November 28, 2016

5 Challenges Facing Startups (Part 1)


Finding “Blue Ocean” is challenging in a low-growth, large market, and startups won't produce a surge of growth for insurance.

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The insurance industry is a $4.6 trillion market worldwide but lags on digitization and providing consumers great experience and service.

In the coming three weeks, we will look in some depth at the five main challenges that startups are facing. Today, we will tackle Challenge No. 1.

Challenge No. 1: Creating a dominant position in a big — but slow-growth — and competitive market

Finding “Blue Ocean” is challenging in a low-growth large market such as insurance — especially compared with the impact of Google creating online advertising or Easyjet giving access to low-cost travel. These companies grew whole new markets using technology.

By contrast, digital startups are unlikely to make the insurance market grow significantly in developed countries. After all, existing insurance penetration is high in both Western Europe and the U.S. This is different in markets such as India and China, which have relatively low insurance penetration among the growing middle classes, and in other underinsured markets in Asia and Africa.

See also: 6 Charts on Startups, Greenfields, Incubators

Although certain multinational brands are global, there are hardly any transversal insurance products. The reality is that insurance is consumed country by country. Even with harmonization of regulations across Europe or across U.S. states, there are critical differences.

In addition, large companies such as car manufacturers, tech companies, energy providers and telcos with easier access to customers, more sophisticated data capabilities and continual customer engagement may find it easier to integrate insurance into their offerings themselves. BCG predicts that, with driverless cars and a move away from car ownership to car sharing and renting, between 20% and 40% of car insurance revenues from private individuals could potentially disappear by 2020.


The opportunity centers on reacting to changing demographics and lifestyles that affect consumer behavior.

New generations such as millennials (18- to 34-year-olds) have different lifestyles, expectations and attitudes regarding risk as compared with their parents. Millennials own less, have more flexible career paths, are likely to be more mobile (living in different cities or countries) and do not care about financial protection as much as previous generations. Can startups make insurance more personalized and specific for life changes, whether for an individual, household or business?

Leverage the creation of parallel markets where insurance can be an integral part of the service.

New disruptive technologies and services — such as driverless cars and smart living — create an opportunity for new agile insurance startups working with a white canvas. Traditional insurers will find it extremely difficult to grasp this because it involves internal transformation and new technologies. Other players could decide it is better to work with a specialist startup with a compelling solution covering customer engagement and data analysis as well as the requisite insurance services rather than develop their own full insurance offerings.

See also: Startups: How to Find the Right Partner

Identify and explain the benefits of insurance covers that are currently under-insured.

In markets with high insurance penetration, there exists unlocked potential of uninsured people. For example, today, 20%  to 30% of insured persons in Germany do not have a private general third party liability cover. The challenge is to explain the benefits and to make it affordable. This could work by integrating these covers into other services or finding a better way to distribute such products.

Go international with offerings and operations in multiple countries.

A startup can operate in several markets and leverage its offering and platform. If there are any ambitions for startups to go international and operate in more than one country to reach scale faster, consideration of the following factor is important: recruiting an international team and setting up the technology.

Can startups go further and allow easier insurance switching while moving countries?

We are curious about your perspective.


About the Author

Manny Soar is an insurance professional currently working in travel and health for millennials. He is a board adviser and mentor to insurtech startups in the U.S. and Europe. He was formerly a co-founder, CFO and manager for more than a decade at two of Europe’s first fully online auto insurers.

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About the Author

Christian Czempiel-Mentrak is regional manager, reinsurance, at Liberty Specialty Markets and has been active for more than 21 years in the insurance and reinsurance industry. He founded two insurtech startups and is an adviser and business mediator in the early-stage startup world.

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