Tag Archives: BCG

Why Enterprise IT Plans Rarely Succeed

There are five factors why successful implementation of most enterprise programs is almost impossible.

Factor 1 – Lost in Translation

We all know the major steps in a software development life cycle (SDLC):

Step 1 – Identifying Strategic Direction and Imperatives
Step 2 – Creating Business Requirements
Step 3 – Developing Technical Architectures
Step 4 – Developing Technical Designs
Step 5 – Code Construction

Each step in an SDLC represents an interpretation of a prior step’s deliverables into this step’s deliverables. But it’s almost like translating from English into Mandarin Chinese. There will be gaps in this translation. Every step is, we hope, conducted by people who know their own step very well, yet they have a limited knowledge of the prior or the next step.

Subject-matter experts (SMEs) writing requirements more often than not have a very limited understanding of all the current market needs, and even less of an understanding of future market trends. They for sure have no idea about underlying architecture. By the way, making strategists write requirements produces the same result. So let’s not even ask BCG or Bain to create requirements. Unfortunately, there is no magic button we can use to verify the created requirements’ compliance with the strategic direction, or how well architecture satisfies strategy or even business requirements. And the issue applies to every SDLC step.

Let’s assume we are very good at what we do. Let’s say we improperly translate only 10% of what was created by a prior step. This means that the probability of delivering something useful to a target market and to our internal business just dropped to below 60%! And this even before we take into consideration the budget and time overruns. So, at least 40% of objective market needs are not satisfied because they are lost in translation. And this is the best possible case.

Factor 2 – Implementation Time Is Our Enemy

These steps represent our subjective interpretation of what’s required by the target market players and by our internal business. So, the only objective entity here is our target market. And this market changes much faster than we suspect. While CIOs can ask or even demand during long-running programs to freeze changes to business requirements, we can’t ask the same from our markets and customers. Our target markets do not wait for us to complete software development.

See also: Expanded Role for Alternative Capital  

It is not uncommon for an enterprise program in insurance to last around 36 months. Let’s assume that one of the success factors is defined as not having a need for significant changes to the production code for the first 24 months after deployment. I even quantify a significant change as a change requiring 15% of the cost of initial implementation. That means that our strategy team must identify market needs with almost absolute accuracy for the next 60 months. Futuristic analysis like that is impossible for one simple reason – there are too many factors influencing consumer behaviors in a market, especially for such a long period.

The longer we take to implement, the more likely it is that our understanding of objective market needs will change, and therefore the less accurate the initial assessment was. That means that by the time we deliver, we are already too late. What we deliver will be functionally outdated and must be immediately changed.

We can certainly refresh our strategy every year. But what to do with the requirements that have already been implemented? And how to deal with new upstream and downstream process dependencies? DevOps approach, gaining popularity now, due to internal architectural dependencies of most legacy and even more modern off-the-shelf products, produces very limited success.

Factor 3 – Measuring Success at the Wrong Spot

When we measure success of the core systems implementations (and this kind of projects represents the majority of enterprise-sized programs), we count numbers, but the best way to measure success is to measure our internal users’ satisfaction. Right? No, not right.

Remember the only objective entity? The only true measure of success is our target markets. If our work does not increase market penetration and does not result in revenue and cost improvements, then it doesn’t matter how good our organization feels about new, modern applications. It is that simple.

So why do we so seldom measure the effects of our work on the markets? Because so often our business case is not really based on market needs and does not measure the effects of new systems and processes on our consumer.

Factor 4 – The Wrong Reasons for the Program

In my experience, as much as 70% of all programs represent a replacement of legacy systems by more modern applications. That’s the only business case. In some cases, my clients were losing vendor support, and in some cases teams that developed their legacy systems left the company. A true story: I was on an engagement for a client who wanted to have new tech so that she could move it to the cloud and save about $25 million in annual support cost. To do that, she was willing to spend around $200 million on core system replacement. There was no return on investment (ROI). She was not an exception.

It’s amazing how often insurance companies get into long-term projects to replace one technology with another technology – without targeting or achieving any revenue increase, and without opening any new markets. Maybe it’s less expensive to train your people on older technology and keep supporting this old technology on your own while developing a real business case for replacement? Just saying.

Factor 5 – Hero Worshiping

One of the first questions I’m asked by my clients is what other insurance firms are doing. This question makes me very uncomfortable for many reasons. For one thing, I can’t disclose confidential information.

