Build or Buy: How to engage with insurtechs

On the 1st of March, I listened to an extremely insightful panel discussion at the InsurTech Insights Europe Conference 2023. The session was called “Build or Buy: How to engage with insurtechs”, and it focused on the latest strategies for partnering with insurtechs to drive innovation and growth in the insurance industry. Industry leaders discussed how to navigate the pros and cons of building or buying insurtech solutions. This article summarises the key points made during the session.

Speakers for this panel session:

• Stefano Bison – Group Head of Business Development, Partnerships, and Innovation at Generali
• Hanbing Ma – Group Head of Innovation at ERGO
• Massimo Cavadini – Senior Executive Partner at Munich Re
• Imran Akram – General Partner at AXA Venture Partners

How do insurers engage with InsurTechs?

At the beginning of the session, the moderator asked ChatGPT what an InsurTech is. ChatGPT gave the following answer:
“InsurTech is the merge between insurance and tech. It should refer to insurance companies but now encompasses tech driven companies that provide services to insurance.”

The main takeaway the panellists agreed on was that insurers cannot ignore technology due to the multiple ways it can help, such as increasing efficiency, reducing risk, or enhancing the customer experience. However, in today’s environment you can’t build everything yourself. You need people, investment, time, and patience. To explore how insurers can engage with insurtechs, we have created a whitepaper on whether insurers should build, buy, or rent technology.

Below are the key points from this panel discussion at InsurTech Insights Europe 2023.

Build

When insurers create their own custom software, it is tailored to suit their exact needs. However, this requires significant investment, there’s no R&D commitment, and speed to market will be slow. In addition, you are dependent on the in-house skills remaining in-house for the life of the system.

Buy

One way to collaborate is to buy the insurtech. This is similar to how you would buy technology from incumbent software vendors, however, Hanbing Ma stated that if an insurer’s culture will kill the start-up culture, then this is not a good idea.

Partner

A partnership is where you co-create with another organisation, developing new products together for future innovation and growth, such as MunichRE’s partnership with Simplesurance. If the project is so strategic and unique where there is no solution like it in the market, then it becomes your propriety asset.

Imran Akram stated that insurers can co-create via another vehicle. An example of this is when Imburse worked with HITS (House of InsurTech Switzerland) to create the MicroSavings solution. In 2017 HITS started the project of the innovation garage at Generali Switzerland. To offer innovation as a service not only for Generali, they have since opened up their doors to become an insurtech-hub where startups find a place to work and get in contact with corporates and investors.

As another example, Massimo Cavadini stated that Munich Re have Horizon 1. They wanted a telematics solution and looked at building it themselves, but this required a large team to analyse the data for the pricing software. It was too far from their core, but they entered a partnership with a solution and hired experts.

Invest

Investing involves obtaining a minority or majority share, either directly or indirectly, via a venture capital arm. Minority investments can create long term alignment and they put your name in the partners list they start getting traction which helps the company and both parties benefit.

Stefano Bison stated that Generali invests in a lot of insurtechs where their existence in 12 months’ time is uncertain. That’s where a minority investment can help that start-up. It’s helpful to have a central unit in the insurer, a central team to drive this and bridge the gap. A half million contract with a start-up could cover between a quarter to a half of their operating costs but it’s nothing to an insurer. This minority investment and contract gives the start-up a soft landing.

The panellists discussed the investing option further, providing more insights on this area.

“Insurtechs are bringing a strong IP in tech and insurers have the domain knowledge. The main KPI for insurer is bottom line and main KPI for insurtech is top line.” – Massimo Cavadini

“You’re not investing in one insurtech you’re investing in a portfolio of insurtech. More recently the start-up world is starting to care about the bottom line! Every time they added a logo to the web page that added another million in valuation.” – Hanbing Ma

“Now valuations are coming down. More focus on profitability. We’re not interested in vanity metrics. I welcome what’s happened. It is survival of the fittest. First time in many years where we are having a correction.” – Stefano Bison

Other ways to engage with insurtechs

Despite not being covered in this discussion at InsurTech Insights, in an article by Gartner, two other methods were noted on how to collaborate with insurtechs:

Acquire

Purchase the intellectual assets and hire all resources of an insurtech, such as Hartford Steam Boiler’s acquisition of Meshify (IoT) in 2016.

However, similar to what Hanbing Ma mentioned about insurers buying insurtechs, Stefano Bison stated that he has not seen many successful acquisitions when the culture of the companies are so different.

Incubate

This involves letting insurtechs compete to get into a start-up accelerator; mentoring them; and giving them a space to work and exchange ideas. Insure the operations or assets of insurtechs. For example, Markel International launched Fintech Insurance for the Asian market which was originally developed for the UK.

How can insurers benefit from technology?

Customers expect fast customer journeys with a product tailored to their individual needs. Working with insurtechs can solve insurers’ biggest hurdles and make insurance more appealing to customers.

Below are some of the ways technology helps insurers:

• Increase efficiency by cutting down on manual processes
• Process large amounts of data at scale
• Customize services to individual customers
• Avoid fraud and reduce risk
• Simplify the customer experience

Advice for start-ups

To finish up the discussion on how to engage with insurtechs, the panel had some final pieces of advice for start-ups:

“The era for collaboration is now and that start-ups needs to try to solve real problems.”
Stefano Bison – Group Head of Business Development, Partnerships, and Innovation at Generali

“Do the groundwork. Invest in your IT, where you servers are etcetera, and accreditations.”
Hanbing Ma – Group Head of Innovation at ERGO

“Do one thing and do it well. Lead time in insurance is the longest I have ever seen. It takes a year to sign.”
Imran Akram – General Partner at AXA Venture Partners

“Invest in your IP. You need time.”
Massimo Cavadini – Senior Executive Partner at Munich Re