Tag Archives: AXA Strategic Ventures

Global Trend Map No. 1: Industry Challenges

Welcome to the first post in our new insurance/insurtech content series! Here, we examine the top internal and external challenges facing the insurance industry, as revealed by our Trend Map, for which we gathered more than 1,000 survey responses from insurance players around the world and consulted more than 50 industry thought leaders. You can find a breakdown of our survey respondents, details of our methodology and bios of our contributors by downloading the full Trend Map here.

It’s a tough time for the insurance industry right now, with a complex raft of issues to deal with over the coming years, from regulatory and climatic change through to adverse market factors, legacy systems and the rise of insurtech. Indeed, one of the problems we had surveying the industry was the sheer variety of potential challenges that respondents might name.

For this reason, we drew up a short list based on our periodic research within the insurance community. And, as not all challenges are directly comparable, we split them out into external and internal challenges, creating two separate hierarchies:

  1. External challenges: issues in the wider world that necessitate a response from the industry if the industry is to survive and thrive
  2. Internal challenges: whatever stands in the way of that response’s successful implementation

For example, increased regulation might require changes from insurers and other industry participants (external challenge); however, lack of company-wide dedication to core priorities might prevent these necessary changes from actually happening (internal challenge).

We then asked all our survey respondents – encompassing carriers, intermediaries, solution providers, associations and regulatory bodies – to rank these external and internal challenges in order of importance, giving us an idea of what the industry regards as the biggest hurdles ahead.

External Challenges

Our external challenges table points to technological advancement as by far the greatest external challenge, followed by changing customer expectations and digital channel capabilities.

A quick note on our methodology: Respondents were asked to rank their top three challenges, with three points being awarded for 1st place, two points for 2nd and one point for 3rd. This allowed us to create not just a ranking but a cumulative score for each challenge.

New emerging risks, changing economic conditions, increased regulation and increased competition make up the middle tier. Further down we have new entrants to the market, catastrophe risk, absence of a clear strategy and climate change. Then, comfortably in last position, we find lack of company investment.

“Technology has always been a key enabler within the insurance sector. In today’s highly customer-centric world, organizations that want to thrive will do so through digital excellence; meaning by combining unique customer experiences and omni-channel distribution mechanisms, as well as by reinventing interactions across the insurance value chain, despite legacy constraints.” — Sabine VanderLinden, managing director at Startupbootcamp

So what then is the picture, if any, that we see emerging? The top three challenges, notably, form a clear constellation: Changing consumer behavior patterns, especially the desire for digital channels, certainly underlie insurers’ preoccupation with technological advancement to a considerable extent.

See also: Prospects for Insurers as a Global Industry  

We would therefore say tentatively that the interface between customer and insurer is going to be one of the key battlegrounds going forward, not just in the trivial sense of online portals and chatbots but rather as the ability of insurers and other industry participants to make every part of their operation work for the customer. The mid-tier challenges – essentially market factors – are certainly significant but represent the pointy end of “business as usual” rather than the digital, customer-centric paradigm shift we see coming into focus at the top of the challenges table.

This shift falls broadly under the remit of digital transformation, which we have seen at work in many recent initiatives at major insurers, both internal and external to their organizations. Many insurers have, for instance, like Allianz in November 2015, founded some form of digital transformation unit. Likewise, a number of major players have set up venture-capital arms to foster digital innovation outside of their four walls – like AXA Strategic Ventures.

While insurance was for a time considered the sleepy corner of financial services in terms of digitization, tech and innovation, we now see a host of transformation and innovation projects underway, and the money is flowing. This is borne out by the fact that lack of company investment was, by some way, the lowest-ranked challenge in the industry. Insurers and other industry participants may or may not be successful in their digital transformation – but this will likely be decided by factors other than their willingness to invest in it.

Download your complimentary copy of the full Trend Map here.

Internal Challenges

The results for internal challenges show lack of innovation capabilities and legacy systems neck and neck and leading the pack. Finding and hiring talent and siloed operations make up the middle tier, with lack of company-wide dedication to core priorities and mergers and acquisitions activity a long way behind at the bottom of the table.

The methodology used here was the same as that used in gathering the external challenges – giving us both a ranking and a score.

These results are consistent with the picture we saw emerging with the external challenges; that lack of innovation capabilities should be the leading internal challenge indicates first and foremost the industry’s strong will to innovate, which is part and parcel of many insurers’ and other industry participants’ current digital transformation projects.

In keeping with this is the low position attained by lack of company-wide dedication to core priorities – it’s clear that what is missing is neither the intention nor the investment to change (lack of investment was rated the industry’s lowest external challenge), rather it is the capabilities to make it happen. And these capabilities fall short in three perennial areas that turn up once again in our internal challenges table: systems, staffing and silos.

