Matteo Carbone's latest look at a high-profile, full-stack insurtech demonstrates a point that is too often missed amid the adulation of breakout start-ups:
Incumbents should beat insurtechs in the innovation battles far more often than they do.
While Matteo actually congratulates the insurtech, Root, for profitably growing its number of auto policies 16% over the past six quarters, he notes that Progressive grew nearly twice as fast, largely based on the same telematics innovations that are Root's calling card.
Why should other incumbents win more often?
As Chunka Mui and I wrote in our 2013 book, "The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups":
"Yes, small and agile beats big and slow, but big and agile beats anyone — and that combination is now possible.... Big companies have everything they need to continue to dominate: unmatched people, resources, supply and distribution capabilities, brand power and customer relationships.... Incumbents have growth platforms that would take start-ups years to build."
Although the insurtech glow has faded some over the past decade, as we've all realized that insurance won't be turned upside-down in the way that, say, retail has been, a sort of "arms dealer" model has developed. Insurtechs don't overwhelm incumbents but develop novel weapons that incumbents buy, often by acquiring the whole company. The model is akin to what happens in pharmaceuticals, where little guys develop new drugs and Big Pharma then jumps in, buys them and runs them through the incumbents' massive marketing and distribution networks.
But Progressive shows how incumbents can even out-innovate start-ups in-house. It followed the model that Chunka and I have long referred to as "Think Big, Start Small, Learn Fast." (He writes about our mantra in some detail here.)
Progressive had huge plans when it introduced its Snapshot telematics offering in 2008 but didn't try to do everything at once. It experimented at low cost, letting it learn fast and adapt as technological capabilities developed — for instance, when it became possible in the mid-2010s to use smartphones as data sources and dispense with the dongles that previously had to be plugged in underneath cars' dashboards.
In his LinkedIn post, "When the 'Dinosaur' Laps the 'Disruptor,'" Matteo estimates that a third of Progressive's auto business now comes through its telematics offering and says it grew its base of policyholders by 28% over the past year and a half (to Root's 16%). Progressive greatly outpaced Root even though its base of policyholders is about 80 times the size of Root's.
I realize that Progressive has long been a shining example of innovation in the insurance industry, but you can also look to Geico, which has mostly caught up on telematics, far faster than most competitors, including start-ups. Or look at the failures of Amazon and Google in insurance, which Matteo dissects here and ascribes to the power of incumbents.
I'd also suggest investigating Walmart, whose CEO recently announced retirement plans following a career that will be taught in business schools for years to come. Chunka and I actually singled out Walmart a dozen years ago as a behemoth that would have to work hard to defend its market in the face of technological change. Our book came out just as Doug McMillon was becoming CEO and blew away all expectations through super-smart use of technology.
He continued to lean into the sorts of supply chain technology advancements that Walmart has long been known for, while also experimenting with technologies that let Walmart keep pace with the ease-of-use, product selection and home delivery that gave Amazon such an edge and that it has continued to drive as hard as it can. I don't know about you, but I get a lot delivered from Walmart these days — not as much as I get through Amazon, given its hold on me through Prime's free shipping, but still plenty.
Yes, an awful lot of work has to be done to overcome the internal antibodies that can kill innovation and that become more potent the bigger and more successful a business becomes. But by now have a lot of examples of companies that have fallen by the wayside because of corporate atherosclerosis. We also have some examples of companies that, like Progressive and Walmart, have put themselves at the cutting edge of innovation despite their heft.
Many insurance companies will do just fine by relying on insurtechs to innovate and then absorbing those new capabilities into their products, services and operations, but there is also bigger game afoot, as Matteo shows. It's possible to produce breakthrough innovation in-house if you think big, start small and learn really fast.
Cheers,
Paul
P.S. Here is a piece on the methodology that Chunka and I have developed over the decades about how to identify and handle the strategic options that can turn into breakthroughs.