Avoiding one potential InsurTech partnership pitfall

In today’s world, consumers expect a sleek, seamless digital experience with every business they interact with, and that includes insurance companies. Trained by their digital experiences with technology companies such as Amazon, Apple and others, your customers want a simple, intuitive digital experience, not to mention 24/7 access to clear information on products.

Digital is key to customer acquisition and retention; according to McKinsey, higher customer satisfaction, driven by the improved service and faster processing times that digitization delivers, is itself a driver of profit. It’s what customers have come to expect.

It’s also why so many insurers are focused on investment in digital, including partnerships with up-and-coming, innovative InsurTechs. Already, many major insurance firms have engaged in partnerships with InsurTech startups, and KPMG expects the number of such partnerships to increase in 2019. Meanwhile, the last six to 12 months have seen large rounds of investment (and much hype) go toward trendy startups.

But before jumping into a partnership, carriers, MGUs and MGAs need to know that all InsurTech organizations are not created equal. Enabling a pretty user interface is one thing, but many of these firms are not aware of all of the compliance concerns when it comes to the purchase and delivery of insurance products. This means complying with federal statutes as well as 51 local jurisdictions and Commissioners of Insurance; it means considering all parties along the vertical food chain insurers work with to access the ultimate policyholder, from MGUs to independent agents to Program Administrators, TPAs and beyond. These many nuances (and there are many more) demonstrate how insurance is one of the most highly regulated industries there is.

Related: There’s room for improvement in InsurTech collaboration

Some lack regulatory know-how

A startup that’s new to the insurance space likely won’t be aware of the compliance complexities that come about on a product-by-product basis, and the nuances between Life, Accident & Health and Property & Casualty products. For instance, do they know the regulatory statutes around solicitation, customer understanding and the sale of each individual product? Are all of the licensing requirements being considered, like whether the products are offered direct-to-consumer or agent distributed? How are premiums being collected and remitted, via a licensed third-party administrator or by the carrier directly?

Does the InsurTech you’re partnering with know, for example, that specific application and policy forms have to be completed in alignment with and filed for certain insurance products with state insurance regulators in certain states? If any outside partner is non-compliant in some area, ultimately it is the insurance company that will be found strictly liable by state insurance regulators if a compliance violation occurs anywhere along the food chain.

Related: State insurance regulation threat remains alive and well

Fully vet potential partners

That’s why it’s so very important for insurers to fully vet and conduct due diligence on all the tech partners they work with, especially newer entrants into the market with no prior exposure to the insurance segment. It cannot be taken for granted that every party you do business with will know all the ins and outs of compliance. Everyone in the relationship chain needs to have an appreciation for the practical implications of insurance regulation and to the extent at which an InsurTech may be performing services (e.g., sale of products online to customers), having the right licenses in place for the right products as required by each state to sell and administer products including the collection of premiums, payment of agent commissions and issuing insurance policies. Much of this knowledge is not something that InsurTech startups possess.

Insurance companies can take the time to educate these firms as needed on the nuances involved in doing business in this industry. But the better tactic would be to work with tech firms that already have compliance baked into their view of the insurance segment.

While some InsurTech startups seem to be the ones getting the most press (and VC funding), players that have been in the insurance space for a longer time have already considered regulatory compliance from the very beginning when creating their services. It’s not about creating a great UX and then figuring out how compliance fits into that. It’s about starting with the understanding that compliance is a factor in virtually every aspect of the digital sale and delivery of insurance. The pitfalls of ignoring compliance can be disastrous; including, but not limited to, fines from the state insurance regulators, cease and desist orders, and possibly suspensions or revocation of licenses.

Related: InsurTech spurs redefinition of insurance distribution

At the end of the day

Digital capabilities are certainly key to any insurance company aiming to be successful in our current world of digital engagement. Your customers are being trained on a daily basis to research and buy products in a seamless, digital manner, and that backdrop is certainly in the consciousness of everybody in the insurance industry.

However, the insurance industry has a wide-set of criteria that needs to be managed in the digital distribution of any product. That’s why there’s so much more to take into consideration than just the consumer-facing user experience when working with an InsurTech. An InsurTech could provide a great solution, but without considering compliance, that solution just becomes a regulatory action in waiting.

Related: Five digital trends impacting insurance agents in 2019

Brian Harrigan (Brian.harrigan@gboiq.com) is founder and CEO of InsurIQ, a firm focused on the digital transformation of the insurance segment for consumers, agents and carriers.

Steve Imber (simber@polsinelli.com) chairs Polsinelli’s Insurance Business and Regulatory group, and also served as a former General Counsel at a state insurance department.

These opinions are the authors’ own.