The insurtech conversation in Australia has moved on from “if” to “how”. Leading insurance firms of the future will be those who successfully partner with insurtechs to realise their digital transformation strategy. After all, 67 percent of insurtechs exist solely to aid digital transformation.
As we know, there are high barriers to entry to the insurance industry.
For this reason, insurtech arrived later than other sub-sectors. Tech startups focussed on industries with lower barriers to entry. There were many sub-sectors that produced unicorns ($1 billion startups) well before insurtech gained traction.
As a result, the insurance industry had the opportunity to witness the power of tech startups in bringing about transformative change to industries, as well as the impact this change had on industry incumbents. What did the early adopting insurance incumbents do to prepare?
Leaner, faster approach
They sent their product leads to Silicon Valley to understand the “how” and learn the “secret sauce” of tech startups: Lean Startup Methodologies. The key difference between a traditional business and a lean startup is that customer input is used much earlier in the lean method. You don’t spend thousands of hours developing a product that no one actually wants.
So when these product leads returned from the Valley, they started seeking partnerships with insurtechs, and introducing AGILE product development and other lean startup tools and principles into their operations.
Sydney: the ingredients for success
Australia is a global innovator when it comes to fintech and insurtech. Sydney was ranked as the fastest growing tech startup ecosystems in the world and is in the Global Top 20 for insurtech ecosystems, according to the Startup Genome project. Much of this is driven by fintech. Australia has a very strong legacy financial services sector which represents 9 percent of GDP – a scale larger than Hong Kong or Singapore.
Sydney ranks very highly on “Local Connectedness” – the number of relationships cultivated between startups in their local ecosystem. This is very meaningful, as Local Connectedness is correlated with the performance of an ecosystem as a collective, the performance of insurtechs within the ecosystem, and the performance of industry incumbents within the ecosystem
Different strategies for innovation
When it comes to innovation, there are a number of different models that incumbents are currently deploying. These range from strategic investors and acquisitions, to creating accelerator programs and internal insurtech teams. Some are purely outsourcing to a partner. But one thing they have in common is that they all incorporate partnering with insurtech or using insurtech methodology.
Whichever strategy they adopt, insurtech will be part of any digital transformation for the insurance industry. There are three actions points that incumbents can use in their pursuit of a successful digital transformation strategy:
– Cultivate relationships with insurtech founders and other key stakeholders
– Understand the essence of insurtech and what makes tech startups so powerful at bringing about transformative change from industry to industry
– Use this understanding to align your mindset and business culture to be conducive with insurtech partnerships.
Research from Celent shows that the single largest barrier to successful incumbent-insurtech partnerships is mindset and culture. For insurance companies ready to evolve, collaboration with emerging insurtech startups could give them an edge in tomorrow’s digitally-led market.
Simon O’Dell, is CEO of Insurtech Australia, the organising body for insurance technology startups and insurance industry innovators. This article is an extract of his speech at the ANZIIF Insurtech Conference 2019.