“These challenge tables perfectly illustrate and explain the fundamental conundrum of the global insurance industry; the acceleration of technological advances coupled with expanding sense of consumer entitlement and their rapidly evolving tech-driven behavior is causing older and slower-to-change insurers to struggle mightily in playing catch-up and has made them vulnerable to newcomers and disruptors.” — Stephen Applebaum, managing partner at Insurance Solutions Group

Find out more about how these internal and external challenges vary by geography – for Europe, North America, Asia-Pacific and LatAm – in our regional profiles, by downloading the full Trend Map here.

Additional Challenges

Our survey respondents had the opportunity to provide any additional challenges they felt we had missed. Responses were colorful and varied, but some that stood out were:

  • Prevailing low interest rates
  • Insurtech/disruptors
  • Cyber-risk
  • Loss of agents/disintermediation
  • Change management
  • Lack of strong leadership

Conspicuous on this list is insurtech; while this was not explicit in our short list of challenges above, it nonetheless cuts across them (in particular, technological advancement and lack of innovation capabilities, our two leading external and internal challenges respectively). There is indeed plenty of talk on the air about an impending shakeup of traditional insurance models…

My Top Tips From EXEC InsurTech

I usually approach conferences with mixed emotions, whether attending, learning and networking or speaking. Ultimately, for me, conferences and events are about connecting people and ideas and moving the debate and understanding forward. To this end, I was delighted to join some great folks over at EXEC Insurtech in Cologne, which for me ticked all the boxes. It had a really interesting mix of folks attending, old and new, a serious number of VCs (AXA Strategic Ventures, Commerz Ventures and many more), There were angel investors and more and, importantly, a whole host of new start-ups, many very early-stage. There were some really great ideas from outside the U.K. market, so new to me personally. And it’s always great to see SPIXII, RightIndem and other graduates from the InsurTech StartupBootcamp in London with Sabine VanderLinden.

See also: InsurTech Boom Is Reshaping Market  

In addition to a number of panels where I was able to share the latest views from the Capgemini 2016 World Insurance Report, I was asked to share some perspectives with the group on InsurTech. I wanted to share the same here.

  1. We are in a bubble. By “we,” I mean, those who are here at EXEC InsurTech and see the opportunity. Not everyone sees the world this way, yet! Many of you know I’m a firm believer that disruption is here and now, coming at us thick and fast.
  2. Stand out. Whatever reports you read, be it the tech journals, insurance news or the traditional annual reports from existing carriers, they all talk to the disruption of the traditional insurance carrier (following the “unbundling” of the banks). There are now hundreds of start-ups in this space. It always amazes me to hear Sabine and theStartup Bootcamp team talk to how many start-ups they talk to prior to shortlisting to their final cohort. Make sure that when you are on stage and you have three minutes to pitch, you stand out. Don’t be the me-too.
  3. There have been no really big failures yet. There is excitement and buzz around what people are up to, where disruption is coming from and what part of the insurance value chain people are attacking (sales, underwriting, distribution, etc.). Given this, there has been record investment in the sector; the prize is huge, with a $5 trillion market opportunity. Matthew Wong and the folks over at CB Insights continue do an amazing  job at tracking deal flow, more than $1 billion so far in 2016. The example nearest to a failure that I called out was Zenefits, given its recent re-valuation. Another one was mentioned from the audience — CSS in Switzerland, I believe, but please correct me if I have this wrong.
  4. Partnering is key.  Given the history, tradition and especially the speed of the industry, my view is it’s best to partner and work with the traditional players as opposed to going all out head-to-head today. This may, of course, change over time. There are some really great examples of partnership already.
  5. Evolution or revolution? This is one of my favorite topics. Unlike banking, where I believe #FinTech has unbundled individual services ofmatthew  a bank, insurance start-ups have taken a different approach. Underwriting, for example, is not a category all unto itself nor one that I have seen folks go after in isolation. All need other parts of the insurance value chain to be successful. There are great examples of start-ups evolving each part of the value chain, across products, distribution, sales, etc. Matteo Carbone put together some good thinking a while back on this with his mental framework covering awareness, choice, purchase and use, as did Venture Scanner here in a series of visuals. For now, we are primarily digitizing and simplifying the existing approach and process.
  6. Product mindset. We simply need to move away from this. It will take generations for a complete mindset change. It will happen, in my view, when start-ups move to an “all risks” or truly customer-centric approach (not just better service experience). My two golden rules here remain: relevance and convenience. At what point does insurance become frictionless?
  7. Every carrier is partnering. Pick your partners carefully. I was talking to one of the start-ups that has now engaged in 30-plus pilots. While this is really encouraging and great for the start-up, every carrier is a) partnering, b) building a lab c) working with an accelerator. Make sure you don’t become part of a badge-collecting journey. Are your and the insurance carrier’s ambitions, culture and outcomes aligned? Make sure we are all walking into these partnerships with eyes wide open and with a clear plan of what happens if a partnership is successful.
  8. AI/data/bots are big and cool. That is all! There are some great use cases and examples developing here. We heard from SPIXII and Insuragram, just two examples of how AI and bots are looking to solve some of the business and engagement challenges.
  9. Don’t be the fad. See #7 and #8. Over the last few years, I’ve seen the rise and rise of big data. Then came digital. Now it’s blockchain and chat bots. My point here is that these are all great technologies. But don’t be the technology looking for a business problem to solve — sage old advice you will hear again and again.
  10. Beware of the silos. Many start-ups are working with global carriers. Just because we work with them in one country doesn’t mean they all talk, are connected seamlessly internally and exchange ideas and key learnings. The same is true for in-country and across lines of business. Many people operate in silo’ed P&L models where you may end up doing multiple different engagements with the same global carrier. Joining the dots may not always be right for you. Think speed! You’re in a relay race. Moving parts of an organization to the start line is often easier than moving the whole team at once. As the saying goes,“think big, start small, act quickly.”
  11. Customers (end customers) need to be ready.  With all these cool new ideas and apps that can disrupt traditional insurance, our challenge is often not whether something can be done but whether customers will be ready. We know it can be done; everything is possible! But there are many reasons why customers take a while, often a long while. Telematics is 25-plus years old, but it’s only now becoming more widely adopted. Even now, take-up is still relatively slow (except in Italy).
  12. Talent. Above all, there is an arms race for talent out there. Bringing together InsurTech and traditional insurers is one of the best ways of ensuring (no pun intended!) that we continue to attract and leverage some of the greatest talent in the marketplace, promoting Insurance along the way as a great place to excel and challenge the status quo.

