Success factors for insurtech / incumbent partnerships
Insurers are making unprecedented investments in startup technology firms. Incumbent firms and industry newcomers increasingly operate within new partnership arrangements that go beyond the traditional supplier-buyer relationship. The success of these partnerships will directly impact the returns from these investments. Thus, it is important to understand what makes such relationships work most effectively.
Celent surveyed 62 insurers and 35 insurance-focused startups to identify best practices in these partnerships. What we learned was that both parties will need to make significant adjustments to their preferred ways of working (their cultures) in order to optimize their financial, time, and emotional investments in each other.
Before reviewing the data, it is valuable to answer the question “Just how different are these two worlds?” At Celent, we define culture as “how we do things around here”. That means how are decisions made – collaboratively or independently? Is risk rewarded or avoided? What role models provide the examples for employees to follow?
We constructed a table to tease out these differences. Not surprisingly, there were quite a few.
Any of these can have an impact on a successful partnership. Risk tolerance and speed of decisions are the two which receive most comment when discussing this analysis with start ups and insurers. Basically, insurers must significantly increase their cycle time and start up companies must recognize that, when dealing with incumbent financial institutions, the clock is much slower.
Do such cultural differences matter? This is where the data begins to direct us. In our survey, we asked “To what degree do cultural differences impact successful transformation partnerships?” Both groups agreed that it could have either a very significant or significant impact on success.
Respondents were also asked to rank the challenge areas in making transformation work. They assigned a 1 to the area that has the largest impact and a 4 to the one with the smallest impact. The result shows the importance of a common plan for the partnership – something that can get shortchanged in the rush to deliver “something” to market.
Partners which are making progress with these new arrangements are approaching them in a deliberate way. Insurers and startups deliberately invest time and management capital in creating a shared vision for their initiatives. Insurer subject matter experts mentor startup employees to transfer industry knowledge. Some insurers invest in specific roles to manage partnerships outside the standard procurement process. Prospective partners participate in insurance-specific innovation accelerator models as a way to learn and network in this new ecosystem.
More best practices will emerge with time and experience. The results to date indicate that the firms that make effective adjustments to business as usual will benefit from stronger partnership arrangements.