Connect with us


Strengthening a Collaboration between Insurtechs and Commercial Incumbents in the Insurance Industry



Companies across industries are seeking to embrace digital technologies—to support new business models, improve efficiency, and gain a competitive advantage. Commercial insurance executives recognize the benefits of digital but face several obstacles in making headway.

Large incumbents lag behind because the complicated nature of underwriting and claims often requires human judgment and interaction, transactions are sometimes low volume and bespoke in nature, and legacy IT systems and processes make the transition resource intensive and complex.

What’s more, commercial insurance has historically been slow to change, and a lack of companies with clearly demonstrated impact from digital has left many executives focused on their own plan of action.

Rather than seeking to completely transform commercial lines, most insurtechs are focused on enabling or extending the insurance value chain. In personal insurance, insurtechs have played the role of digital attackers and captured market share at specific points in the value chain.

Lacking the scale and expertise needed to excel in commercial, insurtechs can be viewed by executives not as competitors to be feared, but as potential partners that could accelerate their digitization efforts.

The rapid proliferation of commercial insurtechs has created a challenge for large incumbents: how to identify and prioritize worthy candidates for investment and collaboration. Due to this uncertainty, many commercial insurers have been sitting on the sidelines.

The urgency to embrace digital is accelerating, however, so those who wait may miss out on opportunities to benefit from this wave of innovation. As a first step, executives should become more familiar with the areas in the value chain where insurtechs are concentrating their efforts.

Armed with this context, insurers can prioritize their engagement toward insurtechs in ways that can add value to their own strategy. This strategic collaboration can help to usher in new, tech-enabled approaches that should inspire commercial incumbents and accelerate the digitization of their enterprise.


Impact of insurtechs on incumbents

Over the past few years, global investment in insurtechs has grown by leaps and bounds—from $250 million in 2011 to $2.3 billion in 2017. Although the United States was the pioneering market for these companies, only 38 percent of all insurtechs are currently headquartered there. According to the latest figures, there are more than 1,500 insurtechs globally, and 37 percent are based in Europe, the Middle East, and Africa (EMEA)—in particular, Germany and the United Kingdom. An analysis from McKinsey’s Panorama Insurtech database shows that around 39 percent of insurtechs are focused on the commercial segment, mostly in small and medium-sized enterprises (SMEs), as shown in Exhibit 1.

As the number of commercial insurtechs grows, their influence will take different forms. Some will partner with incumbents to provide innovative new products and services, and others will be acquired and integrated into incumbents. The majority of commercial insurtechs (63 percent) focus on enabling the insurance value chain and partnering with incumbents. Only a small number of insurtechs (9 percent) are attempting to fully disrupt the insurance market (Exhibit 2).

These companies do not currently pose a serious threat to incumbents, but in the coming years they might be able to make inroads in certain segments or niches and take market share.

Despite significant digital advances, commercial lines still rely heavily on human judgment and manual processing—particularly in underwriting. This high-touch model not only increases operating costs but also limits the ability of incumbents to provide superior customer service (such as risk prevention and loss control) for a select few clients, specifically those with large accounts or where change in risk behavior would have considerable impact.

Insurtechs, however, can help scale and expand risk-prevention services. In doing so, companies can extend their services beyond the largest accounts while significantly improving performance and efficiency.

Digital interaction models. Inspired by the success of digital brokers and advisers of insurtechs in personal lines, a number of commercial are providing new and seamless digital customer experiences. The new digital interaction models also lower the cost to serve customers and increase transparency in pricing and coverages.

Furthermore, some of the digital brokers interact directly with reinsurers and other capital providers while outsourcing insurance processes, such as claims handling. These emerging models may support consolidation in today’s heavily intermediated value chain. Notably, the digital interaction models used by commercial insurtechs will most likely have the greatest value in the SME segment.

As the customer decision journey for the lower end of commercial lines starts to resemble personal lines, North American traditional companies and insurtechs are actively pursuing commercial SMEs using digital solutions. Key trends include more automated or streamlined underwriting, a shift from brick-and-mortar to digital service and delivery, the replacement of intermediated with “direct” customer engagement, and the development of aggregator solutions.