See also: InsurTech Forces Industry to Rethink

So back to one of my initial comments — what conferences do for me. At this one, particularly, I was delighted to meet with so many folks looking at the market from different angles. Conversations about Europe were especially interesting given the recent U.K. BREXIT decision.

Finally, getting to exchange ideas with Matteo Carbone of Bain and Florian Graillot of AXA Strategic Ventures in person was the icing on the cake. Gentlemen, until next time. My thanks to Robbie Boushery, Moritz Delbrück and the team at Pirate Summit for bringing this all together.

So what do you think? Good sage advice? Something missing? What would you add/remove from my list?

Looking forward to continuing the debate!

aggregators

The New Age of Insurance Aggregators

Tech innovation is coming to insurance, but where and when it strikes is uneven.  Auto and health insurance have been facing serious disruption, for instance, but for very different reasons (self-driving cars and telematics, vs. the ACA and hospital mega-mergers). Life insurance and commercial P&C are only now feeling disruption. Reinsurance and annuities are following behind.

To see trends, then, it can be instructive to focus on specific insurance functions rather than the type (market vertical).

Distribution — that is, sales and marketing — is one area that has been especially active compared with other functions such as underwriting, risk, investments, admins/support or claims.

Why disrupt distribution?

It’s where the money is. In general, when a P&C or life insurer gets $1 in premium, 40 cents goes to distribution (marketing/sales costs, i.e. the agent) and 50 cents goes to everything else (underwriting, claims, service/support, risk, fraud, product, executives, etc.). Only 10 cents is profit. The largest distribution cost is usually agent commissions, which range from 50% to 130% of a policy’s first year premium.

It’s easy for carriers to work with alternative distribution channels. Insurance carriers are used to third-party distribution. They have been using independent agents, wholesale agents and affiliates (e.g., sales through AARP) for years. Systems are already in place to easily take on new distribution outlets.
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The rise of insurance aggregators

Aggregators are simply comparison shopping sites — like kayak.com for insurance. They allow consumers to easily compare product features, carriers, coverage and price. They aren’t the only distribution disruptors, but new developments are making them more potent.

Comparison sites come in three general flavors: lead generatorscall-center-based agencies and digital agencies. From their websites, it can be difficult to tell them apart, but they operate differently and appeal to different investors.

