Embedded Insurance #12: Disrupt or collaborate?

Sibylle Fischer
December 18, 2020
Startups, Innovation
Insurance incumbents and insurtech startups are finding that with the right partnership there’s room for mutual benefit.

About a decade ago, Insurtech emerged to shake up the insurance industry, employing big data, AI, analytics and other novel technologies to transform, disrupt and bring more efficiency to what was largely viewed as an industry in dire need of re-invention. But today the insurtech sector remains on a significant growth trajectory (global market revenue is expected to hit 10.14 billion, a CAGR of about 10%, by 2025) and most major incumbents continue to resist disruption. Though its slow-to-change, legacy infrastructure has made insurance an attractive candidate for innovation, as many startups learned the hard way, intensely regulated environments are hard to change and even harder to disrupt. Still, incumbents know they must adapt and evolve their products, processes and productivity to meet the changing needs of their customers and the times. With startups seeking the credibility, capital and customer knowledge offered by incumbents, and incumbents looking for innovative new technologies and distribution opportunities, are corporate-startup partnerships the fastest and surest path to achieve those goals?

Unlocking value: the promise of incumbent-startup partnerships

In the incumbent-startup partnership paradigm, incumbents gain the creativity, agility and productivity potential from tech-driven startups that can be hard to achieve within their own fixed, hierarchical structures. For incumbents, such partnerships can be an opportunity to solve a specific business problem, improve the customer experience, or put their data to work for them in a new way. For startups, collaboration with an incumbent can result in novel approaches to the value chain or expansions into new or adjacent verticals. The recent McKinsey Digital report, You Can’t Buy Love, affirms this possibility, while looking closely at what makes some partnerships more successful than others. In their review, they found that many incumbents did best with strategic partnerships where there was clear reciprocity: with each partner offering value in an area the other lacked.

A complex and regulated reality

However even with vast potential, these partnerships are not without their sizable challenges. Cultural differences between corporate incumbents and startups can be hard to negotiate, with night and day cultures and approaches to infrastructure. The result can mean partnerships that seem promising on paper but which are hampered early on by unrealistic expectations, prolonged procurement periods, and other logistical and IT stresses.

As one example, open-APIs, which have been fueling the accelerated growth of the insurtech sector for years, are often at odds with the legacy systems of incumbents, where there may be competition for IT resources and long lead times for development. In addition, the regulated insurance environment remains a challenge, forcing development to happen at a much slower pace than startups are accustomed.

Finding success with a collaborative approach

As we look toward the future, it seems likely that startups and incumbents will continue to find mutually beneficial ways to work together, especially when it comes to customer engagement, developing open APIs, and other digital tools. However, in order to maximize productivity and ROI, startups and incumbents should look to fine-tune their planning and vetting phase, creating more focused programs with specific objectives and measurable results. By prioritizing partnerships in areas where there is a clearly defined need (and which can be reasonably integrated into the incumbent's existing business) both parties stand to maximize benefit and impact.