15 minute read 30 Jul. 2020
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Insurtech: partnering to deliver value at scale

By Andrew Parton

EY Oceania Partner Financial Services Technology Consulting

Transformation and client leader in insurance. Passionate about helping disadvantaged kids. Wine lover. Fitness fanatic. Father.

15 minute read 30 Jul. 2020

The EY 2020 Australian insurtech ecosystem report shows insurtechs, insurers and service providers agree that the industry is driving value through insurtech, but there are several areas ripe for innovation.

Our previous two reports found insurtechs were predominantly collaborating with, rather than disrupting insurers and that partnerships were starting to form and beginning to create value. This year, we explore the extent to which these partnerships are creating value for incumbent insurers and insurtechs at scale. The 2020 report examines how and why partnerships are currently working, including where value is already being created and how this can be optimised.

Our findings

  • Partnership is the way forward: Partnering with insurtechs is increasingly common across the insurance industry and is expected to become mainstream. But right now, the use of insurtech is relatively low and the industry remains some way from maximising value creation at scale. 
  • Major opportunities for future value creation: Insurers, insurtechs and service providers broadly agree that opportunities for value creation are being optimised – but there is room for growth. Having seen incremental value creation over the previous three years, the industry has great expectations of using a partnership approach to drive value realisation over the next three. Our respondents recognise it’s time to ramp up partnering to address opportunities right across the value chain. Pivotal areas that the industry agrees are ripe for innovation include: efficient administration, pricing and underwriting agility and new products to deliver differentiated customer value propositions.
  • The rise of true ecosystems: As the platform economy matures, insurers will move beyond the simple alliance models and develop the infrastructure to support plug and play and cross platform integration capabilities to create true ecosystems. One of the key ingredients here is putting the right infrastructure around legacy systems, so insurtech can plug into the enterprise. To this point, digital enablement platforms will be important to support insurers in transitioning from old to new distribution channels – offering an alternative to replacing legacy core systems.  
  • Critical get rights: Deploying insurtech at scale is the only way to keep up with fast-moving technology developments and satisfy rising consumer expectations. As insurers move to realise the value they can see across the value chain, the key areas to focus on are: 
    • Finance and Strategy – Insurers need a focused insurtech strategy as part of their broader digital and innovation strategy. It’s vital that all parties share a clear understanding of the business problem being solved and the desired outcomes. 
    • People – Successful insurtech deployment requires a strong champion in the insurer’s business – someone with a clear vision and the ability to challenge group-think or traditional views of the industry. Insurtechs will need to be given early access to this champion and other C-level decision makers. 
    • Execution – Strong implementation plans and road maps with clear timeframes and expectations are essential, but they not enough on their own. They must also be supported by streamlined procurement, flexible contracts and robust information sharing protocols. 
    • Systems and Technology – The industry needs to move beyond taking a siloed approach to insurtech delivery and go past the ‘proof of concept’ mentality. To deliver true value, insurtech require a number of capabilities – from innovation to create ideas into design, tests and iteration and then rapid deployment into operations in more of a business-as-usual approach than that of bespoke projects to achieve the scale required.  
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How well is the ecosystem working?

Perceived value of the partnership between insurtechs and insurers

Partnering with insurtechs is becoming increasingly common across the insurance industry. Our survey found 80 per cent of insurers are collaborating with an insurtech, with 11 per cent at the strategic investment phase. Currently, the most common reasons for insurers to partner with insurtechs are to deliver new value propositions (75%), improve claims (46%) and support distribution (43%). Similarly, almost three-quarters of insurtechs collaborate with insurers, largely because their business models are predicated on doing so. Insurtechs are carving out niches across the value chain, developing digital capabilities to solve insurers pain points or drive competitive advantage. More than two in five have moved their partnership beyond the POC stage.  

But, in the main, partnering is only occurring on a small scale. The majority (63%) of insurers are only partnering with between one and three insurtechs and only 14 per cent partner with five or more. Insurtechs are following a similar pattern, around a third only collaborate with one insurer. Fewer than three in ten collaborate with five or more insurers.

Where has value been created to date?

Despite considerable progress over the last three years, the industry has yet to maximise value creation at scale across all elements of the value chain. Only 50 per cent of our respondents believe insurers and insurtechs are optimising opportunities to drive value through innovation in the industry. Of those, 65 per cent are of the view that partnering is more cost effective than building internally – and therein lies an opportunity. 

Asked why else partnerships are working, insurers who feel positive about their partnerships said insurtechs provide:

Value add propositions for our customers that wouldn’t otherwise be available.
Innovative ways to secure new customers and distribute insurance products.
The ability to remove inefficiencies from the insurance value chain.

When respondents were asked to think back over the last three years, they felt value creation had been most evident in claims, where more than a third said this was fully realised or close to fully realised. In terms of why opportunities to optimise innovation are not being met, 81 per cent of insurtechs suggested insurers were not prepared and may not have sufficiently detailed implementation plans to work effectively with insurtechs. That said, 40 per cent of insurers and 50 per cent of service providers observed they find meaningful partnerships with insurtechs ‘too difficult’.

