster,” Burlingame. “If you don’t increase your touch points, increase your speed to market, increase your range and product offering, you’re basically at a standstill and you’re not going to go anywhere.”
It is also freeing up brokers’ time so they can concentrate on the most important aspects of their jobs.
“It’s making brokers more consultative,” said Hasday.
“It’s allowing brokers to spend more time on what they need to be doing: critically looking at insurance programs, critically looking at gaps in programs. It allows you to do more creativity and more thinking because technology is really eliminating the distasteful task of transcribing data from one source to another.”
It is also changing expectations toward carriers.
“It’s going to change the way we prioritize who we’re working with on a carrier level,” said Birtch. “We’ve shifted, not just from who’s offering a higher commission, but who’s going to create more of an ease of use on the workflow side of how we can process submissions and quote and bind.”
It is also changing the customer experience, streamlining the process and speeding results, offering alternative ways to communicate, and generally keeping up with changes in customer expectations stemming from technologies already in use in other areas, like finance and retail.
The challenge is balancing the efficiencies customers are looking for today with the personal touch that they still want.
“It is a balance of managing that personal relationship, that face-to-face time with introducing efficiencies through technology,” said Deshmukh. ”It’s really understanding your client’s needs and what works for them.”
Advancements that Can’t Be Ignored
Looking ahead, brokers see Insurtech advancing on a number of fronts.
“The next wave of what we’re going to see is Insurtech’s focusing on solutions for the large and complex account space,” said Deshmukh. “We’ve seen the first wave focused on small commercial personal lines, and we’re starting to see some saturation in that space, but building out solutions for the large commercial space is what we’ll see next.”
“The use of big data, integrating in IOT and AI, is huge. So is introducing blockchain. I think those are going to be major game changers,” said Birtch.
“I think blockchain has a huge potential to create immutable contracts, which kind of defines the policy,” said Sukumar Rajagopalan, Marsh’s Chief Platform Officer.
“When you have an ecosystem where you have your client, your carrier, your broker, there’s regulation within the regions, all kinds of ecosystems, how do we seamlessly establish a contract and have audit trail around that, make it immutable. … I do see an opportunity for blockchain to really fill in that space.”
“I think insurance companies are going to start figuring out how to use their data,” said Burlingame.
“Right now they’re hindered by legacy systems. A lot of them are on very archaic platforms and they need to get to something more modern where they can mine quickly in real time, but they’re all working on it.”
But all of these possibilities may be contingent on other trends.
“Top of mind for all of us is what impact will the tech-led financial meltdown have on Insurtech,” said Stevenson.
“Venture Capital is pulling back, and valuations are down materially. Those companies that aren’t adequately capitalized, haven’t yet turned a profit, or simply don’t have the experience to weather the storm will be challenged. Hopefully, this is a short-term blip. If not, I am afraid that the current Insurtech momentum will slow considerably. That being said, where there is chaos there is opportunity.” &