Insurtechs begin to converge with incumbents on core

One of the most pressing questions that has arisen from the insurtech movement is this: Will insurtech startups have a need to utilize the incumbent tech market’s capabilities? In the past three years, startups have been actively partnering with other startups, insurers, and tech incumbents. Partnerships, of course, come in many different flavors. The latest SMA research has revealed that startup MGAs and greenfield insurers are increasingly partnering with existing core systems providers – as clients.

The first wave of insurtech startups – most of which were focused on personal lines – tended to go it alone, developing their own core systems. Many of today’s innovative new insurers and new MGAs have focused on commercial lines and see value in the core systems that incumbent insurers and MGAs already use. Their new core systems are increasingly coming from established core systems providers.

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Web servers stand inside the Facebook Inc. Prineville Data Center in Prineville, Oregon, U.S., on Monday, April 28, 2014. The Facebook Prineville Data Center features leading energy-efficient technology, including features such as rainwater reclamation, a solar energy installation for providing electricity to the office areas and reuse of heat created by the servers to heat office space. Photographer: Meg Roussos/Bloomberg
Meg Roussos/Bloomberg

For the insurtechs, this means that they have access to expertise and content. Both are especially helpful for insurtech pursuing opportunities in commercial lines – which account for the vast majority of the startups who purchased new core systems last year. The earlier insurtech startups targeted personal lines and life/health ventures. Today, more startups pursue the significant opportunities in commercial business.

To compete in commercial lines, these startups need to have the robust capabilities that support the various new products being brought to market. Time to value is critical, and the content (rates, rules, and forms) provided by tech incumbents’ agile core systems can increase their speed to market. In addition, the expertise of their new vendor partners can be a valuable resource to help them navigate the complexity of the commercial market.

As SMA detailed in our recent report, Core Systems Purchasing to Thrive in the Digital World: What’s Hot – And What’s Not, 12% of all new P&C core systems sold in 2017 were bought by startup MGAs and greenfield insurers. We expect them to be a stronger presence in 2018 and onward, creating substantial benefits for startup and incumbent tech providers alike and opportunities in new spaces for all forms of partnerships. As this new market wave continues, the creativity and capabilities of all will be needed to support the insurance business moving forward.

This blog entry reprinted with permission from SMA.

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Core systems Core conversions Commercial lines Insurtech
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