Lead generators — such as InsWebNetQuote and Insurance.com — use a comparison shopping format to entice insurance shoppers to provide personal information. They then sell these leads, often to traditional brick-and-mortar insurance agencies. Lead generators specialize in either gathering lots of leads cheaply, or curating data to sell fewer but higher-value customer referrals. Lead generation is a specialized technique, an art even. But it’s mostly unrelated to emerging technology. It is difficult for non-lead-gen experts to assess the quality and sustainability of lead-gen platforms.

Call-center agencies can develop leads or purchase them; in any case, their call centers employ licensed insurance agents who make sales. A classic example: SelectQuote, founded in 1985 and known for its early TV ads, is now the largest direct channel for life insurance. Goji is doing this well in the auto insurance space and now has several hundred licensed call center insurance agents. Call-center agencies are also great businesses. Their core competency, however, isn’t technology. It is HR hiring and training. Hiring and training a large sales force and managing its churn is growth-limiting. A commissioned call center sales force might reach 300 agents, but it is almost impossible to get to 1,000 or more high-quality agents. Crucially, too, the model does not leverage technology, so margins depend on commissions remaining high.

Digital agencies allow customers to shop and buy entirely (or nearly so) online. Without a human sales force, they must create well-thought-out user experiences that make the process of buying insurance transparent and understandable. Typically, this requires building sophisticated interfaces into multiple carriers’ systems so that the customer experience is unrelated to the company selected. In general, digital agencies hire developer talent rather than sales talent. Esurance, one of the first successes in the space, was bought by AllState for $1 billion in 2011. A more recent example (and AXA Strategic Ventures portfolio company) is PolicyGenius, which is bringing this digital model to life and disability insurance.

I believe digital agencies are the future. They focus on technology to sell policies without the aid of a commissioned human agent. This is a crucial distinction because, while both call-center agencies and digital agencies generate income from commissions, call-center agencies have to split that commission with their licensed call center agent while digital agencies do not. This means that, at scale, digital agencies should have higher profit margins. In fact, it is likely that digital agencies will actually look to lower commissions to drive sales and to provide more competitive pricing than human agents or call-center agencies.

Insurance Aggregators 3.3.16.png

Insights from the U.K.

The U.K. insurance markets adopted the aggregator model earlier than U.S. carriers, which gives us a window into their potential future. What’s happened there shows us three things.

First, aggregators have captured a material share of the insurance market and are continuing to grow. A recent Accenture survey found that, in the U.K., “aggregators account for 60% to 70% of new business premiums in the private automobile insurance market” and that French aggregators have seen “18% average annual growth for the past five years.“ We’re already starting to see this in the U.S.: Oliver Wyman recently reported that “the number of insurance policies sold online has grown more than 400% over the last eight years.” Swiss Re said, “More than half of consumers say they are likely to use comparison websites to help make purchase decisions about insurance in the future.”

Second, aggregators eventually will compete with one another across all personal lines of insurance. U.S. digital agencies today focus on one type of insurance (life or auto or home), though they might claim to offer a few others. But almost all U.K. aggregators compete across all personal line insurance products.

Third, insurance carriers will get into the aggregator game. Two of the top three U.K. aggregators sold to U.K. carriers; GoCompare was purchased by esure, and Confused.com was purchased by the Admiral Group. Only MoneySuperMarket remains independent. And carriers are looking to create aggregators from scratch. Accenture’s report noted that 83% of U.K. carriers are “considering setting up their own aggregator sites.”

Start-ups, tech giants and carriers in the ring

Still, it’s not totally clear how digital distribution will play out here. Multiple start-up digital agencies have raised significant capital. PolicyGenius and Coverhound have raised more than $70 million, $50 million of it just in the last six months. This represents a fraction of what a major tech player (say Google or Amazon) could put toward an effort to enter this market. Interestingly, Google purchased the U.K. aggregator BeatThatQuote in 2011 and launched the California auto insurance aggregator Google Compare less than a year ago, but just announced it was shutting it down. That could be because Google Compare functioned as lead-gen for CoverHound and Google decided the fee it received per lead was cannibalizing its ~$50 per click ad-sense revenue from auto insurance search terms.

Long-term success in insurance requires focus, deep knowledge of the industry and deep knowledge of the consumer. Insurance is very different from most e-commerce products, and Google’s experience could be indicative of the difficulty big digital brands will have trying to crack the insurance aggregator market.

Finally, most large American carriers haven’t decided what to do. Purchasing an aggregator creates strange incentives, potentially driving customers to a competitor. At the same time, it also gives the insurer the opportunity to quietly select the risk it wants to keep and pass off the risk it’d prefer to give up. Progressive has had mixed success.

Final thoughts

I think the U.S. will see trends and dynamics similar to the U.K.’s, and soon. Within three years, the major digital agencies will start to compete fiercely, and, within five, one or more will have been purchased by a carrier.