But another reason is even more important. As a matter of fact, it is fundamental. Just because a perceived industry leader does something does not mean you should follow in his steps. Doing so relegates you to the position of a follower. Do you really want to be No. 2 or number ”anything except 1?“ Second, even leaders make mistakes. The difference is – big companies can mask their losses, but, if you work for a mid-size insurance firm, you can’t afford to fail. You have no billion- dollar budget to mask a $20 million loss. Finally, just because a leading insurance firm does something, that doesn’t mean that it does it right. Besides, a market leader’s customer profile can be vastly different from yours.

So please do not jump from this roof because someone your worship jumps. It is bad idea for them, and it is an even worse idea for you.

See also: Pulse Check: How Do You Approach Risk?  


There are only two events in the life of a modern Information technology organization that result in mass firings of executives. One of them is a security breach. Another one is the almost hopeless journey to implementing core system replacement and any large enterprise program.

Before you embark on this journey, think about the real chances of your success, and think long and hard about what success really means to you. Are there simpler and less expensive ways to deliver value to your customers? Is doing nothing better than doing something? Are there better places to spend money? Try answering these questions before starting an enterprise program.

5 Challenges Facing Startups (Part 1)

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.

Customers’ Digital Expectations

Insurance Europe’s International Insurance Conference touched on some critical friction points between government and industry. Capital standards, consumer protection and climate risk resilience have grabbed the headlines, but important new ground was trodden when industry leaders began adding a new policy challenge to the industry’s agenda: the intersection of insurance and technology.

Axa’s Cecile Wendling summed up the challenge when she asked how we are going to regulate this new world of a fully digitized insurance market. But it was XL’s Mike McGavick who put it in context — as only CEOs can do — by suggesting insurers could be “the next taxi cab industry” if they don’t get their regulatory issues right.

These are fundamental questions that deserve greater attention in the growing dialogue around technology and insurance. Tomorrow’s insurance buyers — more tech-savvy, empowered and diverse than today’s — are already demanding an insurance market that reflects the full potential inherent in technology-enabled disruption; the question is whether the industry and its regulators are prepared to meet that demand. Early signs suggest no.

See also: 4 Technology Trends to Watch for

According to a BCG study, insurers rank near the bottom of online customer satisfaction, a reflection of how little the industry has invested in digitizing its approach to engaging customers. Similarly, a recent J.D. Power survey captured consumers’ frustrations with insurers’ web-based services, the most basic of all digital engagement platforms.

However, despite this track record, one soon-to-be-dominant demographic still trusts the sector to get it right: millennials. Consumers in the 18-35 cohort actually trust the insurance sector 16% more than the public at-large does. This “trust premium” is at risk, though, if insurers are unwilling or unable to make the transition to a tech-enabled market.

In fact, two Willis Towers Watson surveys illustrate just how comfortable millennials are with where the market is going — even if so many of us are still just starting the journey to get there. First, millennials prefer usage-based insurance to coverage based on conventional determinants (such as age and gender) 19% more than the general public. And second, millennials are nearly 60% more likely than anyone older to change their driving behavior to obtain cheaper car insurance. To exceed these expectations, insurers are going to need to fundamentally alter their approach to sales, underwriting, policy administration and claims (another speaker at the Insurance Europe conference provocatively suggested many of these functions will actually merge, as technology allows the consumer to become her own underwriter); regulators — particularly those fixated on rate and form approval — will need to fundamentally reassess their approach to consumer protection.

See also: How to Redesign Customer Experience

This tension was evident during a spirited afternoon panel that pitted consumers’ expectations of executing a transaction in less than four clicks against the traditional insurance view that its products are so complex and important that enhanced levels of consumer protection are needed.

These are real issues, but posed this way, they offer a false choice. It can’t be EITHER a digitally enabled seamless customer experience OR a regulatory paradigm that maintains the trust so fundamental to the insurance promise. It must be both. To get there will require leadership — and a constructive dialogue on these challenging topics in Dublin was a good start.

The Start-Ups Are Coming (Finally)!

For most of 2015 I have been banging on about disrupting insurance (or Instech, if you like that kind of jargon). I’d like to use this blog post to talk about why I find it exciting.

1. Insurance is an enormous market

Life insurance premiums are $2.3 trillion globally. Non-life insurance premiums are $1.4 trillion globally. (Both numbers are from 2012, from a McKinsey report.) I don’t get to write the word “trillion” often when looking at market sizes.

Importantly for a European venture capitalist, Europe is a disproportionately large chunk of the market, coming in at $700 billion of life and $400 billion of non-life. And London, as the place insurance was invented, remains its biggest global hub.

2. Incumbents face a number of challenges

The insurance industry in Europe and the U.S. is mostly composed of large traditional insurers that have been operating for decades or centuries. They have struggled to adapt to a digital age, as shown by the graph from BCG below. As with banks, their back-end software and underwriting is tied into legacy software from previous decades, with major system integration challenges.