How many insurtechs do you have an established partnership with?
Reasons for disagreement that opportunities are being optimised
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Where are the future opportunities for value creation?

Exploring the innovation potential

Insurtechs, insurers and service providers agree that the industry is driving value through insurtech, but they see several  areas ripe for innovation. The big areas of opportunity where respondents said very little value creation has been realised over  the past three years are:

  • Efficient administration: Many insurers are still using paper-based or, in some cases, face-to-face acquisition and onboarding procedures. Introducing digital self-service with smart online forms that self-populate will improve the customer experience and accelerate policy sales and servicing. As insurers start using the data captured by self-service, underwriting, leakage and administration expenses will also be reduced.
  • Pricing and underwriting agility: Manual broker processes and non-integrated broker systems make it hard for insurers to maximise new business volumes. Integrating broker and insurer systems to enable real-time underwriting, pricing, policy updates and broker commissions should be immediate goals for the industry.
  • New Products to deliver differentiated value propositions: Insurers will increase their focus on activating usage based products, and behaviour-based priced products. For example, a consumer who has opted-in to an Insurers Concierge program, posts an upcoming surf vacation on social media. 

The digital insurance concierge detects this information and notifies the customer via an intelligent virtual assistant (“IVA”) that single-item coverage, only for the duration of trip, for surfboard and a camera are recommended and probabilities for item damage and theft are provided by the IVA. In the event that the customer has an accident on the way to the airport, the IVA automatically populates claim information to a new claim record, requests photos of the crash, arranges for an Uber to get the customer to the airport and arranges towing. If the surfboard is damaged in the car crash, the IVA arranges for a replacement to be delivered to the customer’s hotel.

We also expect a rise in IoT enabled Smart Devices to help to prevent accidents that would lead to damage, personal injury and costly claims in commercial and residential property. By detecting potential events such as water leaks, smoke or fire, or personal injury in workplace environments, insurers, property owners and employers would have early warning of an emerging risk. Early detection of events and subsequent notification to owners, insurers and service providers can address potentially catastrophic damage to property and mitigate hefty claims.

Such innovations rely on insurance processes being connected with external APIs, devices and IoT sensors, and can be aided by  digital enablement platforms, which integrate an insurer’s core systems with new technologies and partners’ systems, enabling  plug and play models. 

Last three years value creation realised

Where will value creation happen next?

To compete in a digital world, insurers need to explore the power of open, cloud-enabled systems that leverage digital ecosystems and multiple insurtech propositions. It is here that alliances and partnerships will play a greater role across the sector and accelerate the advantages of a broader ecosystem. Having seen incremental value creation over the previous three years, the industry has great expectations of a partnership approach driving value realisation over the next three years. Across the entire value chain, over 69 per cent of all respondents agreed that insurtechs will play a major role in helping incumbents become digital insurers. Our respondents feel strongly that value realisation will be higher over the next three years than the previous three and occur right across the value chain.

Insurtechs are particularly bullish on the potential for pricing and underwriting agility to be fully realised (45 per cent change between the last three years and the next three). Insurers’ opinion about where increased value will be created between the two periods was greatest in:

Loss prevention and remediation

51%

point change in perception of value creation

New products to deliver new value propositions

47%

point change in perception of value creation

Administration

47%

point change in perception of value creation

Insurtechs are well positioned to meet this need, with use cases that fit across the entire insurance value chain to create ecosystems. Their propositions predominantly continue to leverage big data and analytics, AI and machine learning and connected devices, but in the last 12 months, Cloud, Platform as a Service and Software as a Service have emerged as new areas of growth. 

Next three years value creation realised
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How will partnership models change?

Industry stakeholders, especially insurers, are positive about the future of partnerships with insurtechs.

Over the next three years, partnerships are expected to become mainstream rather than the exception, with 50 per cent of respondents expecting a large amount of acquisition activity, as insurers seek to buy their own insurtech capabilities or insurtechs consolidate, which is anticipated by 51 per cent of respondents. 

Two-thirds of insurers plan to seek alternative partnership models to the ones they are currently using. As the platform economy matures, insurers will move beyond simple alliance models and point solutions to true ecosystems. They will use platforms to leverage all the components of value chain, with mega-platform providers, alliance partners, service providers, IP partners, and other types of relationships to enable their ecosystems.

In future, “ecosystems integration” will likely become as important as systems integration, if not more so. Insurer’s growth will increasingly be tied to its ability to team with other entities to create value propositions far greater than they could develop on their own.

Future of partnerships
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What are the critical ‘get rights’ for using insurtech at scale?

Insurers seeking to optimise value creation by increasing their numbers of insurtech partnerships and broadening insurtech use across the value chain need to address the following success factors.

