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Model for Collaboration and Convergence

The Global Insurance Accelerator, based in Des Moines, Iowa, has just participated in the fourth Global Insurance Symposium. Two of the big takeaways are that the insurtech movement is maturing, and there is indeed convergence happening between the traditional industry and the entrepreneurial startups that have new ideas and business models. For the insurance industry to advance, there must be a great deal of collaboration between all types of participants in the marketplace. The GIA represents a great example of how this collaboration can be facilitated.

Since its inception, the GIA has promoted collaboration instead of disruption. There is a clear focus on insurtechs and their potential to bring transformative ideas to the industry, but not with the objective of displacing the existing industry players. The model is designed to look for mutual benefit for insurers and insurtech startups. Insurance companies, regulators, investors, academia and other industry experts like SMA are actively involved with insurtechs to guide and support them as they mature.

See also: Insurance Coverage Porn  

The idea is that there is a win-win situation when the strengths of the traditional industry (capital, regulatory experience, scale, risk knowledge, etc.) can be blended with the strengths of insurtechs. The startups bring an entrepreneurial spirit, speed, innovation and new business models to the game. The best ways to partner and take advantage of these combinations require hard work and are enhanced by facilitating organizations like the GIA.

As the transformation of the insurance industry continues, more and more insurers are seeking to actively partner with insurtechs, leverage emerging technologies and institutionalize innovation. At the same time, the insurtech community in general is maturing and has a greater understanding of the insurance industry and the need to collaborate than it had a couple of years ago. This evolving formula creates the potential to provide new ways to deliver the customer experience, improve operational efficiencies and assist customers in risk management and wealth accumulation, resulting in success for insurers, insurtechs, and other market participants.

Startups Take a Seat at the Table

In an industry where experience matters, and where specific domain knowledge has traditionally been prized above all other things, startups are increasingly being included in strategic conversations, and given a seat at the insurance table. Insurtech startups are bringing important emerging technology innovations and smart business solutions to a stalwart industry, and interest and investment in insurtech is climbing steadily. With the pace of change and competition increasing, as well, leading industry incumbents are beginning to pursue collaboration with fresh partners and platforms.

Age Is Just a Number

There is no right age for launching a startup, or for undertaking an innovation initiative, but many naively assume that younger is always better. In fact, some mix of experience in the industry being targeted along with an innovative idea and entrepreneurial state of mind are likely the best combination.

The Global Insurance Accelerator (GIA) in Des Moines, for example, provides support to insurtech startups worldwide through a mentoring system that matches industry professionals with startups for a chance to better focus product-market fit. The average age of program participants working from Des Moines has increased each year since inception in 2015. The average age was 35 in the first year. It bumped one year to 36 in 2016, and jumped to 40 in 2017.

See also: Will Startups Win 20% of Business?  

This mix of new voices and seasoned experts proves that innovation doesn’t have to come exclusively from one generation. Leveraging industry knowledge and experience with ideas from newcomers can lead to great things when attacking problems worth solving.

Everyone Needs Mentors

Over the course of three cohorts at the GIA, a shift has occurred in the amount of insurance experience the entrepreneurs had coming into the program. In 2015, only a couple of participants had worked in the industry. Now, in 2017, the pendulum has swung to the other end of the spectrum, and almost every member of the cohort has worked in insurance at some point during his or her career.

However, this prior industry experience hasn’t diminished the impact the GIA’s mentors have on any given startup’s evolution. The amazing pool of mentors who have raised a hand and taken a front seat in helping these early-stage InsurTech startups navigate a complex industry remain critical to the program’s success. Although the mentor role is largely to guide and advise, almost all of the GIA’s more than 100 mentors have reported learning as much from the startups.

Collaboration Is Key

There are six companies currently participating in the 100-day GIA program from a combination of the United States, Canada, Germany, and Serbia. The ideas and products offered by these InsurTech startups differ, as do the technologies powering the innovation, but these startups are all entrepreneurs who understand the vast opportunities within the insurance sector.