Insurers also have very little contact with their customers, contributing to low brand loyalty and retention.

In many countries and verticals, insurance is still mostly distributed via expensive offline broker networks. Insurers are often tied to these networks, making it very hard for them to move to direct/online distribution. For a typical insurer, distribution costs are significantly higher than all their other non-claims costs combined. Regulatory change in some countries is forcing insurers to make brokerage costs more explicit, which could well lead to customer backlash.

3. Technology can be highly disruptive in insurance

Technology can have a huge impact on every important aspect of insurance. Distribution was the first part of insurance to be disrupted, with insurance comparison engines such as Moneysupermarket and Check24. Further disruptive mobile-first distribution models are emerging. On the underwriting side, there is a huge volume of new data available (telematics, mobile phone, health tracking, etc.) with which to make decisions. And there are new machine-learning techniques to work with existing data. Smartphones allow a much more efficient and pleasant claims experience. Personalization software and machine learning enable :segment of one” insurance. The list goes on. (You can download a good report on this from BCG here.)

4. There are obstacles to entering the industry

It wouldn’t be an achievement if it was too easy. Insurance presents start-ups with a number of barriers to entry, of which the most significant are:

  • Regulation. Insurance is (with good reason) a highly regulated industry, and regulations vary by country (and by state in the U.S.). To get going in the UK, for example, you need to get into the nitty gritty of brokers, MGAs, reinsurers, Solvency II, warehousing, etc., etc. You also need to understand a different set of accounting standards and terminology.
  • Balance sheet. Once you get through the regulation, you need to prove that you have the balance sheet to be able to pay up for claims in any eventuality. This requires serious capital before you can write your first policy.
  • Partnering with incumbents. Both of the above make it near-impossible to start fresh, unless you can raise an Oscar-like $100 million-plus. Any other Instech start-up is going to need to partner with existing insurers. This presents a number of challenges and limits flexibility. Some insurers are trying to encourage innovation (e.g., axastrategicventures.com), but good intentions are confronted by big-company politics, vested interests and “not invented here” syndrome.
  • Historical data. If you are going to get into underwriting insurance, you need historic claims data on which to base your decisions. However, this data is privately held by insurers. Building up enough data over a long enough time frame (given that claims are infrequent events) is a real challenge. Without it, there is a danger of start-ups mispricing risk.

5. These obstacles put off the big tech players

For the likes of Alphabet/Google, Facebook and Amazon, insurance is too hard and too boring. When you have a huge war chest, self-driving cars and drones are much more interesting areas to explore. In the war for engineering talent, it is hard to get your best developers to work on financial services. When I was with Google in 2007-09, I worked on the early days of Google Compare. Despite much hand-wringing in the insurance industry, this hasn’t gone anywhere. It’s just not high enough up Google’s priority list.


6. Despite the obstacles, there are success stories


Ping An is one of the most impressive growth stories of any company globally. It was founded in 1988 in Shenzhen and was the first insurance company in China to adopt a shareholding structure. It took the nascent Chinese insurance industry and put a rocket under it, going IPO in 2004 at a $10 billion valuation. It is now valued at $100 billion. Ping An has always been a technology-led company and continues to lead the way in tech-led innovation.

Moneysupermarket was the first player to really crack insurance comparison, allowing users to type in their details once and receive competing quotes from dozens of insurers. It was quickly copied, leading to a fierce TV and Google ad spending war with Comparethemarket, Confused and Gocompare that continues to this day. Despite this, Moneysupermarket is still valued at almost $3 billion.

esure was founded in 2000, went public in 2013 and is now valued at $1.5 billion. Its success has been built on efficient, low-cost operations and building brands (both esure and Sheilas’ Wheels ). esure also owns Gocompare, one of the players in the UK comparison market.

7. There are a number of impressive start-ups emerging, but there is room for plenty more

Over the last year, I have seen a step change in the number of startups going after insurance. But this change has been from “almost none” to “a trickle.” Tiny in comparison to the huge number of start-ups going after the similar-sized fintech market.

