An Insurance carrier’s guide to working with an Insurtech start-up

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A few weeks ago, I wrote an article entitled ‘An Insurtech start-ups guide to navigating an Insurance carrier.’

This article was my most viewed thus far on Daily Fintech.  I share these articles through my LinkedIn account and this one by far surpassed any of my others, with over 16k views at the time of writing this article.  

Firstly, thank you for all of the engagement!  This was very exciting to see.

Secondly, some of the comments/feedback that were received were great additions to the post.  I would like to share those here today, as they give some further perspectives to take into account to my original article:

Dani Katz – ‘My experience with large insurers is that the sale is made to the business department, and the IT department often acts as competition to the startup. There is often a desire by IT to keep everything in-house, so even though the IT dept may be busy or lack experience in an area, they will often rejuggle their priorities to be able to compete. Therefore, you need to be clear on what your value proposition is relative to the incumbent (i.e. the company itself).

Often, the best USP for a start-up in this position is speed of delivery and focus on customer requirements. Cost is often (mistakenly) ignored for internal IT depts, and employees clearly understand the business and systems better than external companies. But they have other priorities that get in the way of delivery, and treat other departments’ requirements differently than a hungry start up will.

In my experience, the best companies understand the need for external services to bring a best of breed and modern approach, coupled with co-operation with IT, but there are also many companies that are resistant to change, and you need to learn which is which very quickly.’

Sally Poblete – ‘I’ll also add that in a “health insurance” company, there’s a whole department on medical policy that touches the risk and operations teams intimately.’

Nick Gerhart – ‘Most of the time they start with the wrong people.  I’ve advised dozens on how to do it.  It isn’t that hard but they have to have a real solution that adds value.  If it is marginal it will take forever or not happen.’

Patrick Kelahan – ‘insurance has multiple lines, and within the lines there are varied types of organizations.  Following the money, understanding which line of command drives the firm (claims or sales), and understanding of the culture of the organization will (not may) help one formulate a sales pitch.  Mutual companies differ from those that are stock orgs, captive agents vs. selling to independents, life, commercial, excess, etc, all influence the approach.  
Claim dollars encompass the biggest source of expenditures, but often are managed by entrenched bureaucracies.  Innovation is being embraced, but often it’s tangential to the bureaucracy because carriers have so much invested in what’s in place- and staff are ensconced in the comfort of that- that substantial change is not only expensive but is analogous to changing the course of a large ship.  Suggesting- reach for change with a nimble regional player- that’s your pilot.  Also- look for a complementary innovation partner with whom you can co-pitch.’

Christopher Frankland – ‘Goodness, it’s a fascinating topic, but one that requires patience, honesty and a crystal clear message of where the value gains will be found and even better – a tangible, quantifiable metric. The rest in my opinion is indeed a mixture of art and science and requires a good dose of tact and personable skills – knowing when to make a strategic move and when to sit back and wait.’

Jimit Shah – ‘From a value perspective, I’d like to add one more layer that needs to be taken into account for us hardware folks – end customer install/adoption. At the end of the day, if the end customer doesn’t install or activate a physical device then the overall value diminishes. The end goal here (for both h/w startups and carriers) is to save the end customers something… from their property burning down, water leak disasters, unhealthy lifestyles, etc. This means value must be thought through from a perspective of intervention a.k.a. “what will incentivize the end customer (consumer or business) to turn this damn thing on and follow through!’

Quinsy Bati – ‘It’s always about not only knowing your own product but knowing who holds the gravel & how to place the product. Not only insurTech start-ups but applies to many others. The big conundrum – great tech, but inability to scale and sell.’

Brad Emery – ‘CIO can also be Chief Investment Officer – fortunately most organisations out their senior execs on the company website so you should be able to check this.’

Chia Hoe Seng – ‘The rest of it is really figuring it out yourself fast on the ground as scenarios vary across organisations!’

Nick Mair – ‘Running a great pilot is so important and worthy of a post of it’s own. But if it’s helpful, here are our Top 5 pilot learnings from 2017:

1. Have a clear value proposition –  obvious yet so many don’t.
2. Make the pilot easy- aim to demonstrate maximum value in minimum time
3. Have a standard, repeatable and ideally simple pilot process.
4. Making the pilot cheap = “approvable”. Can you pilot for < £10K ? <£50k?
5. Pilot participants – find willing, interested business users with real pain points.

Just like carriers, startups are learning how to make this work too….’

David Yeng – ‘My experience brining my #insurtech #startup InsureVite to incumbents is more often then not, their senior management puts it to their IT, but their IT often view startups as a threat, which is think is probably they see us as a threat to their existence, which if the solution succeeds they would be made redundant. But my thought is that these small thinking is unfounded. In fact, the more they work with startups, the more the incumbents want to keep them’

Emilio Figueroa – ‘One major aspect insurtech firms need to adapt to their ecosystem is experienced industry professionals. They can have the greatest innovation since the wheel, but if they can’t comprehensively communicate the message to the correct audience, via the right conduit, then failure by communication will prevail.