Digital core insurance capabilities. By adopting new technologies, insurtechs in commercial lines are at the forefront of reducing manual touch and enhancing human judgment in key insurance processes, such as underwriting and claims. The increased dependence on technology lowers costs and allows insurers to adjust their approach from “art” to “science” in key disciplines, including underwriting, risk selection, and claims leakage prevention.

Moreover, insurtechs are using approaches with the potential to provide new services to their customers, better enabling them to monitor, prevent, and mitigate their own risk at an affordable cost.

It is still unclear where digital innovation will have the greatest impact on commercial lines. However, recent analysis found that administrative costs for Greenfield Insurers are, on average, half those of incumbents—sometimes even less. Their cost leadership is partially due to a monoline focus and the absence of legacy IT systems and processes, as well as digital-by-design products. While these results are primarily related to personal lines, the impact on commercial lines, starting within the SME segment, will become as significant over time.


Developing a plan of action

When the fintech movement started in financial services, the banks that adapted quickly to meet the challenge formulated a strategy in three phases—understand, engage, and act. Commercial insurers may follow a similar approach to determine the best way to partner with insurtechs (Exhibit 4).

Understand. While some of the larger insurers and reinsurers have made progress across all three stages of engagement, many insurers are currently in this phase. Commercial executives must become more familiar with the evolution of the insurtech ecosystem, gain an understanding of the research in insurtech databases or publications, and participate in insurtech accelerator programs, which are run by a third party. Other insurers have launched hackathons with insurtechs.

Engage. This phase involves interacting with players in the insurtech ecosystem to seek out partnerships or inspiration. Commercial insurers can conduct more formal scouting, partner with insurtechs to develop proof-of-concept solutions, or launch incubator programs. Incumbents have launched incubator programs to provide a springboard to promising insurtechs. Most global commercial insurers have established similar incubator programs.

Act. Commercial executives can use their firsthand knowledge of the opportunities to partner with insurtechs to determine whether to invest in, collaborate with, or adopt an insurtech approach, or to wait and see. A few large multinational primary insurers and reinsurers are also actively investing and seeding opportunities in the insurtech space using a multitude of interaction models, ranging from investments to partnerships to reinsurance support.

Many insurers have launched venture capital funds in the insurtech space. Since the insurtech space is changing rapidly, approaching the “understand” and “engage” phases as ongoing efforts rather than one-off activities can ensure that executives stay up to date on the latest developments.

Identifying insurtech partners

Finding the right insurtechs with which to engage requires a structured approach. Executives should consider several parameters when evaluating an insurtech for a more formal arrangement (Exhibit 5):

Placement along the insurance value chain. Insurtechs have emerged at each step of the value chain, from marketing and sales to administration and claims.

Degree of innovation. The analysis should include activities from improving the current value chain (such as through the introduction of advanced analytics or artificial triaging of quotes), extending the current value chain (such as by providing adjacent services for risk prevention and mitigation), and exploring completely new risk pools and business models (such as through ecosystems).

Strategic relevance and value for the company. This measure seeks to determine the importance of the innovation across the insurance value chain. Relevance and value can vary by function and client segment. For example, insurers seeking to extend the value chain may focus on claims, which allows broadening capabilities and enhancing service levels to insureds. Other insurers may seek to rebuild the end-to-end value chain with new, digital-based business models.

Insurtechs are entering the commercial lines space: many of these start-ups will fail, and only a few will succeed. The most important impact of commercial lines insurtechs is that they provide a source of inspiration for the incumbent commercial lines insurers and reinsurers and a way to leapfrog into digital.

Commercial insurers that are able to find the right insurtechs to engage with could improve margins, expand their client base, and extend their services. Forging such partnerships may allow them to relieve cost pressures and counter eroding margins once new technologies mature.

To reap these benefits, commercial insurers must manage their partnerships effectively and expand IT capabilities to implement the solutions provided by insurtechs. These moves will require investment to understand and engage with insurtechs, define the right business models, and build flexible architecture that will allow insurtech solutions to integrate into IT core systems.

The payoff could include not only increased digitization and new ways of generating value but also a stronger competitive position in the coming years, as disruptive models become mainstream.

