There’s been a lot of speculation about how fintech companies might end up shoving aside manytraditional insurers with new business models and moreinnovative customer engagements.

But while the industry may be ripe for disruption, I think we’refar more likely to see increasing carrier collaboration with —rather than displacement by — game-changing startups.

Indeed, many existing insurers are already financing, buying orat least working side-by-side with the new breed of InsurTechplayers, leveraging the inherent advantages incumbents enjoy andthe benefits they can offer to disruptors. However, that doesn’tmean insurers can merely assimilate these newcomers into the statusquo, as major changes in operations and corporate culture may benecessary to effectively develop and integrate InsurTechapplications before the competition — legacy and emerging — beatsthem to the punch.

Those were among the key takeaways I gathered from a recentInsurTech symposium hosted by the Peter J. Tobin College ofBusiness at St. John’s University, which brought together insurers,technology pioneers, and financiers seeking to raise capital andfacilitate deals between the legacy industry and entrepreneurialupstarts.

Disruptors

The InsurTech movement encompasses those looking to ride thewave of cutting-edge applications for blockchain, cognitivetechnologies, robotic process automation and virtual assistants todisrupt the business. Yet speakers from both incumbent carriers andInsurTechs emphasized the considerable barriers facing those tryingto establish a presence in the insurance industry.

Insurers are highly regulated and capital-intensive. They havebrand recognition, a huge customer base, and a longstandingdistribution system. The complexity of many of their products(especially in high-end commercial insurance and annuities) canmake selling difficult even for legacy carriers, let alone newbieslooking to market directly to consumers in three minutes over amobile app.

These inhibitors should preclude widespread displacement, butnot significant disruption. It certainly isn’t an argument thatinsurers can afford to assume a “don’t just do something, standthere” mentality as the InsurTech revolution plays out. Carriersneed to keep reinventing themselves, and not just to prevent atech-driven upstart from eating into their market share orundermining profitability. They also must keep up with legacycompetitors — many of which are launching innovation labs, venturecapital arms and other proactive initiatives to become players inthe emerging fintech space.

Show me the money

Consider the insurance industry’s projected investment curvewhen it comes to just one rapidly developing field — cognitivetechnology, which actually learns from experience and adaptsaccordingly, just like a live underwriter, claims investigator orinsurance agent.

On a compound annual growth basis, between 2015 and 2020insurers are expected to increase spending on cognitive computingby 40% in automated claims processing, 36% in threat intelligenceand prevention systems, 47% for program advisors and recommendationsystems, and 49% in fraud analysis and investigation, according tothe April 2017 “Worldwide Semiannual Cognitive Artificial IntelligenceSystems Spending Guide” put out by International DataCorp.

But it will take more than just money to make it in the fintechworld. Incumbent insurers will need to accommodate innovators whothink beyond the insurance industry’s traditional parameters andare accustomed to operating on a much faster track to getinventions to market. At the same time, disruptors looking to livelong and prosper in the esoteric world of insurance may find aneasier path working with established, well-capitalized brandsproviding platforms that spare them the time and trouble of layingthe required groundwork. Partnering with an InsurTech outfit ratherthan trying to reinvent the wheel on their own can check a lot ofboxes for legacy and startup companies alike.

We should therefore expect much greater collaboration betweenthe new and old world orders, with incumbents and innovatorsdeveloping increasingly symbiotic relationships. A good example forinsurers is taking place in the banking sector, wherefintech-driven marketplace lenders and major banks are alreadybecoming tightly integrated, as described in a recent Deloitte Center for Financial Servicesreport on the topic by Stephen Fromhart, “MarketplaceLending 2.0: Bringing on the Next Stage in Lending.”

Culture clash threatens to undermine collaboration

Unfortunately, one potential obstacle casting a shadow overInsurTech collaboration is culture clash. This is not uncommonacross the fintech space as old ways of doing things are suddenlyupended by newer, hungrier disruptors. So, how might atraditionally slow-moving, conservative insurer incorporate anentrepreneurial startup mentality? For those looking to importinnovation by financing or acquiring an InsurTech company, how canthey avoid draining the startup’s energy and hamstringing progresswith internal speed bumps designed for an earlier, less volatileage?

Most insurers have traditionally been more comfortable seeingsomeone else step onto the bleeding edge. Yet when it comes toInsurTech, he who hesitates may indeed be lost if more aggressivecompetitors get a leg up, upgrading their systems and businessmodels by purchasing or partnering with InsurTech innovators.

To encourage experimentation, symposium attendees were urged toput a little method into their madness by creating an innovationarchitecture that fast-tracks InsurTech development outside of aninsurer’s standard operating procedures. For example, speakers atthe event observed that while insurers usually delay releasing newsystems until they are perfected, in the tech culture dealing withimperfection is often a critical part of the innovation process,with user input incorporated to fix flaws on the fly as hiccupsemerge. Think of it as InsurTech 2.0, 3.0, and beyond as new andimproved versions are rolled out over time.

One approach might be to think like a disruptor, brainstormingwhat you would do if you were looking to start an insurancecompany, product, or distribution system from scratch. That couldbe easier and more effective than trying to shoehorn an existingproduct or system into the emerging high-tech, mobile, sharingeconomy. In other words, don’t just settle for cutting costs byautomating how an existing homeowner’s policy is sold,underwritten, and serviced. Consider innovating an entirely newtype of coverage leveraging a disruptive innovation — telematicdata from sensor-equipped smart-homes — to create a transformativecustomer experience.

This won’t be easy, if only because while insurers are in thebusiness of assuming risk, paradoxically they are often veryrisk-averse. But sooner rather than later, insurers will need totake a leap of faith into a more risk-friendly environment, sincebold, even audacious confidence in an exciting but uncertain futureis one of the defining features of the InsurTech culture.

Sam J. Friedman ([email protected]) isinsurance research leader with Deloitte’s Center for FinancialServices in New York. Follow Sam on Twitter at @SamOnInsurance, as wellas on LinkedIn.These opinions are his own.

Originally published on PC360.