Around a thousand InsurTech startups have set out to shake the trillion dollar insurance industry. For those of us who want to innovate inside of an incumbent insurance company, it’s a great time to find outside collaborators. Of course, they all claim to be the next thing. So, distinguishing them has become a real challenge. The critical question is: how to pick the right InsurTech startups?

Good Picks Come in Threes

Why is this topic important? Because picking the wrong InsurTech startup to collaborate with doesn’t improve your business and is a waste of your time and money. So you have to choose wisely.

How to Pick the Right Insurtech Startups

How to Pick the Right Insurtech Startups

What can you do to pick the right InsurTech Startups? Well, your job is to make three good picks:

FIRST >> Pick True InsurTech Startups

Not all that glitters is gold! There are a lot of fake Insurtechs around which will waste your time and money. The first job is to identify true InsurTechs and sort out pretenders.

Pick true InsurTech Startups, based on three characteristics:

  1. They focus on value-creating activities inside the insurance value chain - and improve or substitute them. Example: Working on claims is a core insurance activity, but working on human resources issues is not at the center of the insurance business.

  2. They offer tech-based solutions to improve or enable products, processes and business models. Example: Identifying fraud in claims with a platform is tech-based, investigating claims with detectives for on-site investigation is not tech-based.

  3. They operate in a startup mode. Startups are not yet able to economically survive on their own. Startups need outside funding (typically from Venture Capitalists), are in search for product/market fit (have to find what customers are willing to pay for), and have to develop a viable business model around their offering (they have to be profitable).

> Your job is to pick true InsurTech Startups and sort out pretenders.

Let me make two examples: IBM isn’t an InsurTech startup. They offer tech based-solutions for insurance carriers supporting their core insurance business but are capable of economic survival. The InsurTech startup friendsurance (a German digital broker) is a true InsurTech startup. They offer insurance cover to their policyholders via the internet and have secured outside funding from investors. See here: Friendsurance on Crunchbase.

SECOND >> Pick InsurTechs with Strategic Fit

Pick InsurTechs fitting your strategy. You have to have an idea on how your business will look like in the future and make this the guideline for your strategic collaboration with InsurTechs.

Let us divide InsurTech Startups into two strategic groups:

Group of Improvers

Improvers take the current industry as it is and apply state of the art technology on top. In this way, they improve and digitize existing insurance processes and business models.

One example is KASKO. KASKO helps innovative insurance companies to shape the future of insurance, by offering an API-powered flexible insurance product platform that sits in between digital customer touch-points and their customers legacy IT. In this way, KASKO takes the internal IT of an incumbent risk carrier off the critical path to product launch. With this offering, they can offer AI-powered insurance covers, implemented only in a few days! See here: KASKO Case Studies.

Group of Inventors

Inventors don’t accept the existing way of the insurance business. They question the underlying assumptions, reevaluate them, and re-invent insurance. Thereby offering new ways of insurance services.

A second example is FLOCK: FLOCK offers Pay-as-you-fly drone insurance to commercial drone operators. The coverage can be tailored to each flight through the Flock app at the

touch of a button. Also, it’s on-demand and location specific! Flock has partnered with local aviation and weather providers to aggregate real-time info on flight data, operator profiles, and hyper-local weather conditions. An algorithm then utilizes this data to quantify the risk involved on a flight by flight basis. See here: the-benefits-of-on-demand-drone-insurance-47f4e48ab5be

Your Job is to pick Insurtechs in the right group, fitting your strategy.

THIRD >> Pick Startups with Operational Fit

Pick Startups that are fitting your operations. Every insurance company carries out its daily business in their unique ways to generate business results. So pick InsurTechs that have the potential to improve your Key Performance Indicators (KPI’s), based on the method of value creation of the InsurTech startup.

Three types of Improvers

Let’s get back to InsurTech startups in the group of improvers, which take the industry as it is. Based on their method of value creation you can divide these InsurTechs into three types:

1. Mediators create value by providing an excellent customer experience for policyholders. They typically act as tied-agents, brokers, and MGAs. The chosen example is the digital broker CLARK.

2. Enablers create value by empowering incumbent insurance providers to run digital services. The case chosen is obove described KASKO allowing insurers to provide online services.

3. Full-Stack Carriers create value by offering all insurance activities along the value chain to brokers, or even incumbent risk carriers as a white-label solution. The example shown here is the direct insurer FRIDAY.

Two types of Inventors

The InsurTech startup group of inventors think differently and try to re-invent the insurance vertical. Based on their method of value creation you can divide these InsurTechs into two types:

1. New Markets Conquerers penetrate untapped markets like the growing drone industry. The example shown above is the InsurTech FLOCK . The InsurTech allows commercial drone pilots to fill their gaps in the cover and get cover immediately where and when they need it, without committing to a long contract or interacting with a traditional agent or broker.

2. New Business Model Operators run their value creation based on new business models. One of the first representatives is the InsurTech startup LAKA offering cover for high-value bicycles. Their customers don’t pay premiums in advance for predicted losses, plus expenses and profit margins for the risk carrier. Instead, policyholders only pay premiums based on settled claims plus an administration fee for the startup. Watch the explanatory video here: Laka Presentation at Intelligent InsurTECH 2017.

Your Job is to pick the partners with the right operational fit, moving your KPIs in the right direction.

FINALLY >> The Template to Pick the Right InsurTech Startups

Let us put the three picks into a template we can use to pick the right InsurTech Startups.

Start at the top with the first step: Your job is to pick true InsurTech startups, based on three characteristics. In the second step, your job is to pick InsurTechs with the right strategic fit. Based on your vision on how your insurer will look like in the future you have to distinguish between improvers and inventors. In the third step, your job is to pick startups with the right operational fit. Check their method of value creation and make sure it complements your operations to improve economic indicators.

Feel free to share this article and slide deck below