Continue Reading
Click to comment


Essential elements needed to digitize and transform insurance claims



Successful digital transformations in claims begin with developing a new value proposition that sets a high-level aspiration and pursuing an end-to-end digitization of the claims customer journey. The development of a truly innovative customer journey can be achieved by integrating with three other areas—AI and digital technologies, the digital integration of the claims ecosystem, and a new digital operating model (Exhibit 2). Together, these five elements give management the strategy and tools to both transform claims into a digital function and improve performance on all of the three foundational KPIs.

New digital value proposition for claims

For the digital age, the claims value proposition—that is, the value an insurer can provide to its customers through the claims process—needs to go beyond traditional after-the-fact claims management. The value proposition sets the aspirational goal of offering excellent omnichannel customer experience supported by intuitive digital processes. Insurers should aim to adopt a faster, analytics-driven approach to claims handling and fully automate the claims handling processes for clear and simple cases.

In addition to working actively with customers to prevent claims, insurers should provide services that add value for and delight customers and draw on customer feedback to continually improve service offerings, usability, and performance.

Instilling this upgraded value proposition within the organization is an often-underestimated element of a digital transformation. Top and middle management in claims should become champions for the new value proposition; otherwise, they risk finding themselves halfway through the digital transformation without the necessary company-wide buy-in to stay the course.

End-to-end digitization of the claims customer journey

At the core of the claim function’s digital transformation is a redesign of the claims customer journey. There is no silver bullet interaction that ensures customer satisfaction, but a successful redesign typically involves considering processes from the customer perspective and optimizing back-office processes accordingly to provide simple and fast claims services.

Insurers should start with an “everything is possible” mind-set to unleash truly transformative ideas. Satisfaction surveys in claims consistently show that customers desire a fast and intuitive process as well as transparency on where they are in the process and what happens next. Accordingly, the digital redesign of a claims journey needs to go much deeper than superficial process improvements.

To determine how digital technologies can unlock value and improve the claims customer journey from start to finish, managers should examine each step of the journey with the following areas in mind and start to develop an aspirational future state for claims that is unconstrained by potential short-term, technological barriers:

Product simplification

Customers want simple and fast digital interactions, but complex coverage details that include many specific exceptions can create barriers. Large numbers of legacy products with different coverage details also make it difficult to implement and maintain the technology systems necessary to improve efficiency. A carrier should find ways to simplify products and reduce product generations to ease the development of fully digital customer journeys.

Customer and intermediary self-service

Insurers have the opportunity to shift simple, routine transactions from claims handlers to intermediaries, such as agents and brokers, or customers themselves. As with any self-service tool, insurers must precisely define the necessary information, for example, where the customer can find his or her policy number. They must also build in support in case customers need it, such as online-chat with a claims handler or easy-to-find FAQs. Further, seamless handoffs across channels are critical: customers who start their journey online but want to talk to a claims handler or agent halfway through should be able to do so without having to repeat steps or information. This functionality requires that all system interfaces follow an identical structure and logic.

Intelligent case management

After the First Notice of Loss (FNOL) and throughout the process, handlers typically evaluate claims cases manually to decide on appropriate next steps, such as scheduling an adjuster appointment or providing information about direct repair programs with local repair shops. Supporting the entire journey with automated, intelligent case management is critical to establishing truly end-to-end digital customer journeys. With the help of AI, a digital evaluation automatically identifies the best next step in a specific customer journey, reduces manual touchpoints, and significantly speeds up the claims process. For example, in a simple claim, this technology can allow a customer to schedule an appointment with a repair shop as part of the FNOL. Enriching these journeys with insights from behavioral economics can help customers to follow the most satisfying and efficient paths in their claims journeys.

Frontline and back-office process digitization

Claims handlers and adjusters manually carry out often-complex tasks, leading to significantly divergent results. Digital tools and systems can simplify and standardize manual processes. For example, tablet-based calculation tools for home damages can help claims adjusters estimate the value of losses faster and more accurately and consistently—even if this means that indemnity payments may increase for certain cases. Standardized reports and calculation methods will leave customers with a comprehensive overview of how their claim was calculated. This results in higher customer satisfaction and a leaner process with reduced follow-ups and recalculations or litigation.

Back-office automation

Insurers can achieve the greatest efficiency gains by fully automating back-office processes. Customers benefit significantly from faster claims processing—for instance, through automated verification of car repair estimates and invoices as well as automatic reimbursements as soon as the repair invoice has been verified. In addition, digital tools can support and assist the decisions of claims handlers, leading to better outcomes.


