Worlds collide: a view on the collaboration between startups and incumbents

Let’s start with the stereotypes. A traditional insurance industry driven by governance and compliance, set in its ways, slow to adapt and lumbered with legacy systems. Compared to a dynamic and agile startup sector - driven by customers, fresh thinking and new technology.  How can the very different worlds of insurers and InsurTech work together? 

Of course, this starting point is wrong.There are many forward thinkers in the insurance industry. Time and time again it has transformed itself and its products to meet society’s needs and . I believe the industry recognises that another such period of change is upon them. Likewise, there are many InsurTech businesses who are desperate to access the experience of insurers and their knowledge of how this complex industry works.  In fact very few InsurTech propositions are intended to stand separately from insurance companies - most  rely on improving part of the existing value chain.

We are increasingly seeing both insurers and InsurTechs recognising the value that the other can bring and looking for ways to work together. There are different approaches being taken; some insurers  look to replicate and build in-house whilst media attention focuses on the big money acquisitions of startups.  However, I see great value in the partnership model, old and new working together to develop and deliver something different. These partnerships can be short term, delivering on a focused business case or  the desire may be for a more medium term relationship which changes the insurance value chain more radically.

Typically partnerships work best when both parties play to their strengths; startups bring their entrepreneurial drive, customer centric mind-set and detailed understanding of a specific issue whilst insurers bring extensive data, global reach, underwriting expertise and business know how .

But partnerships aren’t easy. There are many challenges. New technology can impress in a presentation or at a pitch but how does an insurer integrate this with their existing legacy systems?  A startup may have a more relaxed approach to compliance and governance, or even a safe harbour from the regulator, but this won’t be the case for an existing insurer who is already under close scrutiny from the FCA and other regulatory bodies.

And then of course there is the difference in culture. I’ve seen plenty of cases where, following a positive introductory meeting, the startup enquires about the next steps. “We will take this forward at our board meeting next month to get buy in for a project to explore the possibility of a pilot study” is the reply. “But I was hoping to go live next week!” is the general response.

But these are just problems to be overcome, not reasons to admit defeat or be deterred from trying because  the potential rewards for both parties are huge. The opportunity exists to transform the industry and gain a competitive advantage by bringing something different to the table; whether this is customer engagement, better underwriting, reducing risk or cutting away the operating cost base.

Increasingly we are seeing insurers look to partner with startups to gain access to technology rather than just a business proposition. Although many insurers have excellent in-house capabilities they are already stretched and it is difficult to free up these resources to work on new, subscale innovation projects that won’t add significantly to key metrics in the short term. Anyone who has worked in the insurance market knows how far in advance technology projects must be scheduled in order to get access to the in-house resources. Partnering provides a relatively quick and low cost solution.

But InsurTech businesses are not all about the tech. Our research shows that in the majority of cases the attraction of an InsurTech business lies in its people rather than its technology. This is also very attractive to the insurance industry.  Digital skills, coding skills and data skills are all in short supply and great demand with all industries looking to access them. Insurers need to compete, yet the situation is made more difficult for them as evolving employment trends mean increasing numbers are not looking for a long term career or sector specialism. Many with these sought after skills prefer to be self-employed, work for a small dynamic businesses, or stay in academia.  By partnering with startups insurers can assess these in demand skills when they need them.

Insurers and InsurTech can work together and there are already good examples of this happening.  But a number of things need to happen. Both sides need to try and understand the other – respect differences and be tolerant. Both parties need to be honest with themselves about where they need help. Both parties need to be clear on what they add to the relationship. And they need to share these openly with each other – it’s called partnership for a reason.


Jonathan Howe is PwC's UK Insurance Leader