There are inherent financial and business risks with InsureTech startups due to their immaturity, cultural differences, and potential lack of insurance industry knowledge. Regardless of the nature of the desired relationship, early customers are investors in the firm and have vested interests in the InsureTech’s success.
InsureTech startups are new entrants to the insurance market with intriguing technologies offering the potential to change or disrupt the market. Carriers should expect InsureTech relationships to be different from the ones they have established with seasoned insurance industry service providers. Adapting to new processes and preparing to make high initial investments of time and resources will help carriers help shape the direction and development of a new offering.
The following three categories are major areas of focus for carriers to consider when working with InsureTech startups and creating a contract that defines expectations and roles for all involved parties.
Assessing the Opportunity and Risk Potential
Carriers cannot afford the time or resources required to invest in every opportunity that presents itself. Novarica recommends evaluating InsureTech offerings from a financial and technology perspective to make the correct investment prioritization decision. Carries are most successful when they evaluate new ideas against specific use cases and estimate the potential benefits they could realize.
Expecting Communication and Cultural Challenges
The benefits of working with an InsureTech can create challenges. InsureTechs often have experience with new technology or analytics tools but can have gaps in insurance industry knowledge. These gaps can lead to miscommunications, including underestimation, cost overruns, and even compliance issues. Organizations can avoid unrealistic expectations if they explore meanings and intentions fully and vet procedures and functionality during the POC or pilot project. Additionally, startups are usually committed to a continuous build philosophy, which may be incompatible with the internal IT culture and processes of the carrier.
Managing the Inherent Risk
Carriers should commit the resources necessary to be successful but manage scope risks by limiting pilot scope and defining requirements carefully. They also need to understand the possible investment required and set specific success criteria and investment limits. Even though carriers need to establish a contract and cover the abovementioned items, carriers should not assume that the POC will succeed or that InsureTechs will be in business long term.
For a more in-depth look at designing and building InsureTech startup relationships that create desired business outcomes for all parties involved, read Novarica’s latest CIO Checklist brief, Establishing Solution Provider Relationships: InsureTech Startups.
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