Partnership and Collaboration: Focus on Financial institutions and Other Strategical Partners

Insurtech companies should not address their focus only toward financial services. Still, this chapter deepens this type of relationship, since it is one of the most relevant.

Today, more than ever, insurance industry has been experiencing significant changes in its structural components, exposing business organizations to new risks and challenges. It is in this new scenario that insurance companies need to find vigor with the aim of more effectively pursuing competitive advantages. Cooperation is a powerful tool that, if well managed, allows companies to produce more revenues while minimizing costs.

Partnerships between financial institutions and insurers may not be identified as a recent trend; several business models have indeed been thought of in order to more effectively extract value from this type of relationship: most of them are encompassed by the bank insurance model (BIM), a new insurance branch which provides for new ways of doing business (Saunders 2004).

One potential first step for an insurance company is to establish a partnership with a bank. Figure 8.5 lists the most important elements to consider in a partnership.

Once, based on these elements, the insurance company has opted for a single or multiple partners, different scenarios are possible:

• • The insurtech company has a leading position.
• • The bank has a leading position. Or
• • A joint venture is created.

Fig. 8.5 Partnership components

This differentiation (Oliynyk and Sabirova 2013) aims to explain the strategical rationale behind every choice. Practically speaking, it gives interesting clarifications about the reason why financial institutions and insurers establish business relationships in each of the three scenarios.

Cooperation between financial institutions and insurtech companies is a necessary step capable of bringing about significant benefits to both the organizations:

• 1. Economies of scale and costs reduction
• 2. Market share growth
• 3. Diversification
• 4. Achievement of synergies

Financial institutions and insurers decide to undertake cooperation with the aim of increasing revenues while reducing costs, therefore being able to raise profits. This objective is the engine of any decision-making process: managers have to figure out thoroughly the impact of their decisions, contextually adopting the necessary mindset, which has to be forward-looking but always cautious.

Analytical components may affect two elements: revenues and costs, whereas combining and balancing these components is part of the decision-making process.

The first benefit that usually companies take into consideration is the enlargement of their customer base. Both financial institutions and insurers may actually merge their customer bases, contextually maintaining their own one. This process is usually structured on a fee basis. Insurance companies apply a fee for every transaction generated between their own customer base and the bank partner (and vice-versa), whereas the amount of the applied fees strictly depends on the bargaining power of the business organizations taken into consideration.

Sometimes, the relationship between insurance companies and financial institutions goes a little beyond the enlargement of the customer base, providing for the synergic development of new financial products and services. This may generate a competitive advantage.

Leveraging on a partnership with a financial institution also has its effects on the allocation of risks, whereas the same concept remains valid for the geographical diversification. It allows avoiding the concentration of risks in specific areas, while increasing the customer base through the penetration of different markets.

Economies of scale, instead, produce effects in the cost area, allowing organizations to generate a cost advantage by means of an increased output, thanks to the scaling of volumes.