More digital agencies also will tackle the complex insurance products: annuities, permanent life insurance and commercial insurance. Right now, start-ups are trying — Abaris for annuities and  Insureon and CoverWallet for commercial insurance — but their offerings aren’t yet as developed as Policy Genius or CoverHound.

Finally, I think the rise of digital financial advice platforms (a.k.a, robo-advisers or “robos”) give digital insurance agencies an interesting channel to consumers that will help at least one of them mature and grow to an IPO.

I asked two digital agency CEOs what they thought the future was going to bring. Here is what they said:

Jennifer Fitzgerald, PolicyGenius’ CEO, said, “Consumers are much more self-directed in the digital age, so the focus is giving potential insurance clients the tools they need — instant and accurate quotes, transparent product recommendations, educational resources — so they can go through the process at their own pace. Then it’s important be there for them with an intuitive, easy-to-use platform and service when they’re ready to buy. That’s the basis for the new wave of insurance education tools like the PolicyGenius Insurance Calculator, and is reshaping how consumers look at insurance.”

Matt Carey from Abaris said, “I think we’ll soon see a new wave of made-for-online products. Carriers have always gone to great lengths to create products that made sense for a specific channel.  The Internet will be no different. In our business, that probably means very simple lifetime income products that are subscription-based and have low minimums. Until then, I don’t think we’ll reach a tipping point in the migration from offline to online.”

Venture Capital and Tech Start-ups

Unicorns – to some they are just mythical creatures of lore. To today’s tech world, a unicorn is a pre-IPO tech start-up with a billion-dollar market value. These are the companies driving innovation, technology and disruption in every corner of every business, and their impact is truly being felt across the insurance industry.

The number of unicorns is as elusive as the creatures themselves, as the herd is growing rapidly.

“Fortune counts more than 80 unicorns today, but more appear with each passing week. Some even received their horns, so to speak, as the magazine went to press. And they’re getting bigger — there are now at least eight ‘decacorns,’ unicorns valued at $10 billion or more. So much for being mythical.” — Fortune

Recognizing the powerful sway that unicorns have over new technologies, business models and more, insurers are now getting into the unicorn game themselves. They are identifying technology start-ups that can transform insurance and are becoming venture capitalists to tap into this great potential for creating the next generation of insurance.

Different models and approaches are being used to identify, assess and influence these companies’ offerings. By understanding the benefits of outside-in thinking, insurers are finding ways to leverage these innovations. Some insurers are partnering with leading technology firms. Some of the large insurers are setting up their own venture capital firms. Still others are creating consortia to fund new start-ups to help accelerate innovation.

Insurers and Unicorns

The following are a few examples of new partnerships in 2015; the trend is continuing;

AXA– In February 2015, AXA announced the launch of AXA Strategic Ventures, a €200M fund to boost technology start-ups focused on customer acquisition, climate change, travel insurance and more. The goal is to advance AXA’s digital and customer strategy by connecting with new technologies, new solutions,and new ways of thinking. The company anticipates the fund will complement AXA’s major operating investments, across all entities, into research and digital developments that will help transform how customers experience AXA.

XL Insurance – On April 1, 2015, XL Insurance announced the formation of a venture capital fund, XL Innovate, to support insurance technology start-ups, with a focus on developing new capabilities in the insurance sector. XL indicated that this effort would extend its capabilities in existing markets and give it new opportunities to address some of the most pressing and complex risk problems in the global economy. In addition, XL sees it as a critical element to driving focus on innovation forward while securing relevance in the future.

Global Insurance Accelerator – In February 2015, a group of seven Iowa-based insurers announced the formation and launch of the Global Insurance Accelerator (GIA), an insurance accelerator for start-ups. The start-ups receive $40,000 in seed money from the pool to create a minimum viable product to present to the Global Insurance Symposium. The insurers involved believe that the accelerator program will bring potential innovation and technology insights to the insurance industry.

The Future

Innovation, technology and the need to be future-ready are fueling today’s unicorns and their capital supporters rapidly expanding the herd. In turn, these new business models and market leaders are spawning challenges and opportunities for all companies.

Today’s forward-thinking insurance companies are running their businesses while simultaneously creating their futures as Next-Gen insurers. It’s critical to recognize the power and benefits of innovation and the role that unicorns play in planning for tomorrow.

This is a decisive time as Next-Gen insurers emerge along with their unicorns to disrupt and redefine insurance and competitive advantage. What is your company’s approach to leverage and experiment with emerging technologies, start-ups and unicorns to fuel the potential and enable future market leadership?