Although InsurTech was once believed to be a threat to independent agencies, many agency owners now realize they can use technology to get ahead in a competitive market. But finding the right approach isn’t that simple.
The right approach to InsurTech can help you overtake your competition, while the wrong choice can set you back years. Agency owners who get this right will be the ones you read about for the next decade. With so many options on the table, owners face a classic strategy question: build, buy or partner?
Build
People who feel a strong connection to a solution will always have a natural tendency to want to build, especially if they have entrepreneurship in their bones. They believe their understanding of the problem and solution is superior, and that a custom-built solution is the best way to get the most value from investing their time and money.
But building, supporting and growing a technology product is no small undertaking. To build an effective technology solution, you have to be committed to investing in technology as a core competency, not just a one-off project.
And while it’s a huge differentiator when done right, few agencies have the understanding and resources necessary to build and manage an effective product team, as well as provide ongoing support.
For most, this path will likely be time-consuming, expensive and risky.
Buy
If you’ve realized how challenging it is to build your own technology, but you’re still hell-bent on having a custom-made solution, acquiring a company might be right for you. An acquisition can help you accelerate product development and give you access to a team.
But let’s say you’ve opportunistically stumbled upon a company you love. It probably means they’ve done something pretty impressive, so buying them isn’t going to be cheap. Or maybe you’ve found a company that’s flailing, and you can buy their assets for next to nothing. Sounds great in principle, but in my experience, trying to adapt someone else’s code for your own needs takes more work than building from scratch.
If you decide to run a search, you may know exactly what you want, have a budget in mind and know you want to move quickly. But on top of your day job, you need to find the time to manage the acquisition or maybe hire some help, which you may not have budgeted for. Plus, there’s no guarantee you’ll find a company that does what you need and is willing to sell at your price.
No matter how you reach the end result, you’re going to have to invest time and money, which will be a distraction from your day-to-day operations. If a team of people came with the acquisition, you’re also going to have to find ways to keep them motivated. And in the end, you’re still left with the same challenges as building your own solution from scratch: To make technology a core competency, you must invest in a team that can develop and support the product.In my view, only the largest agencies with the budget and appetite necessary to go through this process should consider buying a technology company.
Partner
Companies form partnerships when they both have an asset from which the other can benefit. When I was at Shazam, we brought our patented technology to Apple’s App Store to demonstrate what you could do with an app on the iPhone, and Apple promoted us to millions of people. We had the cool factor; they had the marketing budget. It was a win-win.
A comparable example exists in the insurance industry. Carriers have developed products with underwriting guidelines and maintain the balance sheet required to offer those products. They don’t, on the other hand, always have the resources to market those products to businesses or agencies, and they may not be able to service claims.
Retail brokers, wholesale brokers and MGAs, on the other hand, do have the time and expertise to market and service products—but not the expertise to create them or the balance sheets to offer them.
This partnership benefits all parties involved and has helped the insurance industry operate effectively for years.
With InsurTech, partnering is the obvious approach for any size agency. Building or buying likely makes sense only for the larger agencies that have capital and risk tolerance.
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