The digital revolution has hit the insurance sector, with InsurTech disrupting the entire value chain and customer life cycle. The “I want it now” culture, increasing consumer needs, high competition, and changing regulations force incumbents to change. As quoted by Computerworld, “a survey of 2,005 British adults, conducted on behalf of GMC Software in March 2016, found that 85 percent of consumers with insurance would like their insurer to give them insight into how they could lower their premium, for instance by suggesting changes in behavior.”¹

Disruptive technologies offer the opportunities to redesign customer experience, create new products and value-added services, streamline internal processes, and increase operational efficiency.

The complexity of the insurance sector ecosystem, high barriers to entry, and potentially long return on investment allowed insurers to maintain a status quo for decades and keep new competitors away. Instead they focused on product and distribution strategies. In addition, the financial crises of 2008 impacted the reputation and trust of the industry. However, the digital revolution, the pressure from consumers, regulators, and competition, including the rise of InsurTech and tech giants, means that change in the sector is inevitable. PwC reported that cumulative 2010–2016 funding in InsurTech reached US$3.4 billion.² What PwC also found in the 2016 survey is that 74% of respondents fear disruption; however, only 43% have a strategy to address the challenge and 28% are willing to explore partnerships with InsurTechs.³

To stay in the game, insurers must respond with the most effective strategies to reinvent business for a digital age.

Internal Innovation

One such strategy is to foster innovation internally in the organization. From researching trends, benchmarking with competition and applying customer intelligence, through identifying customer needs, applying design thinking and user-driven innovation to implementing process improvements and redesigning business strategies – these are all examples of the corporate innovation toolkit (see Table 1).

One of the successful examples of such internal innovation is the Aviva Drive app that assesses user driving and rewards safe driving with discounts. Allianz offered its customers the MYClaim app enabling the filing of claims on mobile. An interesting approach to driving innovation and changing corporate culture has been taken by TransAmerica, which launched the innovation cafes for employees, who are called internally “tomorrow makers”, encouraging them to brainstorm and work on innovative ideas.

However, learnings from other industries, particularly from the banking sector, show that internal innovation can take corporations only to a certain point due to several internal constraints. These include the speed of driving change in the organization, contradictory business priorities, and a limited talent pool and IT resources. The biggest blocker is a lack of innovation culture. According to the Willis Towers Watson survey of 200 senior-level executives within the insurance industry, 58% said insurance lagged behind other financial services organizations in implementing digital technologies and 74% of them believed their sector had failed to show leadership in digital innovation.⁴

For this reason, insurers are turning outwards searching for innovation and solutions that can enhance and accelerate their digital transformation.

Driving Innovation via Collaboration and Partnerships

Driven by individual business objectives, e.g. leveraging advantage of the first mover, acquiring technology or talent, expanding the value proposition, and developing new distribution channels, insurers adopt one or several models: buy, partner, invest.

Figure 1 summarizes nine different models of partnerships that we have identified while working with corporate clients at The Heart, and how insurers can maximize the results and extract most value from the technology revolution by cooperating with InsurTech. We acknowledge that this matrix is not exhaustive and, as the ecosystem is working on different deals and partnerships, that new models are likely to appear.

Buy from Startups

Insurers can partner with InsurTechs by purchasing their services, licensing their solutions, or co-developing solutions.

One such example is YU!. It is a new insurance brand launched in Poland as a collaboration between Yanosik (telematics and communication company) and insurer Ergo Hestia. YU! collects data on user behaviour and, by applying artificial intelligence (AI), thus provides customers with personalized car insurance. New technologies allow YU! to offer a better customer experience at competitive pricing and for Ergo Hestia, the insurance provider, it opens a new distribution channel.

Cognotekt provides software as a service solution for insurers to automate personal lines claims. Currently operating on the German market, it provides automated windscreen protection.

Startups like Friendsurance or PolicyGenius act as independent online brokers offering customers unique and relevant customer experience, while providing insurers with an additional distribution channel.