How many firms know how to apply their technology to a carrier and show the carrier how they will benefit from indemnity savings? Will the technology help ALAE/ULAE? Etc…’

Lastly, all of these comments prompted me for this week’s piece.  I believe that while the start-ups are still trying to find ways to best work with carriers, carriers are equally learning about how to work with start-ups.

Disclaimer

As with the last guide, this one will follow a step-by-step format.  Learning from the comments from the last article, my initial disclaimer will be:

All carriers and start-ups have unique characteristics to them.  This guide is meant to serve as a high level one and will be need to catered for each organization’s  An specific operations and line(s) of business in which they operate in.  

Framework

I’ve split the framework into two parts – 1) Before meeting with start-ups and 2) Meeting and working with start-ups.  

For the first section, I have outlined steps that carriers should undergo before they meet with start-ups.  If an organization has already gone through these, great.  

Once the strategy/framework of a carrier is identified, then they need to actually meet with, review and start working with some start-ups!  The second section outlines strategies for this.   

The framework for this guide is as follows:

Part 1: Before meeting with any start-ups

  • Understand and prioritize your organization’s needs
  • Figure out what sort of partnership you are looking for
  • Build a sandbox framework for start-ups
  • Get buy-in at the executive level

Part 2: Meeting and working with start-ups

  • Isolate resources and build a project team
  • RFP and start-up selection
  • Outline scope and other project management disciplines
  • From pilot to scale 
  • Cultural differences/other tips

Part 1: Before meeting with any start-ups

Understand and prioritize your organization’s needs

This seems like a basic one, but before meeting start-ups, an organization should know what it is that they are looking for.  

I’ve seen many carriers meet with start-ups ‘just to see what is available’ in the market. This is a waste of your time and theirs.   

Taking the time to understand what the current strategy is of the company and how innovation may fit into that agenda will be ideal to have before meeting with start-ups/any software vendor.  

Not only should you know what you are looking for as an organization, but also consider which items are priority over others.    

Having these two things identified will help your company in picking which start-ups to meet with, as well as giving them a clear idea of what they are pitching for when they first come to meet you.  

It’s also good for an organization to know how far along they are on the ‘innovation spectrum’.  Be honest with start-ups so they can tailor their approach.  If you have never worked with one, tell them.  These guys are smart, they will figure out how to best work with you.

Figure out what sort of partnership you are looking for

There is often a question for an organization whether to build, partner or buy a software solution.  There are different pros and cons of both, which I will not go into for this article.  

However, once an organization’s strategy and priorities are defined, they will need to make a decision on which type of partnership to pursue.  A few things to note on this:

  • Build – If an organization wants to build a solution, don’t just use the start-up’s as a platform to do your research and then end up building your own.  Start-ups spend all of their time building a solution to provide to you/your customers. Respect that.
  • Partner – This is probably the path most carriers will go down when meeting with a start-up.  If you want to partner with them, let them know upfront that this is the model you are looking for.  The start-up will then need to demonstrate to you how they can make that partnership as fruitful as possible, including ongoing servicing
  • Buy – Like the partnering, letting a start-up know this upfront will help them to demonstrate how they can best work with you, albeit a partnership vs. an acquisition type arrangement will be very different.  Also, the start-up may not be keen to explore this route (being bought), so knowing this up front can save time for all involved.  

Build a sandbox framework for start-ups

The ‘sandbox’ term is being used a lot these days.  For me, a sandbox is when the typical rules/governance framework are made a bit easier.  For example, regulatory sandboxes allow start-ups to ‘try’ their product without the need of going through all formal approvals.

If they are going to scale, then they will need to go through all approvals, however, since the regulator has already observed them in a sandbox environment, the approvals process should ideally be quicker.  

When I use the term sandbox for an Insurance carrier/start-up working relationship, I mean the following:

  • Agree that with any start-up that you onboard, you will start with a pilot and Proof of Concept (PoC) first before taking on fully within the organization.
  • Make the approvals process a bit less onerous, however ensure that you still have the key stakeholders involved.

Get buy-in at the executive level

Now that an organization’s strategy and priorities are identified and a sandbox environment is set up to work with start-ups, the next important step is to get buy-in from the executive level.  

Whoever in an organization is leading digital innovation activities should be driving this. Referencing back to the start-up’s guide to working with Insurance carriers, the person/teams that should drive this process should be within the ‘advocates’.  They should develop a strategy/framework that identifies all of the items mentioned above and make sure it meets the needs of their business counterparts (i.e. the profit centers). Once this is done, then this should be presented to the executive level for understanding and agreement.  