Moving to the main stage, GIA’s InsurTech startup cohort members gain a seat at the table this Spring during the fourth annual Global Insurance Symposium in Des Moines. Sitting alongside peers in one of the global hubs of the insurance industry, these startups will be able to both learn from seasoned industry experts and share wisdom as well.

See also: 5 Challenges Facing Startups (Part 5)  

The Global Insurance Accelerator experience will culminate in a panel discussion at the Global Insurance Symposium which will discuss lessons learned, and provide an opportunity to network with leaders from around the industry. This experience will allow GIA’s cohort to better understand the industry so transformation can continue from the inside out.

Collaborative efforts like these will not only allow insurance industry players to remain relevant and competitive, but to transform the insurance industry by meeting customers’ needs through new and improved methods.

Observations From InsurTech Week

InsurTech Week 2016 hosted by the Global Insurance Accelerator in Des Moines was a great experience. It is quite interesting to see the energy, excitement, new ideas and investment in the insurance industry. Brian Hemesath and his team at the GIA have done a great job of harnessing this activity and being a positive force for change in the industry.

There are two themes I would like to highlight. The first is that the ingenuity and sheer variety of the startups is astounding – and will ultimately be a great thing for the industry. The second theme, and perhaps the more subtle one, is that there is a collegial atmosphere and a common sense of purpose about the role of insurance in society and business.

See also: Insurtech Has Found Right Question to Ask  

Variety and Ingenuity

The 11 insurtech startups participating in this InsurTech Week are a microcosm of the larger movement. A few examples are illustrative.

  • Abaris – an innovative, direct-to-consumer solution for retirement planning, starting with income annuities.
  • Insure A Thing – an idea for a revolutionary new business model for insurance that includes making payments in arrears (post-claim).
  • Denim – a social media ad platform for insurance with a vision to ultimately reimagine marketing and distribution.
  • ViewSpection – a mobile app for DIY property inspections to help to inexpensively provide more information to agents and underwriters.

The other participants also had innovative solutions for various lines of business and addressed key business issues in insurance today. They are: Ask Kodiak, Gain Compliance, Montoux, InsureCrypt, Elagy, CoverScience and Superior Informatics.

Some are in the early stages. Some originated outside North America and may or may not enter the market here. Some may not even be approved by regulators in their current form. But that is true of the broader set of the hundreds of insurtech companies that are active today.

The main point is that there is a great deal of innovation here, and many of these companies will play a role in the evolution of insurance, one way or another.

Collegial Atmosphere

The founders and investors in insurtech companies certainly desire to make money. Insurers that are engaging with these firms hope to gain competitive advantage. But in keeping with the culture of the insurance industry, there is also a great atmosphere of collaboration and even a sense that there is a higher purpose.

I don’t want to sound too dramatic, but there is a sense of altruism here – a sense that there are great opportunities to make the world a better place. Many of the insurtech companies see opportunities to improve safety in homes, in businesses, in factories and on the roads. The potential to significantly reduce accidents and deaths is tangible. Providing new services and capabilities to enhance lifestyles, improving individual well-being and just making it easier for customers to do business with the industry are also common purposes.

There is a spirit of cooperation among insurers, insurtech and other industry players, even in cases where companies are competitors. Not to criticize other industries, but insurance is about a lot more than selling a widget and making a buck.

See also: Calling all insurtech companies – Innovator’s Edge delivers marketing muscle and social connections

A Bright Industry Future

Overall, I believe this is cause for optimism for the insurance industry. It is not easy to transform from today’s business models, processes and systems into a future that embraces all the new ideas coming from insurtech. But many in the industry are now actively involved in building strategies, experimenting with new ideas and technologies, launching ventures and generally being willing to think differently.

While many industries are being disrupted, insurance is more likely to morph into a better version of itself, with incumbent players learning from and partnering with new players.

