By Ted Stuckey, as published in Carrier Management
It’s hard to ignore the energy and attention that Insurtech startups have brought to our industry over the last several years. And with that energy, more insurance carriers and MGAs such as National Programs that are looking for a competitive edge and new revenue streams are turning to Insurtech startups for ideas and innovation.
What’s often overlooked, however, is an understanding of how working with startups is different than working with traditional vendors—a distinction that could be the difference between success and failure. The carriers and MGAs that are finding the greatest success are those forming true partnerships with startups.
What does it mean to partner with a startup? And how do you set yourself up for success in a partnership?
Partnership is co-creation
When we talk about partners, it’s important to draw a clear line of distinction between an Insurtech partner and a vendor. Entering into a partnership means building a relationship that provides as close to equal an exchange of value as possible. Sure, vendors also deliver business value, but a vendor relationship is transactional.
True partnership is co-creation, and a commitment to co-creation makes both parties better. It distributes the responsibility equally in that each participant makes an investment and brings complementary advantages to the table. For the carrier or MGA, that means leveraging its marketplace insights, data and other resources to bring the Insurtech’s offering to life. When done right, this co-creation model can be extremely energizing and motivating.
There’s a natural tendency to want to work with the most technically advanced team or with the flashiest startup that has raised the most money or has the best brand. However, that’s a shortsighted approach that fails to consider one’s true business objectives. The journey to partnership begins with honest self-reflection. As a carrier or MGA, are you willing to be open and honest with an Insurtech? Or would you rather give orders to a vendor?
It’s important to have a clear understanding of one’s weaknesses and what it will take to mitigate those weaknesses or turn them into strengths. Governance processes or legal reviews can be quickly changed, while large-scale technology upgrades are more challenging and require more time and investment.
Here are some examples of questions to ask before you begin the journey to partnership with an Insurtech:
- What is the strategic purpose for working with a partner?
- Do you have leadership support and funding?
- Or are you hoping that the early results of the partnership will generate the momentum needed to keep growing the partnership?
Have this conversation with the startup from the start. Don’t try to sell them on something that might not actually exist.
- How flexible are your core systems? How easy is it to integrate with outside platforms?
Be honest with the startup and make the necessary investments to ease the pain over time.
- Do you have a handle on your data? Or are you struggling to create value out of the wealth of data that you have across disparate systems?
Pull back the curtains and ask the startup for advice.
- Does your governance process require months of lead time and countless approvals before getting started?
Fix it before you start; a startup’s most valuable resource is time, and there’s no better way to destroy trust than by wasting either party’s time.
- Do you have all the answers, or a set of detailed specs, on what you need?
This sounds like a situation where a traditional vendor relationship makes better sense than a partnership.
Many Insurtechs are pioneers in emerging technologies that our industry will depend on more and more over time. This includes emerging technologies such as advanced analytics, deploying artificial intelligence and deriving risk insights from Internet of Things (IoT) hardware. While many of these technologies are still in their early stages, we already can see how they’re beginning to transform the industry.
Gaining a leg up with emerging technologies isn’t as simple as saying, “Let’s go out and find a big, established tech vendor to buy IoT.” Instead, carriers and MGAs need to co-create with nimble and hungry partners. When both parties bring complementary advantages to the table, they can develop the system or solution that puts them ahead of the competition—whether it’s risk mitigation and loss avoidance, proprietary products, or even new businesses.
Success doesn’t happen overnight, either. It takes years of collaboration, problem solving and development. And inevitably there will be some failures along the way. That’s why creating a business partnership that provides near-equal value to each partner has a better chance of surviving the highs and lows of experimentation and achieving a successful outcome. Does that sound fundamentally different than choosing a traditional vendor? It should.
What’s in it for the Insurtech?
Don’t forget that a startup needs to be very careful in selecting its partners. A partnership can be an intimidating concept for a startup. Simply responding to the carrier’s whims isn’t a winning proposition, except possibly for the carrier in the short term. A startup needs to be careful to not align itself too closely with a single partner. And a carrier or MGA needs to understand that the partnership can help the Insurtech expand and scale to work with other partners. Without a mutual understanding of what’s possible and the implicit support of the carrier, the Insurtech can find itself disadvantaged by having too much anticipated revenue, and thus too much risk, concentrated with a single partner.
Frequently carriers and MGAs use Insurtechs only as an outsourced development shop. This isn’t sustainable in the long run, because it does very little to help the Insurtech grow and scale. What is sustainable, instead, is for the carrier to view the Insurtech as an independent for-profit entity that needs to grow. That’s because Insurtechs don’t exist to “fix” their partners; they exist to make their partners better, stronger and more resilient.
The best startups are asking themselves similar questions as the ones outlined above. They want to make sure they work with carriers where interests are aligned with their own. Startups should be focused on engaging in partnerships that take advantage of their core capabilities and not simply chase revenue for the sake of it.
It’s a very good sign if you see a startup going through this evaluation process. It shows that they’ve reached a level of maturity that is rare in the startup world and is an indication of the seriousness in how they’re approaching the potential partnership.
Ultimately, trust is the most important but most frequently overlooked ingredient in partnerships. A carrier must trust the startup firm, and the startup must trust the carrier. This is why the human aspect is as important as any spreadsheet or cost-benefit analysis.
- “Do I trust these people?”
- “Should they trust my organization?”
- “Do they have the wherewithal and the business acumen to deliver what our strategy calls for?”
Answering these questions can go a long way to determining if the relationship has the potential to blossom into a partnership.
It’s not enough to sit through a single pitch and walk away and say, “Yep, this is the team.” The stakes are too high for snap judgments. A carrier or MGA is betting on a startup to help deliver value in an emerging space, while the startup is betting that the partner will help it find a product market fit.
Ask yourself if you’d like to sit next to the folks from the other side on a long flight, talking about anything but business. It’s critical that both parties get to know one another during this early stage to see if there’s alignment when it comes to strategic direction. Candor and honesty must guide the conversation. Being this vulnerable can be uncomfortable for some people, but the effectiveness of a partnership depends on it.
Partnership through an equitable exchange of value, accompanied by trust, is a great way to grow together and succeed over the long term. While the journey may be uncomfortable sometimes, a partnership has the potential to generate exponentially greater benefits than traditional vendor relationships. Start by looking inward and surround yourself with partners that you trust. But most importantly, enjoy the journey!
Ted Stuckey, chief growth officer for National Programs, drives organic growth by helping build new programs fueled by innovative technology. His experience and relationships in the Insurtech space, along with his aptitude for evaluating opportunities and adapting them to existing infrastructures, helps us continue to simplify commercial insurance buying, servicing and claims.