Here are a few of the areas in which I see Instech start-ups emerging:

Insurance distribution beyond comparison

This is the most obvious area for start-ups to address, as it is not subject to many of the challenges above (less regulated, no balance sheet, no underwriting). A few interesting new players:

  • Knip. Mobile-first insurance concierge. Initial proposition for users is to remove administrative pain: Have all of your insurance policies in one place. Over time, there is the potential to be a user’s trusted insurance adviser, recommending where he should increase/decrease cover and who he should insure with. Started in Switzerland, now taking on German market with competition from Safe and Clark. PolicyGenius in the U.S. is a different twist on the insurance concierge concept.
  • Boughtbymany. Social distribution for niche insurance. Boughtbymany finds niche groups who have challenges finding good insurance today (e.g., diabetics, young drivers). It plugs into these affinity groups to push specially designed insurance products to them.many
  • Simplesurance. Seamless insurance cross-sell at checkout. The idea of selling insurance for high-value items at point of purchase is not a new one. Simplesurance’s innovation is to make it as frictionless as possible for users and online retailers.

New forms of capital provision/peer-to-peer

In our persistent, low-interest-rate environment, new capital is flowing into the insurance industry in search of returns. One manifestation of this is hedge funds getting into reinsurance.

As a start-up, one opportunity is peer-to-peer insurance, where a group of members cover some or all of claims made by the group. In some ways, this goes back to the original concept of cooperative insurance. The advantages should be less fraud, lower acquisition costs (through referrals/social), greater loyalty and, over time, better pricing.

  • Friendsurance in Berlin was the first company with this approach.
  • Guevara in London is a different take on the P2P concept.

New sources of data

Connected devices and other online data offer insurers a huge amount of additional data on their insured risks. The first success story has been telematics for car insurance, where your driving behavior affects your premium. A number of good businesses have been created, such as Insurethebox, which sold 75% of the business at a valuation of around $200 million earlier this year. However, so far, telematics has remained a niche product, in particular addressing young drivers. Connected cars and ubiquitous smartphones will take it to the mass market.

Going forward there are many more opportunities to use connected hardware to refine insurance: wearable devices for healthcare, smart homes for home insurance, mobile phones for almost anything. There is also the opportunity to use people’s online presence and social networks to reduce fraud and (possibly) improve underwriting.

A few examples in this area:

  • Climate Corp. Collecting weather data with high precision, offering farmers crop insurance and in depth analytics.
  • Metromile. In the car insurance telematics space, but using your smartphone to collect data, and a new pricing approach (pay per mile).
  • Vitality. Keeping fit and healthy reduces your health insurance costs. Data taken in from partners and wearable devices. Has grown to 5.5 million members. Oscar is also using data from wearable devices for its insurance.

Reinventing the insurance experience

This is a broad category, including changing how claims are handled, how insurance is sold and how it is bundled with other services.

  • Oscar is the best example of this, reinventing U.S. medical insurance from the bottom up. It has been well-covered by the tech press, so I won’t go into it further here.
  • Aircare is part of Berkshire Hathaway but worth a quick mention as it eliminates claims completely – it automatically pays out if your flight is delayed. Claims management is the most painful part of dealing with an insurer, with expensive offline measures to try to combat fraud. As everything we do becomes connected (starting with our car) the concept of “claiming” may become an anachronism.

New verticals

There is always a new category emerging for insurance. Smartphone insurance has seen huge growth. Cyberinsurance is a current hot topic. However, addressing these new lines of business is something that insurance insiders are pretty good at. Unless a start-up can come in with a real tech advantage (which in cyberinsurance might be possible), the worry is that new segments quickly become competitive.

New markets

The insurance market is still in its early stages in much of the developing world, offering opportunity for land grab. Compare Asia is an example of one company addressing this. DirectAsia, acquired by Hiscox, is another.

SaaS to help the insurance industry keep up

The insurance industry is more than big enough for a SaaS provider focused on the industry to build a billion-dollar business. There is a lot of Excel still being used. The question is which parts of insurance require unique software, as opposed to a slight customization of generic business intelligence, CRM or machine-learning SaaS packages. A couple of insurance-specific SaaS companies are Quantemplate, offering business intelligence and data warehousing, and Shift Technology in fraud detection. Balderton’s portfolio company InterResolve is a different sort of B2B insurance company, with a technology-led approach to insurance claims mediation.

What I am looking for as a VC in insurance

Finally, a quick summary of what I look for as a VC in insurance start-ups:

  • Founding team who combine deep understanding of the insurance industry with an external, tech-led DNA. This probably means two founders, or a truly exceptional founder who can combine both. This is not an industry you can bluff your way through. On the flip side, I worry that a team of insurance industry insiders will struggle to break from industry norms.
  • Real tech DNA in the company (something I look for in any sector).
  • A clear focus on the customer, not the insurer/partner.
  • Simplicity: an ability to take a complex industry and present it in a beautiful way using plain language.
  • Mobile-first.

If you are an insurance start-up in Europe than I haven’t spoken to before, please contact me!