The Myth of the Protection Gap

A friend and colleague, Chunka Mui, once said, “Marketing is when a company lies to its customers. Market research is when a company lies to itself.”

In the insurance industry, talk of the protection gap manages to combine both problems: It’s something of a lie to customers and is an even bigger lie to ourselves.

People routinely talk about the protection gap — the difference between losses incurred and the amount that are covered by insurance — as though the number shows how much more insurance people and organizations should be buying. We comfort ourselves with the size of that number, because we think it represents opportunity for us. We also, frankly, get a little condescending about the people and organizations that aren’t bright enough to buy our product to cover their losses.

But if you look at it from the customer standpoint, there isn’t a gap. We’re just kidding ourselves.

To make the math simple, let’s pick a country at random and make up some numbers out of whole cloth. Let’s imagine we’re Gabon, and we, as a nation, incur $1.5 billion of losses a year, while only $500 million is covered by insurance. We’re told we have a protection gap of $1 billion. We should buy $1 billion of additional coverage.

It’ll only cost us $1.3 billion.

That’s because — again, in very rough numbers — the insurer has to tack on 20% on top of the losses to cover expenses and needs its 10% profit margin to keep shareholders happy.

But why would Gabon decide to overpay by $300 million a year? The insurer’s employees and shareholders are surely nice people who could use the money, but shouldn’t Gabon take care of its citizens?

I understand about peace of mind and surely believe that insurance plays a crucial role in the world economy, but, from a certain perspective (one that many customers take), I’d be better off going to a casino and playing the slot machines rather than buy insurance. The casino might even throw in free drinks and a show.

Insurance needs some new math to replace the protection gap, and we need to stop acting as though it’s a real thing that a customer might care about.

The first step is to cut expenses radically — perhaps 50%. I use that number because a famous consultant/author with whom I have worked is going to argue in a book soon that every business needs to cut operating expenses by 50% within five years. I also see enough innovation happening around the edges in insurance that I think radical cost cuts are possible. For instance, at the Global Insurance Symposium in Des Moines last week, I met the founder of RiskGenius, whose artificial intelligence could automate the work of whole swaths of people at brokerages who review the constant stream of changes in policies.

But even that new math only shrinks the problem. Add half the previous expenses onto that $1 billion of insurance for Gabon, stir in the required profit, and you’re still asking the country to pay $1.2 billion to cover $1 billion of losses.

The real change can only happen when insurance gets out of its product mindset and shifts to a service mentality. Then someone could go to Gabon and say, “Our insurance company knows an awful lot about how losses occur. How about if we advise your government, your companies and your citizens and help you prevent as many as we can?”

Then, perhaps, you shrink those losses by a third — and keep some of that difference as profit. If you still take that whack at expenses, you could tell Gabon: “We’ll take responsibility for your $1.5 billion of losses (both the insured and the uninsured), and it’ll only cost you $1.25 billion. You’ll come out $250 million ahead, while we cover all our expenses and earn $100 million profit.”

That $250 million gain is the kind of gap a customer will believe in.

What I Learned at Google (Part 2)

We didn’t intend to write a series on the symposium that Insurance Thought Leadership hosted at Google last week for C-suite executives of major companies and for regulators, but I want to build on the wonderful post yesterday by Iowa Insurance Commissioner Nick Gerhart, about the insights he picked up there. For me, the symposium underscored a crucial point about the pace of innovation — how it can be faster than we expect at times but can also be slower.

And it’s crucial to get the timing right.

The faster-than-expected part comes from a partner at one of the major Silicon Valley venture capital firms, which we visited as part of the symposium. All these firms track where entrepreneurs are seeing possibilities and where investments are happening, and the partner said that in all of 2014 the firm had been visited by exactly zero people hoping to innovate in insurance. Yet, just in the fourth quarter of 2015, the firm met with 60 companies looking to innovate in insurance.

