I have to think that today’s fintech apps are helping millennials and Gen Z become smarter about managing money. Consumer-friendly apps like Digit -- the digital equivalent of stashing change under the pillow, by setting funds aside into subaccounts ready to be accessed whenever needed -- is just one example of how legacy financial services institutions have been disrupted by app-based, user-friendly, consumer-centric fintech companies.
In insurance, this form of disruption hasn’t been felt nearly as much by U.S. carriers as by incumbent companies in the U.K., where even successful insurance companies are experiencing disruptive threats from the likes of
But as we acknowledge the undeniable appeal and connectivity of these concepts, we’ve been finding that something new is beginning to emerge. While the first wave of disruption was about tech start-ups thumbing their noses at the big financial services institutions, the second wave—which we’re currently in—has been about their complementing the offers of carriers as well as those of other fintechs. As I see it, as large incumbents are starting to embrace disruption in favor of ignoring it, a two-way street is opening up, and some highly productive partnering and collaboration is going on.
Partnership, Not Upending
In the case of my company,
There are many ways to engage with start-ups as partners. But the starting point should always be a common understanding and vision. Large insurers can buy a start-up outright, or they could invest in one and grow it. They may find a small company with whom they’d like to run a commercial pilot or co-create a solution to a particular problem or need. One such partnership we’ve forged is with
As we move into this second wave of disruption driven by such partnerships, however, it’s important for large incumbents to see that not all start-ups are created equal. They have been around long enough to fall into at least a couple of different categories. Early-stage start-ups, on the whole, all share similar needs: hiring people, fleshing out their idea, assessing their market fit, pitching for venture capital and other sources of funding. For these young companies, the current standard answer is the corporate accelerator. On the whole, the dyed-in-the-wool curriculum that these accelerators espouse works well for early-stage companies, but not at all well for later stage start-ups, who have diverse and varying needs—and with whom, incidentally, large corporates increasingly favor partnering.
Rather than taking the cookie cutter approach of the accelerator, we’re finding it more interesting to create side-by-side working environments with these later-stage, more developed start-ups. This approach can enhance partnership opportunities on a number of levels, from providing improved navigation of a business and allowing better access to decision makers to transforming a carrier’s approach to innovation.
Today you can find many of these better-established insurtechs, whose motive is largely to support and optimize the operations and systems of large carriers. For example,
What’s in it for the insurtechs
From the evidence I’ve seen, I surmise that most of what causes tech start-ups to fail is a lack of consumer trust. In consumer surveys, start-ups typically get high scores on value for the money, and on user experience. On the other hand, when customers are asked about large incumbent companies, they rate them highly on security, quality of service and transparency. And, although incumbents may be perceived as no longer being able to provide a good service or value, they are still deemed to be reliable custodians. The data clearly ranks them markedly higher on consumer trust. It's a simple as customers asking themselves: "Would I rather invest my hard-earned $10,000 through a blue-chip company that has been around since my great grandparents, or a company that I’ve never heard of, has been around for one year, with no guarantees they’ll make it to year two?"
Furthermore, I find that many start-ups are founded by very tech-savvy people, who almost accidentally stumble across a piece of bleeding-edge technology… then build a solution. Only then, ex post facto, do they think about the problem. But the rules of business still apply: sound business fundamentals and solid execution will always win the day over exotic technologies. The most successful start-ups not only offer new technologies, they have also transformed themselves into execution powerhouses. They have set their sights on strategy over user experience, technology or winning funding—though those factors are vital to get them there.
While many start-ups have sought to disrupt the direct-to-consumer space initially, the lack of trust in them has limited the amount of market traction they get. This is further exacerbated by an increasingly crowded marketplace—particularly in the U.K. For example, if you’re a consumer there looking for a so-called challenger bank, you don’t have to choose from one or two these days—there are dozens.
In sum, first wave insurtech disruptors tried to compete with incumbents, the next wave of start-ups are seeking to complement them, and this means from a B2B rather than a B2C perspective. Partnering makes more sense with this new cast of characters. Indeed, almost 80 percent of financial services institutions have entered into fintech partnerships, and 89 percent of start-ups believe that they're able to deliver business solutions that can scale.
As we work increasingly with insurtech companies, we are also being sought out by these start-ups as word spreads that, despite our patinaed heritage, we are looking with open eyes toward the future. The key question for insurers at this moment is, How we become the disruptor, rather than the disrupted? We need to re-invent ourselves over and over, and see this as yet another wave of disruption we must go through. Rather than letting the wave swallow us up, let’s build a sandbox in which all participants can nicely with each other.
