Speed vs. Scale: Using InsureTech Startup Carrier Systems as a PAS

This week, an associate of mine told me a story about working with a popular InsureTech carrier focused on home and renters insurance. He already has a policy with them to insure his home, and he reached out to them via their chatbot to ask about insuring a second property. The chatbot could not answer his question, so he was referred to a human. Two days later, he got an email letting him know that they could not support multiple policies per account but that he could instead try a “hack” and use a different email address to apply for the second policy. In the meantime, a traditional insurance agent had gotten him several quotes from traditional insurers.

This is a shocking story for two reasons. First and foremost, it’s an example of terrible customer experience coming from a class of startups that claim to be all about customer-centricity. Second, it exposes flaws in the underlying system. Those exposed flaws wouldn’t be as big of a deal except that some incumbent insurers have begun to wonder about licensing technology from these startups.

Many startup carriers have decided to build their own custom core platforms rather than licensing and implementing core systems from the usual vendors. While today’s accepted best practice for core systems is to buy rather than build, it makes some strategic sense for these greenfield startups to create everything from scratch: They’ve assembled teams of Silicon Valley software developers with a “we can do it better” attitude that—regardless of accuracy—is important to their excitement and approach. They are trying to sell insurance in nontraditional ways which incumbent systems might not support out of the box. And they have very limited funding runways and therefore no money or time for licensing and implementing expensive core systems.

Their primary strategic goal is speed. Not just speed to market, but something even more: “speed to prove a business model.” If they fail to prove the business model, they run out of funding, they fail to secure more of it, and they disappear.

Now that some startup carriers are also offering their custom-built core systems for sale, and some incumbent insurers are considering it, the question is whether these systems might be an alternative to traditional insurance core systems from established vendors. The answer is: maybe! Will a startup carrier have managed to build a lightweight, flexible platform that provides a legitimate option for other insurers to use? Maybe!

Any insurer evaluating such a platform needs to keep in mind the difference between a platform built with a strategy of long-term maintenance and support and a platform built with a strategy of rapidly proving a new business model.

A platform built by a crack team of Silicon Valley developers with the intent of proving a new business model will focus on areas that incumbent insurers have largely ignored: a fully online customer experience, true straight-through processing and automation, use of AI to make intelligent decisions without a large workforce behind the scenes, use of chatbots to minimize human staff needs, all digital workflow without any legacy paper processing, and lots of cool custom product features that target a specific customer niche.

But, on the flip side, a platform built by an inexperienced team with the intent of proving a new business model might have completely ignored some very important areas that incumbent insurers have worried about for decades: supporting multiple policies per household, policies with complex features that don’t fit the initial target demographic of the startup, ability to process renewals on large books of business built up over decades without the system grinding to a halt, ability to update rates and rules over time, or anything at all to do with long-term support of a book of business.

These potential oversights aren’t a bad thing for a startup carrier. Any new business needs to prove it has a viable business model before worrying about how it will support that business in 10 or 20 years. But incumbent insurers, even those looking for a system to use on a greenfield line, do need to worry about those things, and evaluating startup carrier core systems will require additional focus on those areas that are less exciting but critical to any long-term success.

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