What’s the point of InsurTech (and what are the incumbents doing about it)?

Earlier this week, a packed house attended a TechUK meeting in central London under the heading “Insurance Disruption”. The stage was shared by two insurers, three startups and a global SI. This was a coming together of the established and the emerging worlds of insurance and InsurTech. The subject: digital innovation and the transformation of the insurance industry.

Deconstructing Insurance

“InsurTech will replace digital on the CEO agenda”.

A bold statement to open the meeting and arguably already true. Present tense not future!

The meeting was held at TechUK, a body that represents the UK’s technology industry. And it was excellently marshalled by Nigel Walsh, Head of UK Insurance for Capgemini.

The audience was predominantly from the supply side of the insurance industry – vendors, consultants, suppliers. And they had gathered at the TechUK offices just off Fleet Street to hear the views of innovators from established carriers and emerging startups in this world of InsurTech.

For summaries of the meeting, including photos from the stage, go here for Nigel’s, and also here to read the perspective from Greg Brown, Founding Partner at Oxbow Partners.

In the “Established” corner was Martin Pluschke of Ergo and Serge Taborin of Aviva Garage. Both facing the challenge of how to bring digital innovation and transformation to a large and complex organization that is massively hampered by legacy and a culture of “this is how we’ve always done it!”. These challenges are well reported in this excellent 2015 report from KPMG, subtitled, ‘The insurance innovation imperative’.)

Of course, the established insurers do have a few things working in their favor, such as plenty of resources, money, experience and, above all, customers…16 million of them in Aviva’s case!

In the opposite corner and representing the “Emerging” world were three startups from the Startupbootcamp InsurTech cohort that started two weeks ago – RightIndem, massUp and Fitsense, featured here on Daily Fintech last October. (If you go to Greg’s post, he includes a short profile on all three startups.)

Digital is in the DNA of the startup

Whilst they might be short of a few bob and hours in the day, the startups are free of legacy and able to focus totally on the customer experience. They also “get” digital from the outset. These are common themes I have seen from interviewing over 50 InsurTech startups in the past year.

As Nigel Walsh said in the FT on Monday; “Customers are getting more savvy. Expectations have gone up but insurers are not meeting those expectations.”

It’s a point well made without much resistance from the industry. But it isn’t all bad for the established players. With the high cost of regulation being a significant barrier for new entrants, insurance is far less likely to experience uberization than many other industries.

And to quote David Moschella of the Leading Edge Forum in his report Disruptive Innovation comes in Waves; “Technologies that sustain incumbents can enable just as much societal progress and change as those led by new firms.”

Cannibalisation

Clearly, the notion of eating your own lunch doesn’t effect the emerging players, but it certainly does for the established. Rather timely, I noticed this comment today in an article on Pymnts.Com. It was made by American Express CEO and Chairman Kenneth Chenault at a retail conference last week in NYC.

He said; “you need to be focused on customer needs,” while embracing a process that may even include “cannibalising yourself.”

The fact this is from the boss at Amex is irrelevant; the point is that established players across many industries should accept cannibalisation as an intended outcome of their innovation agenda.

Which is why you see insurers dividing themselves into “run the business” units that are completely separate from “build the business” units. This is a strategy that removes the burden of legacy for those who are tasked to build new ways of working. And an invitation to eat their own lunch!

Investors, Innovators and Transformers

When I look at the incumbents, I see three different strategies for embracing the InsurTech world of the startup.

Figures just released from CB Insights reported that investment in InsurTech in 2015 was $2.65bn. And no doubt it will be reported as high, if not higher in 12 months time. One group of investors contributing to the figures is the established insurance carriers themselves.

I call these “The Investors” and they include the likes of Mass Mutual Ventures and Commerz Ventures who are investing directing into InsurTech startups. This is a VC model where the investments are targeted at insurance businesses.

Then we have “The Innovators”. These are the established insurers who are getting involved in the startup landscape through accelerator programmes, bootcamps and hackathons. They seed their own innovation people directly into the startup support ecosystem, mixing with the emerging InsurTechs outside the walls of the established insurer.

They include carriers such as Munich Re/Ergo who are active at Startupbootcamp and the soon to start Mundi Labs insurance accelerator in Madrid (where I mentor on both programs, excuse the shameless plug).

The Startupbootcamp Executive in Residence is Martin Pluschke, mentioned earlier, and he is one of the most enlightened people I know from the established insurance world. He really gets digital innovation and is an asset to both Ergo and SBC.

Also in this category are carriers such asDirect Line Group and  Generali, with their Innovation Challenge in collaboration with Microsoft. Here they focus on three defined market problems and invite startups to pitch solutions to solve them using the Skipsolabs platform.

Finally, we have “the Transformers”. This is the class of established insurer that creates the digital innovation lab approach inside their own walls. Innovating from within, insurers are investing in their own digital innovation and transformation capabilities by hiring expertise from the outside.

The defining characteristic of the Transformers is that they give the innovation team a direct line to the CEO’s office. The corporate governance process and policies are (largely) set aside so that the innovation team can work unencumbered by internal bureaucracy.

A great example is Aviva, where the 5 person leadership team for the Digital Garage’s in London and Singapore report directly into CEO Mark Wilson.

Of the other major global insurers classed as Transformers, I include;

• AXA and their Labs in Silicon Valley
• Alliance with its Digital Accelerator
• MetLife and the renamed LumenLab in Singapore (see this review from The Digital Insurer)
• Ping An’s co-created innovation unit with the Singapore Management University named Pinnacle
• Manulife’s LOFT (Lab of Forward Thinking)

For the final word on this, I quote Dr.Thomas Blunck, member of the management board of Munich Re;

“We can’t wait for the structural changes to occur before we start moving; we need to address these changes now if we hope to offer the business new growth opportunities over the next 5 years.”

For me, this quote sums up the call to action agenda for the insurance incumbents in the digital age.

The author, Rick Huckstep is an InsurTech thought leader. Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.