From my point of view, there is no other better time than now for all carriers to do this sort of exercise.  The word ‘Insurtech’ should be one of the top terms uttered in any Insurance carrier’s boardroom these days. As such, there may be more appetite for an organization to undergo a bit more lenient process in an effort to drive innovation.  

Part 2: Meeting and working with start-ups

Isolate resources and build a project team

Now your organization has a strategy and framework for working with start-ups; it is now time to actually work with some!  

Go back to the strategy and pick 1-2 areas the organization would like to focus on.  

Once these are identified, isolate the people that will actually be responsible for delivering this project.  Build a project team that consists of people that can have significant enough authority and knowledge for the organization to be the main point of contact between the start-ups, the business and the executive team.  

A few tips on this section:

  1. The project team will be the main contact point for the start-ups.  They should know who this is upfront so they don’t go around the organization trying to find out who to talk to for decisions.  
  2. At the time of forming the project team, the organization should also identify a pilot group of users who will try the solution once it is ready.  The pilot should be outside of normal BAU activities as well.

Request for Proposal (RFP) and start-up selection

The core project team will run the selection process on behalf of the organization.

This should be based on the sandbox framework built earlier, helping to make the process easier, while still ensuring the proper governance is done.  

During this process, the project team should also educate the start-up on their business model, regulations and the like.  If the carrier is US based and operates in many different states, then the start-up should know the different regulatory nuances of each state.  The same goes for European and Asia based carriers that operate in multiple countries.

The education to a start-up of your organization and regulations is extremely important to do upfront and early on.  The education to start-ups of how Insurance works and how it works within your organization will be of utmost importance to ensure that the start-up fully understands the scope of work and how their solution fits into your specific business.     

Outline scope and other project management disciplines

Both sides, the insurance carrier and the start-up, should have their own project management principles that they follow.  

After the start-up is selected, there are a few key items to take note of before kicking off the project formally.  These will help in ensuring the project runs more smoothly:

  • Scope should be clearly identified up front.  This will ensure both sides stay focused.
  • Requirements should be very clear and signed off before given to the start-ups.  
  • Clear data sets should be given to the start-up (if needed) to help them with building the initial solution.  Give data sets that your organization is only comfortable with giving, but ensure that it is clear and useful for the start-up (they should be able to guide you on this).
  • Test plans should be signed off by both sides and take into account extreme test cases.
  • Escalation process should be identified.  If the project team of the carrier and start-up can not resolve something, who should they escalate to for making decisions?
  • Communications process should also be identified.  This includes not only communications between the project team and start-up, but also with the project team and the rest of the organization.
  • KPIs should be identified of the solution being put in place.  

From pilot to scale 

As mentioned earlier, it is advised to start with a pilot and PoC when working with a start-up.  This will allow the organization to ‘test’ the solution and enable them to scale quickly if they want to implement it to the wider organization.

In order to this, there are two things that should be in place:

  1. If the pilot is successful, then there should be a partnership roadmap identified within the organization.  This will include further approvals, implementation/integration, etc.
  2. Have requirements of a go/no go with start-ups.  If the organization realizes that the solution is not going to work, quickly pull the plug on the project and also let start-up know quickly too so they can move on.

Having these two in place will give the organization the discipline to be able to make a call on the start-up as well as a clear path for scaling up quickly.  

Cultural differences/Other tips

The last section has to do with some of the cultural nuances that exist within start-ups as well as some general tips for carriers that are outside of the other framework items I list above:

  1. Communicate in regular and fast fashion with the start-up.  This means get back to them in a matter of days, not weeks.  
  2. Don’t take advantage of or squeeze the start-up just because they are small.  Start ups have limited money and resources.  This is the beginning of potential long term relationship. If you treat good from the beginning, they will treat you the same.  
  3. Let the start-up be creative.  As an Insurance carrier, you will know your business inside and out.  You need to educate the start-up on this.  The more you can educate them, the more they can offer.  Let them be creative within the confines of your business and regulation.  You may be surprised by what you find.
  4. Relating to point number 2,  just because they are a start-up doesn’t mean they should be treated as any less.  They are a company themselves.  They have started things from nothing.  Treat with a level of respect.  Who knows, you could be working with the next Uber.

Summary

As I wrote this article, I realize that there are a lot of nuances around this subject.  The nuances can relate to different business lines, business models and areas of the value chain.  

As such, both this guide and the start-up guide published a few weeks ago should serve as a high level framework, which then needs to be adopted to specific business models/organizational framework.  

I’m hoping this article produces the same sort of excitement/comments as the last one and I would love to hear your thoughts and feedback on this topic. Feel free to comment on the Fintech Genome or e-mail me directly (stephen at pivot dot asia)

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Stephen Goldstein is an experienced Insurance executive and Insurtech dealmaker with a core focus on growing revenue, launching go to market initiatives and advising industry leaders.

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