Providing customers with the necessary information in digital channels offers customers the sense of control they desire. The quality of communication can raise customer awareness and usage of digital self-service tools throughout their journey.

By examining each of these areas, claims functions can start to rethink the claims customer journey and back-office processes. This approach should be synthesized into an aspirational future state outlining the digital assets needed to achieve the ideal state. Claims leaders should prioritize these digital assets based on the value they can generate. For example, digitizing invoice reviews and automating payment processing often significantly reduces processing time.

Enabling truly innovative customer journeys

Offering truly innovative customer journeys requires a combination of AI and upgrades to technology platforms as well as the digital integration of partners in the claims industry ecosystem. A greater understanding of these elements and the digital operating model needed to bring them to life can help claims managers make the proper investments.

AI and digital technologies

Digital customer journeys require not only the AI-enabled automation of decisions traditionally made by claims handlers but also an IT architecture that supports real-time digital interactions with customers. While AI should ideally support the entire customer journey, it can generate significant value by automating claims management. The following three modules lay the basis for real-time engagement:

Prediction of claims characteristics

AI can help infer as-yet-unknown characteristics of a claim, such as the likelihood of fraud, total loss, or litigation, to speed up its downstream handling. And leading players in automotive can estimate a vehicle’s damage value in real time at FNOL based on customer pictures or a damage description, using the latest advances in AI and picture recognition.

Claims segmentation

AI algorithms can help segment claims cases by complexity using factual and predicted claims characteristics. Based on this segmentation, claims can be assigned to specific downstream handling processes—either one of the fully digital self-service journeys (such as selecting a direct repair shop in self-service) or a claims handler for more complex cases (for example, with high litigation risk).

Supported claims handling

Going beyond the first two modules, AI can support in finding the optimal claims handling process for a specific claim.

Integrating real-time customer interactions and insights from AI modules into customer journeys poses vastly different requirements for the IT architecture. While in the past, online interactions with the customer were only one way (for example, saving the details of an online FNOL into the claims database), interactive digital customer journeys require real-time, bidirectional interactions. A new IT architecture concept—generally referred to as two-speed architecture—is required to complement the stability of the core claims database with responsive features on the front end. A middle layer connects the traditional, slow claims database with customer-facing interfaces and runs AI modules. This functionality connects the information a user submits with insights from AI in real time to populate online forms and offer direct feedback to the customer.

Digital integration of the claims ecosystem

For competitive differentiation and ownership of the customer in a claims case, insurance carriers need to proactively manage more (ideally all) processes related to a customer’s claim—also those involving third parties. By providing a fully integrated digital experience, claims functions can become the true and sole owners of customer contact in a claims case.

To combine such offers into efficient, digital, self-service journeys, insurance carriers need to digitally integrate with relevant players in the larger claims ecosystem (Exhibit 5).

In addition, a digital integration can vastly improve efficiency in communication between the ecosystem parties and speed the claims processing for the customer. As this type of digital integration is currently rare, a carrier can become the ecosystem integrator, harnessing the best of the ecosystem for its customers.

Given the complexity of this integration, carriers should prioritize pursuing digital interfaces with the players that are involved in a high number of claims cases. In auto insurance, for example, these players would be roadside assistance services, claims assessors, and repair-shop networks, as well as invoice control service providers. Insurers don’t need to start from zero.

In many markets, insurtechs have started to lead the digital integration, for example, by digitally connecting car repair shops and enabling digital cost-estimate and invoice transmission. Insurers should explore partnerships with existing offerings to further digitize and integrate the claims ecosystem. 

New operating model for the digital age

A successful digital transformation radically reinvents the claims customer journey with the help of AI, digital technologies, and the claims ecosystem. To support these efforts, the claims department needs to pursue deep, cross-functional collaboration with other functions such as marketing and IT. Bringing the transformation to life requires new roles, including data scientists, customer journey “owners,” and user experience designers, as well as a digital way of working, which must be instilled in the organization.

As this new approach can represent a substantial change, success depends on deeply integrating a digital way of working into the entire organization. Successful organizations tap joint cross-functional management teams to lead the effort, develop experts in all digital methods, and provide intensive coaching for all relevant employees.



Continue Reading