December 14, 2016
5 Challenges Facing Startups (Part 4)
by Christian Czempiel and Manny Soar
Most founders of startups know little about insurance -- and most insurance experts know little about startups.
The insurance industry is a $4.6 trillion market worldwide that lags when it comes to digitization and providing consumers with a great experience and service. We are looking at the five main challenges that startups face. We have covered Challenge No. 1 here, Challenge No. 2 here and Challenge No. 3 here. In this article, we will look at Challenge No. 4.
Challenge No. 4: How do you create an entrepreneurial insurance team that can build an operating system and avoid risk management errors?
Today, most founders have limited knowledge of the insurance industry. Meanwhile, most insurance industry experts have only second-hand knowledge of startups, knowledge gained in consulting or large corporate initiatives that are completely different environments than the pressure and decision-making dilemmas of insurance startups.
People who understand working in an entrepreneurial environment, know the insurance mechanics and can use startup methodology as it applies to insurance are rare.
See also: Should Incumbents Ally With Startups?
Most startups will need to work closely with traditional insurers and reinsurers. Although these organizations have made themselves startup-friendly, the question remains: How long is their patience?
In addition, startups will need to build and manage a network of service partners. Third-parties administrators may offer to take this burden off a startup’s hands, but, for quality service, full operational control and direct relationships will be needed.
Building the full stack technology platform requires extra experience. Startups need to connect to traditional systems and service providers, where the challenge and delays will be more organizational than technical.
Over time, the startup will come under increasing regulatory and consumer protection scrutiny. That makes the operations more challenging, as does the need to manage large amounts of sensitive data.
Experience in managing the inherent risk in insurance products, managing and developing the operations and getting to profitability in a startup environment where the organization, systems and revenues are growing and evolving is only learned by doing. Fraudsters often target new insurers, which many will argue is combated by new technology but also requires human intelligence. All team members will need to be educated and kept up to date on managing data privacy and security and claims handling and the associated reputational risks.
If the startup has ambitions to provide multiple products or act multinational, then dealings with different insurance and consumer laws and regulatory bodies will multiply.
Building teams of people with varied skill sets will mostly overcome the issues. The key will be to combine startup, growth hacking, service, data analytics, insurance and mobile expertise. Creating an international team early will also provide benefits over time for those with global ambitions.
F1 teams can be sponsored and technically supported by the large car manufacturers. However, they mostly have their own culture, experts, capacity and environment for innovation. So they can adjust and fine tune quickly based on performance. Startup insurers will need the same performance and service level culture, organization setup, capacity and freedom.
Insurers and reinsurers have recognized the challenges for startups and have created suborganizations to work with startups in a friendly and less cumbersome way.
In addition, regulators are looking to provide an easier process for approvals and support.
We are curious about your perspective.