Partner with Startups

Another strategy is to partner with InsurTechs, offering an InsurTech’s services to customers by bundling offers or providing them on a white-label or co-branded basis:

• AXA Spain signed a partnership with SocialCar, a car-sharing platform for individuals. The cooperation provides the startup with more credibility, giving users full car insurance, while for AXA, again it provides a new distribution channel.
• Munich Re partnered with Trov, offering on-demand insurance in the US.
• Liberty Manual partnered with startup Canary, which provides home security solutions. As a result, customers can benefit from the enhanced savings under Liberty Mutual’s Smart Home Discount Program.
• Digital Fineprint uses social media to help customers choose the best insurance. The startup partnered with MetLife to expand to Asia.
• Munich Re partnered with app-based insurance provider Wrisk and became its exclusive carrier for business underwritten in the UK, Europe, and the US.
• In late 2016, Hannover Life Reassurance Company of America entered into a global strategic partnership and invested in the Sureify Labs. As a result, Sureify’s LifeTime platform was enhanced with the hr | ReFlex automated underwriting solution.

Invest in Startups

The third and probably most common strategy is to invest in startups. The majority of the world’s largest insurers, such as Aviva, AXA, Allianz, AIG, MetLife, Generali, or XL Catlin, have established their own in-house venture capital funds and committed investment in startups. Forty-five percent of the Willis Towers Watson survey respondents state a preference for acquisitions to gain digital capabilities.

Allianz invested in Simplesurance in order to learn how to onboard customers in digital channels. Insurer IAG enhanced its value proposition for the fleet customers with the acquisition of CCS Innovation in Logistics, while Travelers expanded their digital distribution ability with the purchase of Simply Business, the UK’s largest insurance broker.

How to Respond and Choose the Right Strategy?

At The Heart we help corporations to cooperate effectively with startups by using an open innovation strategy.

It starts with the corporation identifying its business objectives, which is probably the most critical factor of the whole strategy. What can work for one insurer, e.g. setting up a business accelerator, may not be the best strategy for another. The objectives should be clearly aligned with the expected impact, which could be incremental, adjacent, or transformative (see Table 2).

Business objectives determine the model of cooperation and help to prioritize solutions. For example, if a business would like to build closer engagement with customers it can partner or purchase an IoT or wearables startup and by monitoring customer behaviours and analysing data can enhance risk assessment capabilities and offer more personalized and relevant services.

Once the criteria for potential partnership are set the company can choose one or several ways to uncover the solution. From hackathons and a call for startups, through participation in demo days, to proactive search for solutions. A very interesting approach was taken by Unilever, which created the Unilever Foundry platform. The Unilever brands and business lines publish briefs on the platform outlining problems that need solving. The ready-to-scale startups are invited to submit their proposals on how to approach those challenges. In 18 months, the Unilever Foundry executed a hundred pilots with a 48% success rate. Another tactic could include development of corporate or sponsor accelerators, like W1 Forward InsurTech Accelerator or MetLife Accelerator Collab.

The alternative strategy is to search for startups proactively. While it may be tempting and appropriate to run scanning services in-house, and there are some who do it successfully, our experience shows that successful projects require full-time resources to be allocated to such projects. Prior experience in working with and evaluating startups is also important to ensure that the right criteria are applied to the search process. That is why many companies work with programs like Startupbootcamp or turn to hubs like The Heart for professional scouting services, which is usually more cost effective and faster.

The foundation of successful digital transformation and innovation requires support from top management, allocation of the right human resources and capital, and fostering an innovation culture in the organization. Above all, it is about building incumbent and InsurTech partnerships based on trust, leveraging the strengths of both sides, and encouraging “test and learn”. And although not all the projects will end successfully, only by active participation in the ecosystem combined with a commitment to transformation will insurers be able to be relevant, respond to disruptions, and win the hearts of customers.

As the old African proverb says: “To go fast, go alone, to go far, go together.”