Collaborating with Insurtech startups has become a cornerstone of innovation for insurers. However, with thousands of startups in the market, the process of identifying those that truly align with a company’s goals and deliver tangible value can be daunting. The real challenge goes beyond merely selecting the right Insurtech—it lies in ensuring that these partnerships result in measurable business outcomes.

This article presents a proven three-step approach designed to address this challenge, offering a comprehensive framework for assessing startups and validating their economic impact. By following this structured process, insurers can maximize the success of their Insurtech collaborations and drive meaningful innovation.

As a Startup Scout for the Baloise Group, I developed this assessment scheme drawing from my extensive experience in evaluating startups and collaborating with internal teams. It embodies the unique perspective of a traditional insurer actively navigating and shaping opportunities in the dynamic InsurTech landscape.

Step 1: Scout Startups with Core Business Alignment

To identify startups that truly deliver value, insurers must focus on key characteristics that differentiate high-potential InsurTechs. These include:

Alignment with the Insurance Value Chain: Startups should operate in areas like claims management, underwriting, or policy administration, contributing directly to insurer operations.
Use of Advanced Technologies: Solutions based on AI, blockchain, or data analytics can transform traditional outcomes.
Agility and Innovation: Early-stage companies often bring fresh ideas and adapt quickly to changing market needs.

The goal is to filter out those that lack relevance or scalability while identifying startups that can drive measurable outcomes for the insurance core business.

If you want to go deep on this, read my article "Proving InsurTech Potential: An Assessment Scheme to Ensure Startups Deliver on Their Promises"

Step 2: Match the Startup with a Proper Use Case to Improve Specific Key Business Figures

Apply Porter's Value Chain to Insurance and effectively match startups with the most impactful opportunities. A value chain represents the set of activities insurers undertake to deliver value to their policyholders. These activities include:

Asset and Risk Management
Policy Administration and Customer Service
Claims Management
Product Development and Underwriting
Marketing and Sales

The unique capabilities of InsurTech startups often align with specific areas within this value chain. For example, a startup specializing in AI-driven fraud detection may be best suited for claims management, while a digital broker platform could enhance marketing and sales efforts.

Steps to Develop a Use Case:

Analyze Startup Capabilities: Evaluate the technical and operational strengths of the startup.
Map to Value Chain Activities: Identify the area within the value chain where the startup’s skills can drive the most impact.
Design the Use Case: Develop a focused Use Case that connects the startup’s solutions to measurable outcomes in that area.
By creating tailored Use Cases, you ensure their efforts directly contribute to improving key performance indicators (KPIs) and driving business growth.

Example: Matching Startups to Use Cases

Asset and Risk Management: Startups like BRAINALYZED can leverage AI to optimize asset strategies.
Claims Management: PICSURE’s solutions could enhance fraud detection and streamline claims processes.
Marketing and Sales: Digital brokers like CLARK can improve customer acquisition and retention strategies.

Step 3: Prove the Business Value Before You Scale

To maximize the success of an Insurtech collaboration, insurers must demonstrate the economic viability of the Use Case before scaling up. This step shifts the focus from abstract potential to concrete results, ensuring that decisions are based on data, not intuition.

Quantifying the Economic Impact

Use a structured framework to calculate the potential business value of the partnership. Start with the five key financial figures that drive insurance business decisions:

Revenue
Cost of Claims
Costs of Distribution
Costs of Administration
Profit

The following formula provides a clear and actionable way to evaluate how the Insurtech partnership contributes to overall profitability, ensuring that the collaboration delivers measurable financial benefits.

Revenue – Costs of Claims – Costs of Distribution – Costs of Administration = Profit

Example: Fraud Detection Use Case

If an Insurtech startup’s technology helps reduce fraud, it directly impacts the claims ratio and therefore increases profits. For instance:

Reducing the claims ratio by 1 percentage point increases the profit margin by 1 percentage point.
At a premium volume of 1 billion Dollar, this improvement equals a 10-million-Dollar profit increase.

Scenario Analysis

Develop multiple scenarios to understand how different levels of success affect these key figures. For example:

Optimistic Scenario: Claims ratio reduced by 2%, leading to a 20-million-Dollar profit increase.
Conservative Scenario: Claims ratio reduced by 0.5%, yielding a 5-million-Dollar profit increase.

These analyses not only validate the Use Case but also help secure buy-in from stakeholders by providing concrete financial projections for a corresponding business case.

Tools and Processes for real-world Validation

Pilot Projects: Test the Insurtech solution on a smaller scale to measure its effectiveness before full-scale implementation.
Key Performance Indicators (KPIs): Define measurable goals, such as percentage reductions in claim costs or increases in customer satisfaction.
Regular Reviews: Establish checkpoints to assess progress and adapt strategies based on initial results.

A Roadmap to Maximizing Insurtech Partnerships

Insurers can ensure successful Insurtech collaborations by following a structured three-step process. First, they should scout startups that align with their core business. Next, matching these startups with relevant use cases ensures impactful opportunities. Finally, proving the business value before scaling up minimizes risks and provides a solid foundation for long-term success.

If you want to go deep on the first step of scouting core-aligned startups, read my article "Proving InsurTech Potential: An Assessment Scheme to Ensure Startups Deliver on Their Promises“.

An Assessment Scheme to Ensure InsurTech Startups Deliver on Their Promises