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Purchasing and Innovation: Friends or Enemies?

Eye of the Storm: Natural disasters, the insurtech market, and other musings from Bob Frady, CEO of HazardHub

For insurtechs, selling to a carrier can be a two- to four-year sales process. Here’s one reason why, as told to us by prospects and customers:

“Getting things through our purchasing group is like an act of Congress.”

“It might take a while to get through purchasing.”

“Let's start the purchasing process now because we have no idea how long it will take.”

We deal with a lot of innovative people at insurance companies. We sense their frustration, as they can see what's possible, but they have trouble getting things delivered. Insurers are trying to innovate, do something new, improve the process, make a difference. But their purchasing departments are using templates that are five to 15 years old.

We’re not knocking purchasing people. We love purchasing people. And we understand that they have a job to do and the method they use to do it. But is that method holding back the organization from moving forward? For far too many carriers, the answer is a resounding yes.

Here's an example. A large U.S. insurer recently sent us a security questionnaire. One of the first questions is, “Where is your data center housed?” When we tried to answer, “We don't have a data center; our data center is called AWS,” they rejected our application and scuttled our process. We were asked a litany of questions that simply aren't relevant to a cloud-based provider. While we understand the need for security -- and we're certainly highly focused on it ourselves -- this insistence on a form that was written many years ago did nothing to advance innovation at the carrier.

We'll see this insurer again in a year or two. Hopefully by then they will have modernized the questions they ask providers.  (Side note: Turning your 15-year-old Excel-based security questionnaire into an online questionnaire – with the very same questions - does not improve the process.)

You know who does answer these questions very well? Existing providers. They may be providing inferior products at exorbitant prices, but they check all the security boxes and they fulfill the purchasing process, because their IT infrastructure is as old, if not older, than the security questionnaire. The purchasing process is tilted toward the status quo.

Here's another example. Our non-disclosure agreement -- which was written by a very large insurance company with some of the best lawyers in the business -- is four pages long. When we sent it to a carrier, it came back 11 pages long, filled with verbiage that’s meaningless for an insurtech. It seemed like all the extra wording was put there just to show that their lawyers were doing something. When we went back to them and said, “Hey, this was written by an insurance company,” they said, “Well, it wasn't written by us.”

While this is just a small example, it does shine light on the fact that existing processes are not meant for the new. It helps explain why the insurance sales cycle is measured in years rather than months. Carriers are reluctant enough to try new alternatives – the slowness and “business as usual” methods of their purchasing departments make reluctance even worse.

We understand that getting a contract done with a carrier might take a long, long, long, (insert as many “longs” as you like) time. It's one of the reasons why we love our partners and resellers so much, as they've already gone through this painful process and can just write an addendum onto their existing agreements.

Carriers, if you truly want to innovate, a good place to start is with your purchasing process. Even your own people – including your purchasing people -- dislike how long it takes to get things done through purchasing. Purchasing people aren't bad people; they're just stuck with the process that management hasn't paid attention to for a long time. If you're going to innovate, this is a great place to start.

 

 


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