When insurance companies consider new equipment, one question usually prevails: buy or build? Is it more profitable to work in-house, or to collaborate with a partner? However, recently, the answer to this question has become more nuanced. In fact, even saying “buy versus build” creates a false dichotomy. Rather than thinking in binary terms, insurers should ask themselves another question: How can they get the most value from technology, whether it’s internal, external, or a combination of the two?
The appeal – and limitations – of “construction”
There are several reasons why carriers are hesitant to partner with an insurtech. Adding a third party to your organization always involves some amount of change management. When handled poorly it leads to failures and inefficiencies that are contrary to what carriers expect. Viewed from this perspective – and given how much data the carriers already have – working internally might seem reasonable.
But if insurers are serious about the pure “build” option, they need to be aware of everything that goes with it. It’s one thing to look at raw data, and quite another to transform it into functional tools. Realizing the full benefits of a technology solution involves several steps:
data sourcing: Insurers today have access to unprecedented amounts of data. But high quantity does not always mean high quality (More than 75% of insurance executives report Difficulties in cleaning data prior to analysis) Insurers must exercise caution when sourcing data, including imagery, permit records and risk insights, otherwise they will make harmful decisions in the long term.
Enhancement with AI: Even if an insurer has obtained the highest quality data in the world, this is only the first step. The real power lies in using artificial intelligence (AI) to transform asset data into risk scores and other predictive analytics, exponentially increasing the impact of the technology.
make it accessible: Great insights mean little when automated processes underwriters, claims adjusters and other insurance professionals can’t use them. These tools must be designed with user experience in mind, otherwise technology intended to increase efficiency may end up doing just the opposite.
It’s understandable why insurers are tempted to build up. They believe this gives them more control over the process while keeping change management to a minimum. But creating a technical solution is a huge undertaking. If a carrier wants to maximize value it is unreasonable to expect it to accomplish this on its own. Hence the advantage of working with a partner: developing these tools is their undivided focus. They have the time, resources, and specific expertise to “build” something that insurers cannot. All this begs the question: can insurers work with insurtech partners and retain the benefits of their own solutions?
promise of cooperation
The answer is yes, but only if the underlying relationship changes. Insurtechs need to start acting less like vendors and more like partners. Historically, many of these companies have done little to make their tools transparent and explainable, leading to an environment of mistrust. To regain trust, insurance companies will have to hold themselves to higher standards. They should clearly explain the limitations of their technology; They also need to adapt to the specific needs of insurers. Through a greater emphasis on transparency and collaboration, insurtechs will become far more attractive partners for carriers.
As a result, carriers may find that the best solution is neither to buy nor to build, but a mix of both. This could mean that carriers use their own policy data to evaluate risk, but later input it into a third-party AI model. Alternatively, if insurers have developed their own models, they can enhance them with partner data to fill knowledge gaps. Once trust is established between the insurer and the insurtech there is no need to default to a strict “buy or build” mentality. Instead, both companies can leverage their respective expertise to create the best possible insurance experience.
How to evaluate an insurtech partner
To build on this bright future, it is imperative for insurers to diligently evaluate potential partners. This evaluation process must be rigorous and thorough to determine whether companies are a good fit. A good checklist might look something like this:
audit techniques: Insurers need tools that are transparent and explainable, not hidden in black boxes. This is especially important for AI, as biased models affect the results. Insurers should always ask to see the performance numbers of AI models to check their efficacy.
focus on challenges: The solution should be tailored to the specific needs of insurers, not one-size-fits-all. Therefore, insurers need to focus the conversation on concrete problem points when meeting potential partners. If a company doesn’t show how their solution meets your needs – and instead talks about unspecified benefits – then they are not the partner you are looking for.
Take a test drive: Forget attractive promises: what does the solution do? A great way to test technology for property insurance is to perform retrospective loss analysis, that is, based on simulations of how a device might predict losses in the past. Not every insurtech offers this, but they should. You deserve to see the technology in action before you buy.
Ask about onboarding: When you’re looking for a partner you can trust, ask about getting involved early and often. Does the company have a dedicated customer success team? Will they conduct thorough training? InsurTechs need to step up to help employees adopt new tools, while also disrupting legacy systems as little as possible.
What insurers look for when evaluating a partner are: transparency, adaptability and seamless change management. If an insurtech meets these requirements, they are much more likely to deliver the full benefits of digital transformation. Ideally, insurers can also input their own policy data to enhance the solution or integrate it into their existing workflow. The best solution is less about “buy vs. build” and more about the degree of partnership between carriers and insurance companies. By working together, each using their strengths, we create a better, faster insurance experience.
(TagstoTranslate)InsureTech(T)Software Development(T)Innovation(T)Data Management