Insurers are highly aware of the importance of a focused insurtech strategy, as part of their digital and innovation strategy. Having failed to gain the expected return on investment from tactical investment, 68 per cent of insurers recognise the importance of a focused strategy to guide insurtechs. Insurers also emphasised how critical it was for all parties to share a clear understanding of the desired outcomes. For insurtechs, recognising the business problem they are solving is key with 63 per cent of the view that, if the problem being solved isn’t articulated and well understood on both sides, partnerships are more likely to fail.  

Insurers are highly aware of the importance of a focused insurtech strategy, as part of their digital and innovation strategy. Having failed to gain the expected return on investment from tactical investment, 68 per cent of insurers recognise the importance of a focused strategy to guide insurtechs. Insurers also emphasised how critical it was for all parties to share a clear understanding of the desired outcomes. For insurtechs, recognising the business problem they are solving is key. Sixty three per cent are of the view that, if the problem being solved isn’t articulated and well understood on both sides, partnerships are more likely to fail.  

Service providers in particular, understand the need for a strong implementation plan and a road map with clear timeframes and expectations. But some projects fail even before this point. Sharing data and information between partners is a potential stumbling block. Around twice as many insurtechs were concerned about this issue compared with insurers, indicating an opportunity for better contractual discussions. More than half of insurtechs are also concerned about slow decision and complex procurement processes. Only a quarter of insurers consider this an issue, indicating another opportunity to strengthen partnerships by streamlining procurement and setting up robust information sharing protocols. 

Leadership is essential if insurers are to become digital. A strong business champion with a clear vision is critical for challenging group-think or the traditional ways of viewing the industry. Champions help to overcome entrenched organisational interests and to allocate and prioritise funding. Insurers know this, almost three-quarters said senior stakeholder buy-in was essential. 

Insurtechs believe that investment objectives will only be executed effectively if key decision-makers are involved early on. Access to C-level decision makers was a key success factor for 58 per cent of insurtech respondents, compared with only 28 per cent of insurers. This is an area where insurer/insurtech thinking could be better aligned. Insurers need to give insurtechs early access to decision-makers to support executive buy-in.

Many insurers fail to take a strategic and focused approach to insurtech deployment, with numerous parts of the business and disparate groups within the organisation pursuing their ‘pet’ projects. Three in five respondents noted ‘overcoming a siloed approach to delivery management with insurers’ as a key get right. A third of our respondents emphasised the importance of overcoming the limitations of a ‘proof of concept (POC) mentality’. Many insurtech projects rapidly succeed at the POC stage but are never fully integrated into the business and hence don’t deliver any value. This is often because of a disconnect between those in the lab and the day-to-day operations teams dealing with business realities. Other stumbling blocks include enterprise wide issues, such as standardising or integrating data. One of the key ingredients to solving many of these issues is to put the right infrastructure around legacy systems, so insurtech can plug into the enterprise.  

For many insurers, cloud migration is not an easy task, but it does allow insurers to shift the IT backbone of their business operations into the more agile and cost-effective cloud environment. If the industry is to deploy insurtech at scale and realise the value our respondents have identified, insurers will need more flexible operating and technology environments. This is the only way to keep up with fast-moving technology developments and satisfy rising consumer expectations.

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About our insurtechs

Understanding the Australian insurtech ecosystem

Our survey respondents come from across the Australian insurtech ecosystem, representing varying degrees of maturity and different lead technologies and capital raising strategies. Sixty eight per cent launched their business in the last three years. Most operate primarily in the General Insurance segment, where the majority of insurtech offerings are tailored. Almost three-quarters are in the post-revenue and post-profit phase. While the majority have yet to raise more than $2m, the percentage raising more than $10m has more than doubled. Founder funding remains the main source of capital for insurtechs, but one in five are now receiving more than 50 per cent of  their funding from international sources of venture capital.  

Where in the insurance value chain does your value proposition sit?

On average insurtech propositions cover 2.7 areas of the value chain, with a higher concentration of activity presently on ‘efficient administration’ and ‘new products to deliver better customer value propositions’.

Value chain proposition

Notice: The position of the insurtechs on this ecosystem map only represents where the insurtech is primarily operating. The full scope of operations would see many represented in multiple areas on the map.

About the survey

This year’s insurtech report survey comprised a mixture of multiple choice and free form text questions to gather responses from Australian insurtechs, insurers, brokers/agents and service providers. EY worked closely with Insurtech Australia to survey its members, gather responses from Australian insurtechs, and also welcomed responses from the wider insurance industry in the region. The 2020 insurtech survey was open for approximately 12 weeks from 25 April 2020. During this time, 103 respondents completed the question set: 59 insurtechs, 24 industry incumbents and 20 intermediaries or service providers.

Summary

Our previous reports found insurtechs were mainly collaborating with, rather than disrupting, insurers and that partnerships were starting to form and beginning to create value. This year we explore the extent to which these partnerships are creating value for incumbent insurers and insurtechs at scale.

About this article

By Andrew Parton

EY Oceania Partner Financial Services Technology Consulting

Transformation and client leader in insurance. Passionate about helping disadvantaged kids. Wine lover. Fitness fanatic. Father.