A Step-by-Step Guide to Picking the Perfect Insurtech Startup
Choosing the right Insurtech startup to invest in or to collaborate with can make or break an insurer's innovation efforts. With thousands of startups available, the challenge lies in identifying those that deliver real value while aligning with your company’s goals.
This step-by-step guide outlines a proven method to simplify this process, focusing on three essential picks: identifying true startups, ensuring strategic alignment, and achieving operational integration.
As a Startup-Scout for the Baloise Group, I developed this framework based on my experiences in evaluating startups and collaborating with internal teams. It reflects the unique perspective of a traditional insurer navigating the fast-evolving world of insurtech.
For those innovating within incumbent insurance companies: How do you pick the right InsurTech startups when all claim to be the next big thing? Watch my lessons learned from the opening keynote at #GIS2019 in Istanbul, Türkiye.
This article is based on the opening keynote delivered at the Global InsurTech Summit (#GIS2019) in Istanbul, Türkiye. It reflects insights shared during the session, focusing on a practical framework to help insurers identify and collaborate with the right insurtech startups.
Step 1: Identify True Insurtech Startups
Goal: Filter out startups that don’t align with your company’s core business or lack key characteristics of a true insurtech startup.
How to Do It:
Focus on Core Insurance:
For a traditional insurer like Baloise, it is essential to focus on startups operating within the insurance value chain. Startups addressing claims, underwriting, or policy management align well with core business functions.
Example: A startup offering AI fraud detection aligns well, while an HR payroll solution does not.
Look for Technology-Driven Solutions:
Startups should bring advanced technologies, like AI or blockchain, to traditional processes.
Example: AI fraud detection qualifies; manual investigations do not.
Ensure They Are Startups:
Early-stage companies requiring external funding often bring fresh ideas and agility that traditional insurers might lack internally.
Example: CLARK, a digital broker, meets these criteria as it focuses on core insurance, uses innovative technology, and requires external investment. In contrast, large corporations like IBM may offer valuable solutions but lack the entrepreneurial agility that traditional insurers seek in a startup partner.
Step 2: Ensure Strategic Fit
Goal: Choose startups that align with your company’s long-term goals, either by enhancing existing processes or exploring new opportunities.
How to Do It:
Decide on Your Strategic Focus:
Improvers: Startups that enhance existing processes are ideal for insurers looking to modernize without disrupting their core business.
Example: KASKO enables rapid digital product launches, helping insurers modernize operations without overhauling their core models.
This category resonates strongly with traditional insurers, and I’ve seen how such collaborations can quickly add value with low operational risks.
Inventors: Startups that rethink insurance fundamentals or explore new markets.
Example: FOCK offers drone insurance with an instant, pay-as-you-fly model.
For Risk Carriers, working with inventors has required a shift in mindset but also opens exciting new avenues for growth.
Evaluate Fit:
Traditional insurers must weigh their resources and strategic goals carefully when choosing between incremental improvement and radical innovation.
Step 3: Check Operational Alignment
Goal: Ensure the startup can integrate seamlessly into your company’s operations to deliver measurable results.
How to Do It:
Enhancing existing processes with Improvers:
Traditional insurers often start with digital brokers or enablers to learn and adapt gradually.
Mediators: Digital brokers that simplify policy sales, offering a low-risk entry point for insurers venturing into digital models. Example: CLARK.
Enablers: Startups like KASKO help digitize operations quickly, making them attractive for insurers seeking cost-effective modernization.
Full-Stack Carriers: These new insurers, like FRIDAY and NEODIGITAL, pose more challenges but represent the future of fully digital insurance operations.
Rethinking insurance with Inventors:
Innovative startups targeting new markets or business models might require insurers to rethink operational assumptions and develop new capabilities.
New Markets: Startups addressing entirely new insurance needs create opportunities for insurers to tap into growing industries or niche segments.
Example: FLOCK, offering on-demand drone insurance, serves a market previously underserved by traditional insurers. Similarly, startups addressing the gig economy (e.g., ride-hailing drivers) or the sharing economy (e.g., Airbnb hosts) open doors to new revenue streams.
Alternativ Business Model: These startups rethink traditional insurance fundamentals, often creating models that eliminate legacy inefficiencies or reduce conflicts of interest.
Example: LAKA, with its community-driven bike insurance model, removes underwriting profits and shares risk within its customer base. This approach aligns incentives and builds trust, but requires insurers to adapt to a radically different operational structure.
Conclusion
By following these three steps—identifying true insurtech startups, ensuring strategic alignment, and achieving operational fit—traditional risk carriers can confidently navigate the insurtech landscape.
This framework, which I developed as a Startup-Scout for Baloise, has been instrumental in guiding our collaborations with startups. It balances the traditional strengths of a legacy insurer with the agility needed to embrace innovation.
Start small, focus on clear goals, and expand as your organization builds expertise. With the right approach, you can turn innovation into a competitive advantage, delighting customers and stakeholders alike.