Even as innovation has surged in fintech, in general, investment in insurtech start-ups has been minimal, about 1% of the total for fintech. But that may now be changing. Start-ups may accelerate the disruption in insurance.

You’ve been warned.

The slower-than-expected (at least for me) part comes from a consensus about driverless cars at the symposium. The group discussions at all five tables reached almost identical conclusions: that fully driverless cars will be feasible technologically in roughly four years but that it will be 10 before they are a major presence on the road.

In Silicon Valley-speak, saying something is 10 years out means it verges on science fiction. After all, 10 years at a pace set by Moore’s Law means that you have some 30 times as much computing power available to you at no increase in cost — if you need that much more power to make something happen, it’s hard to know for sure that it works 10 years ahead of time.

But the concerns of the insurance C-suiters and the regulators were more prosaic. They felt that anyone who might be left behind because of driverless technology would kick up a fuss and that state governments, likely led by the legislatures, could intervene on behalf of constituents to slow the transition.

Perhaps insurance agents would fear the shift of auto insurance from a personal responsibility to a corporate one, shouldered by the manufacturers of the driverless cars or by operators of fleets of the cars — if no person is involved in driving, how can an agent sell personal lines insurance?

Maybe car dealers, already fighting a rear guard action to prevent direct sales by manufacturers to consumers, would fear further loss of their intermediary role — why would a fleet operator need a dealer to purchase of tens of thousands of cars?

Basically, think of anyone who might lose business because of driverless cars and the promised reduction in accidents — parking garages, emergency rooms, whatever — and you can see an obstacle. Not everyone will be explicit about their complaints. It’s hard for an operator of prisons or funeral homes to demand more business. But our discussion groups were sure that opposition would surface in lots of ways and that politicians, always running for reelection, would lend support.

In fact, some technical concerns about driverless cars have surfaced in recent months. It turns out that Google cars have more accidents than human drivers do, albeit only minor accidents thus far and, most importantly, not because of any fault by Google — careless people seem to bump into Google cars a lot at stoplights. Google also acknowledges that the cars would have caused at least some accidents if not for intervention by the highly trained humans sitting in the driver’s seat. So, the technology still has a ways to go.

The pace of technical progress has still been faster than I expected when Chunka Mui and I published Driverless Cars: Trillions Are Up for Grabs nearly three years ago, and we staked out what was then a very aggressive position. The federal government recently stepped on the gas, if you will, by announcing a plan to spend $4 billion on driverless technology over the next decade and to reduce regulatory hurdles for adoption. The rationale — which we have long predicted the government would have to adopt — is that 25,000 lives could have been saved last year on U.S. highways if a mature form of the technology had been in use.

For me, then, the fundamental question from our symposium is: How do you position yourself for a technology that may be wildly important, yet whose timing is uncertain?

Two thoughts:

–A line that carries considerable currency in Silicon Valley is: “Never confuse a clear view with a short distance.” Even if you’re sure that something will happen as part of the transition to autonomous vehicles, keep in mind the issue of timing.

–Then think big, start small and learn fast — a dictum that just happens to come from another book Chunka and I wrote, The New Killer Apps: How Large Companies Can Out-Innovate Start-UpsThat means you get in the game now, with as big a vision as you can conjure up for yourself or your company. Then you start experimenting to see what works and what doesn’t — while spending extremely little money. You make sure you can kill the experiments as soon as you gather the needed information — no pilot projects allowed, at least not in the early days, and certainly no grand plans to go to market. And you keep iterating until both you and the market are ready. Then you start cashing checks.

Actually, one more thought: Consider coming to the Global Insurance Symposium that Nick and the fine folks in Des Moines (my dad’s hometown) are putting on in late April. Nick is as forward-thinking a regulator as I’ve met, and there will be lots of people there who can help you on your journey, whether that involves driverless cars or something else entirely. I’ll be there….