Billions of dollars have been invested into new venture activity in Insurtech. Insurtech businesses were expected to redefine the relationship customers have with their insurers, in an industry that hasn’t innovated for hundreds of years. Some startups have risen to meteoric valuations. Take Zhong An, China’s first online-only insurer – set up in 2013 it already has a valuation of $10 billion. Anticipation was, and still is, high. But after two years of forensic analysis of the Insurtech sector, there are still very few examples of ‘tangible, measurable success’. Insurtech still needs to prove itself. Consumers are yet to realise the benefits of Insurtech on a practical level.
So this makes the world of Insurtech a tricky one to navigate – what should an ambitious corporate do? What strategy does a startup deploy? Where does the smart money go? Clearly, there are no simple answers.
At Tällt we score every venture in Insurtech on a 3-P axis – people, product and potential. For people, we look at the founding team – where and what they’ve studied, how well they’re connected and whether they’re considered experts in their field. For product, we get under the hood of what they’ve created – we get an understanding of the technology, the customer need, the user experience and we get closer to their tech ambitions and the roadmap for delivery. For potential, not only do we look at the market size and opportunity potential, we look at a company’s success to date.
What we’re seeing, time and time again, is a sea of new ventures that have incredibly exciting founding teams and businesses that on the surface appear to have great products and wonderful potential. Scratch a little deeper though and it’s not the case.
I’m sure we all get why startup founders are drawn to insurance – it’s an antiquated industry that has barely changed since the 1800s; it makes good money and it’s famed for its poor customer experience. Sounds like a great place to start a new business.
Sadly though most startups struggle with a true understanding of how insurance works. They create experience-led businesses which, whilst underpinned by smart technology, tend to highlight a superficial and fundamental lack of sector expertise and knowledge. And, as a result, they fail to acquire customers and consequently their growth is curbed. No matter how much capital they take on. Startup growth is blocked.
Corporates, on the other hand, have their own challenges. Most companies are still encumbered by their internal legacy systems which, until they’ve been updated, means they can’t even think of creating modern, customer centric digital services. And so, for the majority of the industry, no matter how much importance is put on the need to innovate, most are still yet to successfully rollout out a new ventures or an innovation strategy.
What’s the answer? There really are only three solutions for a corporate to consider:
- Build – for corporates, building innovative products, services and even new businesses is nothing new. And yet companies appear to be failing with this more today than ever before. Many still have an operational, not strategic outlook; their culture is designed to be inherently risk averse and opposed to failure; or they’ll have an incumbent team which lack the core skills, experience or outlook to innovate. Whilst most insurers recognise the importance of 3rd horizon scanning (a McKinsey model for balancing attention to both current performance and opportunities for growth) very few succeed in delivering anything but further operational efficiency or marginal growth.
- Partner – partnering with an insurer provides the opportunity to scale for a startup. Equally for an insurer, the need to evolve at pace, the continuous struggle to innovate internally and the daily announcement of a yet another tech disruptor, have all fuelled the surge in venture partnerships over the last few years. But it’s not always so easy to agree how to work together. We’ve seen time and time again that a corporate process can easily choke a relationship getting off the ground – whether it’s setting up the legals of the partnership, getting through the information security hoops to access customer data or even just finding a time for meetings. Startups don’t work in the same way as the big corporates. And corporates find it difficult to adapt to the agilty and speed of a startup.
- Buy – investment into, and acquisition of, new ventures can sometimes be seen as one of the more inviting routes of innovation, as an insurer can judge the levels of traction and suitability before parting with their hard-earned money. Making a strategic deployment of capital into the right startup or project can be the perfect approach for generating efficient and valuable progress in a short amount of time. Disappointingly however, almost half the insurers interviewed state that improving their existing operating model is still their primary acquisition goal.
What does the future hold for Insurtech? Change. And the pace of change will be faster than ever before.
We’re expecting to see many more examples of startups seeking partnerships with the established incumbents who have the customer base and reach to help them scale. Innovation is a tough one to get right and true, disruptive innovation, is a rarity. For all companies innovation requires transformation leadership, an agile working culture and a company structure that is responsive, reactive and creative. It also needs deep customer understanding and market understanding. A partnership approach can be right for corporates as well as startups.
Is it time for you to partner? Sønr can connect you with the new venture world.
Ones to Watch
- Metlife a provider of insurance, employee benefits and financial services, with operations throughout the United States.
- Travelers – an insurance company that was founded over 160 years ago, providing personal, business and speciality insurance.
- Swiss Re an insurance corporate that offers both reinsurance and standard insurance services.