How legacy insurance and fintech startups can collaborate more effectively

InsurTech (insurance technology innovation) has finally come of age in 2016. The segment has seen a year-on-year doubling of global investment for the past two years, with 2016 appearing to continue the trend. While it’s still a fraction of the broader fintech wave that has swept the globe since 2013, it’s starting to rapidly catch up. InsurTech has been officially termed the next “hottest thing.”

Asia, with the exception of China’s outliers (Zhong Ang, Huise, Joyowo, and Xishan), has lagged on the InsurTech investment and volume of startups fronts. That said, the region has seen a surge of interest since mid-2015.

Insurance co-innovation

Much has been said about the need for the insurance industry to innovate so as to remove various frictions that exist throughout the insurance product experience — from buying, owning, to claiming. Innovation is critical to help regain consumer trust and ultimately help the industry remain relevant in the digital age of on-demand everything.

Furthermore, little doubt remains that with a tidal wave of bright and unbiased people enabled by financial and tech resources injected in the industry, all the frictions will eventually be eliminated.

 Innovation is critical to help regain consumer trust and ultimately help the industry remain relevant in the digital age of on-demand everything.

We live in a world in which traditional models of investment in captive innovation has largely been proven ineffective and inflexible an environment of rapid technologically-driven change. R&D departments with large budgets and armies of researchers couldn’t stand up to the agility of startups which tap into customer proximity, high tolerance of failure, and technological sophistication to nail solutions to relevant problems and scale fast.

The value that has been created through entrepreneurship during the past decade has been disproportionate versus corporate innovation.

Where do startups and corporate entities meet?

Against that backdrop, major corporations around the world are increasingly waking up to the fact that startups are becoming the key source of innovation for them. There’s even a new acronym for it: CSE (Corporate Startup Engagement). Call it what you may: it’s delivering rapid iterative customer-centric R&D to quite a few of the largest global players. According to an INSEAD report, “262 of the world’s 500 largest corporations are actively partnering with startup companies.” 

How best can startups and corporate entities collaborate? Photo credit: Yoel Ben-Avraham/CC BY-ND 2.0.

There’s clearly a set of complementary strengths that exists between corporate and startup entities. Rather than trying to fit the square peg of startup innovation into the round hole of corporate structure, corporate leaders are choosing to actively collaborate with startups to explore ways of combining the best of both worlds.

This trend, not to be underestimated, creates an opportunity for the peg to round off, and for the hole to become more edgy, thus learning from each others’ strengths and each thus increasing their competitiveness.

Corporate innovation in Asia: from attempts at ownership to collaboration

Contrary to the co-innovation trend, in 2015 we saw a number of insurers rushing to create in-house innovation centers, labs, and garages in an all-out arms race to become digital innovation leaders. Driven by a legacy mindset which dictated that money can solve any problem, we saw the rise of fancy innovation centers full of PhDs, entrepreneurs, data scientists, and so on.

It further reinforced the fear of missing out and of being left behind: more and more insurers piled in, justifying the act to their boards by saying that everyone else is doing it, and so must we.

Having been close to two years since the innovation arms race began in Asia, I’m happy to report that it has largely proven itself ineffective in generating any meaningful value beyond PR. It’s not unsurprising, considering the innovation evolution in other industries: from aiming to own innovation to collaborative cultivation with startups.

Startup innovation enablers

If you can’t own them (… yet), embrace them!