November 17, 2016
Incumbents, Insurtechs Must Collaborate
Major corporations around the world are increasingly waking up to the fact that startups are becoming the key source of innovation for them.
Insurtech has finally come of age in 2016. The segment has seen a year-on-year doubling of global investment for the past two years, with 2016 appearing to continue the trend. While it’s still a fraction of the broader fintech wave that has swept the globe since 2013, insurtetch is rapidly catching up. Insurtech is officially the next hot thing.
Asia, with the exception of China’s outliers (Zhong Ang, Huise, Joyowo and Xishan), has lagged in terms of investment and the volume of startups. That said, the region has seen a surge of interest since mid-2015.
Much has been said about the need for the insurance industry to innovate to remove various frictions that exist throughout the insurance product experience – from buying, owning, to claiming. Innovation is critical to help regain consumer trust and ultimately help the industry remain relevant in the digital age of on-demand everything.
Furthermore, little doubt remains that with a tidal wave of bright and unbiased people enabled by financial and tech resources injected in the industry, all the frictions will eventually be eliminated.
We live in a world in which traditional models of investment in captive innovation have largely been proven ineffective and inflexible in an environment of rapid, technologically driven change. R&D departments with large budgets and armies of researchers couldn’t stand up to the agility of startups, which tap into customer proximity, high tolerance of failure and technological sophistication to nail solutions to relevant problems and scale fast.
The value that has been created through entrepreneurship during the past decade has been disproportionate versus corporate innovation.
Where do startups and corporate entities meet?
Against that backdrop, major corporations around the world are increasingly waking up to the fact that startups are becoming the key source of innovation for them. There’s even a new acronym for it: CSE (Corporate Startup Engagement). Call it what you may: it’s delivering rapid iterative customer-centric R&D to quite a few of the largest global players. According to an INSEAD report, “262 of the world’s 500 largest corporations are actively partnering with startup companies.”
There’s clearly a set of complementary strengths that exists between corporate and startup entities. Rather than trying to fit the square peg of startup innovation into the round hole of corporate structure, corporate leaders are choosing to actively collaborate with startups to explore ways of combining the best of both worlds.
This trend, not to be underestimated, creates an opportunity for the peg to round off, and for the hole to become sharper-edged, thus learning from each others’ strengths and each thus increasing their competitiveness.
Corporate innovation in Asia: from attempts at ownership to collaboration
Contrary to the co-innovation trend, in 2015 we saw a number of insurers rushing to create in-house innovation centers, labs and garages in an all-out arms race to become digital innovation leaders. Driven by a legacy mindset that dictated that money can solve any problem, we saw the rise of fancy innovation centers full of PhDs, entrepreneurs, data scientists and so on.
The trend reinforced the fear of missing out and of being left behind: More and more insurers piled in, justifying the act to their boards by saying that everyone else is doing it, and so must we.
After two years since the innovation arms race began in Asia, I’m happy to report that it has largely proven itself ineffective in generating any meaningful value beyond PR. It’s not unsurprising, considering the innovation evolution in other industries: from aiming to own innovation to collaborative cultivation with startups.
See also: 4 Benefits From Data Centralization
What started off as the insurance industry’s attempts at protecting itself by replicating rapid innovation internally is evolving into something more powerful: collaboration magnets and cultural transformation catalysts.
Startup innovation enablers
What smart insurance corporates have discovered is that some startups have magic in them that makes them fly. That magic is a combination of awesome teams, purpose-driven cultures, completely different constraints, tech savviness and customer proximity, among other things. It’s also pretty apparent that while you can try replicating all these factors in-house as a corporate, it doesn’t make any more sense than keeping your grown-up kids housebound.
If you can’t own them (… yet), embrace them!
Understand what’s driving them: The mission of creating an efficient risk transfer, which is as easy as grabbing an Uber, is a big and hairy ambition. Nonetheless, it’s an exciting one. And it’s drawing droves of bright entrepreneurs, developers and data and behavioral scientists. Undeniably, for some, “get rich fast” is the primary driver. But for a lot of entrepreneurs, the ambition of making a dent in the universe is a powerful motivator, and money is an outcome rather than the objective.
Be open: As much as innovation is about nailing the brilliant idea, it’s also about many other controllable (team, execution, supportive ecosystem) and uncontrollable (timing, network, partners) factors. Taken together, these factors translate to a meagerly low probability of a startup making it big.
Openness to failure and the ability to quickly bounce back are important entrepreneurial traits. As insurance leaders, we should keep an open mind to different ideas, entrepreneurs who have failed and even our best employees who are itching to join a startup.
Be nimble: Startups are very different; that’s what also makes them powerful. They sprint around the clock; a week might as well be a lifetime in the startup world. It’s all about developing and refining tech solutions based on customer feedback.
Bootstrapping with limited resources and finding creative ways of overcoming obstacles are important. “Just do it” and “fail fast” are persistent mottos that drive progress.
If you come across a startup solving a relevant problem, please don’t drag it through endless rounds of meetings with legal, compliance, distribution, senior management, then regional management and so on. Figure out a way to do a limited pilot within a month to test how the startup concept resonates, and secure the next, bigger step.
Most legal and compliance folks are not prepared to assess startup risk; To stay on the safe side, they’ll advocate the status quo – which, as we know, is not an option. Senior management will need to figure out how to insulate the pilots from the status quo folks, at least in the early stages.
Cultivating a startup ecosystem
It will take a large number of startups trying various idea/team/location combinations to help us find the next revolutionary model for insurance. That said, chances of success can be improved through two factors: improving the controllable and increasing the number of attempts to overcome the uncontrollable.
The idea of InsurTechAsia was born to act as that very catalyst for insurance innovation and collaboration. The aim was to:
- Connect startups with the best resources and partners for them to succeed, do that transparently and without friction, rather than trying to skim the value;
- Work with various stakeholders to remove any roadblocks, regulatory and otherwise;
- Bring together a community that will actively collaborate, share and help its members to make it much bigger than a collection of its individual members; and
- Encourage more startups to join the mission by building visibility around the opportunity while focusing the energy on the highest-potential areas to maximize the impact.
Our community has grown rapidly across Singapore, Hong Kong and most recently Ho Chi Minh and Bangkok. Right from the start, we’ve encouraged insurance leaders to be part of the community to experience and learn from the startup world first-hand. Being part of the community also means paying it forward by helping to mentor startup founders and connect them to potential opportunities in the market.
It’s been really encouraging to have a growing number of corporate leaders actively participate in our meetups and use those as opportunities to mingle with startups, entrepreneurs, regulators and investors and looking at ways to help the community grow. It is truly a beginning of a new era in the insurance industry, that of collaborative innovation and building an awesome future of insurance together.
This article originally appeared in the October 2016 issue of the Asia Insurance Review.