Life insurance providers are well aware of the fundamental shifts in their industry enabled by technological innovation. In today’s technology-driven world, customers expect seamless digital experiences and carriers are driven to meet their needs. Carriers are also keenly aware of the financial stakes at play. In a market with consistently low penetration rates over the past decade, digital sales processes can help a carrier stand out to end customers as well as to the sales agents promoting their products.¹ Historically, sales were mostly dependent on price and commission, but process convenience now adds a third dimension. If an agent is willing to pay a premium for a smoother process, that could boost a carrier’s profit margin.  

But life insurers must proceed with caution when launching digital solutions. That means finding the right solution that allows speedy and meaningful innovation without risking delays or damaging customer relations. According to the Society of Actuaries 2015 Valuation Basic Table (VBT), carriers can expect about one claim per 4,000 issued policies in the first year of an average life insurance policy, making the margin for error very thin.²  

In order to truly transform, many insurers are partnering with insurtechs that provide the needed agility and expertise to bring about digital transformation in all parts of the business. Once considered probable disruptors, insurtech companies are settling into a role of enabling the insurance value chain by cooperating with insurance carriers rather than competing with them, with each side bringing a strength to the table.³

This development benefits insurance companies, but in the crowded insurtech space, how do you know which ones are the right fit? Tapping into experience and market knowledge can help. At Munich Re North America Life, we’re expecting to launch approximately 20 digital partnership reinsurance deals in 2023 alone, and Munich Re’s venture capital team has been investing in insurtech startups since 2014. As a result, we’ve distilled our experience into four simple guidelines for getting the best possible results from digital partnerships.  

Even in a maturing insurtech market, there are still 1,000+ insurtech providers across North America competing for market share and brand reputation.⁴ It is critical to thoroughly vet potential vendors with a rigorous due diligence process, either through intense market research or a formal RFP process. The vendor selection process should also be a cross-functional effort, involving commercial, risk, tech, and product teams. 

Reinsurance companies like Munich Re are uniquely positioned to look across the insurance landscape and generate insights that might otherwise be hard to uncover without a vast network of connections and the deep well of technical and risk expertise afforded by a bird’s-eye view of the industry. When considering your digital partner, you want to amass all the outside expertise you can to glean insights on how a capability could be optimized, from project conception to post-launch evaluation. A reinsurer that is already your financial partner and knows your organization is likely to have your best interest in mind and can lend insight on how to make a digital partnership succeed. They are also likely to have teams dedicated to creating and launching partnerships to solve specific issues. 

Any new partnership carries risk and a wide range of potential possible outcomes, and reinsurance is a key tool to manage this risk. Reinsurers are also used to submitting quotes within a matter of weeks, not months. Having a fast-moving partner willing to stand behind their recommendations with reinsurance can accelerate timelines for a carrier as well. 

A digital partnership must align with company culture, organizational goals, and meet a specific need. Before you begin, evaluate how the digital partnership is going to fit within your organizational culture. Do you already have a culture of cross-functional collaboration, within the organization and with external partners? Do you have buy-in from all stakeholders? 

The partnership must also match your organizational objectives. But you’ll need to go a step further. Organizational objectives often refer to general outcomes such as ‘make the application process frictionless’ with no specific reference as to how the outcome will be achieved. In a recent poll, our clients found IT resources to be their top obstacle to digital partnerships. With this in mind, spend some time with your team digging in to the specific solution you require to precisely articulate the desired end result to both the partner and your internal IT team. 

In successful digital partnerships, the importance of diligence, transparency, and communication during the planning stage cannot be stressed enough. We have found that it is best to create a working structure that gives everyone a seat at the planning table. Carriers, distributors, technology partners, and reinsurers all need to be on board and understand both the workflow and the economics of the project. Otherwise, the plan will fall apart. 

Be prepared to understand and manage the expectations of various teams. Carriers have a long planning timeline and may move slowly, while tech companies are eager for quick launches to fuel their growth momentum and market reputation. Despite the need (and advantage) of speed, pay special attention to overcoming challenges such as mortality/lapse rate, tech resource limitations, or channel conflict. They all have an impact on success. Put expectations in writing with a detailed plan of action and run contingency scenarios. We find that it is best to start small, by starting with a pilot or use case and building from there. 

Setting reasonable assumption expectations is also a key challenge in digital partnerships, but fortunately one that reinsurers can help with. Munich Re has expertise in a wide range of programs that no one carrier alone would have. For instance, our last reinsured experience study had insights from over 100 companies covering more than 100 million life years and millions of lapses.

As with any organizational or functional change, continual assessments and process improvements are necessary for optimization – digital partnerships are no exception. Build a framework for proactively managing the partnership and associated risks. If the partnership is successful and meets the business objectives, then you can find ways to scale. 

Digital programs also offer unique data to predict potential performance. Information that was generally previously unknown to carriers, like ‘time to complete application’, ‘time of day application is complete’, and whether the applicant chooses to disclose their email address, can be highly predictive of misrepresentation and offer important insights. While regulation may make this information difficult to use in underwriting, it can still be powerful in understanding risk in a block. 

Incorporating reinsurers into your tech partnerships can deliver speed and expertise at all stages of the digital innovation process. This approach also offers broad advantages beyond the day-to-day. As mentioned, reinsurers see across the market in a way that individual companies cannot, including extensive experience across different products and underwriting programs, and purpose-built tools to support program growth. 

There’s the potential for scale as well, since reinsurance companies have the ability to bring insurers together to attack big problems such as expanding insurability to the middle market. By launching digital partnerships for our own organization and in conjunction with our clients, we have learned much about what it takes to successfully bring teams together to enact change. It’s a role we take on with great enthusiasm – teaming up with life insurance companies to make digital transformation a reality. 

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