Insurers have moved beyond putting a toe in the water when it comes to insurtech partnerships, but are yet to take the full plunge when it comes to widescale adoption of innovation, the third annual Australian Insurtech Ecosystem Report suggests.

More insurtech collaborations are taking place, but projects risk failing to have real impacts unless there are commitments and plans to facilitate the widespread uptake of solutions.

“Many insurers fail to take a strategic and focused approach to insurtech deployment, with numerous parts of the business and disparate groups within the organisation pursuing their ‘pet’ projects,” the report says.

“Three in five respondents noted ‘overcoming’ a siloed approach to delivery management with insurers as a key ‘get right’.”

Insurtech Australia CEO Rita Yates says a “proof of concept” focus within innovation teams can sit at a remove from the rest of the business and its day to day operations.

“You can have success in a proof of concept environment, which is often one that sits in an innovation team, but it doesn’t necessarily get scaled across the business,” she told insuranceNEWS.com.au. “Often the issue is actually integrating the solution.”

Ms Yates says it’s important to plan for integration and execution early in the piece, rather having a proof of concept mentality focussed on a solution that then fails to translate.

“That can hopefully lead to more long-term success and value in the future,” she says.

The report, released last week by Ernst & Young and Insurtech Australia, is based on a survey of industry participants taken from April onward.

It shows 80% of insurers are currently collaborating with an insurtech and 70% of the industry agree insurtechs will play a major role in helping incumbents become more digital.

EY Oceania Insurtech Leader Andrew Parton says while there is more collaboration, most insurers are still using insurtech tactically rather than taking a holistic approach.

Legacy technology systems, long blamed for the insurance sector being a digital transformation laggard, are also continuing to prove a barrier.

“For the sector to fully realise the transformative potential of insurtech, insurers will need to move beyond random acts of digital and put the right infrastructure in place so that their legacy systems can connect with technologies and support plug-and play integration capabilities,” Mr Parton says.

Cultural and business practice differences remain a friction point, with more than half of insurtechs concerned about slow decisions and complex procurement processes.

When asked about reasons why opportunities to optimise innovation are not being met, 81% of insurtechs suggested insurers were not prepared and may not have sufficiently detailed implementation plans. On the other hand, 40% of insurers and 50% of services providers observed that they find meaningful partnerships with insurtechs “too difficult”.

Ms Yates notes the COVID-19 pandemic impacts will likely add some momentum, with working from home arrangements and social distancing regulations exposing areas where capabilities have been lacking.

Respondents see claims as the main area where value has been created through working with insurtechs over the past three years, while efficient administration, pricing and underwriting agility and differentiated products remain largely untapped opportunities.

Expanding the range of possible innovations could also increase number of collaborations taking place simultaneously as particular issues are targeted.

The report finds that 63% of insurers have partnerships with between one and three insurtechs, but only 14% are partnering with five or more currently.

“This will change over the next few years as insurers seek to increase their number of insurtech partnerships to broaden their digital ecosystem and extend insurtech use across their entire value chain,” Mr Parton says.

Looking into the future, a whole-of-business approach may mean insurers are more likely to make investments to bring expertise in-house as they take up the cudgels themselves.

Some 58% of insurers expect a large volume of insurtech acquisitions over the next three years as capabilities are expanded, while an equal percentage expect consolidation of insurtech providers.

“Over the next few years we are likely to see the sector moving beyond simple alliance models,” Mr Parton says.

Whether or not that happens, two-thirds of incumbent insurers believe partnerships with insurtechs will become mainstream within the next three years.

Ms Yates says it’s clear insurtechs in Australia offer a wide range of potential solutions, and there must be a focus on those elements that are critical to get right during partnership processes.

“We now have a real opportunity to optimise future partnerships so that their value can be realised at scale,” she says.