Tag Archives: insurance observatory

Innovation: ‘Where Do We Start?’

Before “insurtech” becomes the next over-used buzz-phrase to hate, let’s step back for a moment and consider the truly unprecedented scope of opportunity for growth facing those in the various risk management sectors who embrace the inevitable reinvention of this trillion-dollar industry.

As the whirlwind of start-ups and innovation occurring across insurance business models evolved into viral global gold rush, many existing insurers and VCs still struggle with how to participate. Many who understand the reality of disruption as a means of growth struggle even more with the most basic questions:

  • Where do we start?
  • Do we have the expertise?
  • How can we pick the best among the thousands of startups and “smart-ups?”

Most of the established firms I coach are consistently surprised by two lessons learned that have been captured at some point after working through these key strategic questions.

First, they are surprised at the ease with which they were able to answer the one question that can be truly paralyzing: “Where do we start?” Second, they often voice relief at how easily the rest of the core, up-front answers seem to just fall into place. These experiences can be distilled down to a rather straightforward single question: “How do we get unstuck?”

See also: Insurtech and the Law of Large Numbers  

Two timeless bits of wisdom can provide the first steps toward converting chaos into actionable clarity:

  1. A picture is worth a thousand words. Frameworks and models do help create clarity.
  2. A little education goes a long way. This is code for: check as many assumptions as possible at the door and ask, “What if..?”

Here are some pictures that can be useful:

Source: Startupbootcamp, what is an insurtech? [Infographic], 2015

The “4 Ps” model from Matteo Carbone and the Insurance Observatory

Insurtech Landscape by AGC Partners

All three frameworks for understanding insurtechs are solid models by which an audience, subscriber group or client company can gain greater insights. But insurance companies, venture capitalists and regulators need to understand how to use them.

The insurtechs in these models represent but the center of a much larger landscape of forces requiring consideration if you want to be an insurer that defines the rules that all others will have to follow.

Innovation Framework

The reinvention of insurance is simultaneously happening from the inside-out (insurtechs) as well as from the outside-in (exponential technologies). In other words, insurtechs are revolutionizing HOW insurers will manage risk and consumers. Exponential technologies will fundamentally redefine the WHAT—i.e., the very risks that insurers manage.

Now, this raises an important question: How do we define these larger external forces? One organization influencing many of these breakthrough, or exponential, technologies is Singularity University in Sunnyvale, CA. Singularity U coined the phrase “10(9)” Opportunities.” These are opportunities to leverage a technological capability, or domain, to improve 1 billion lives (9 zeros) within a single decade.

Some may question whether this vernacular is more aspirational than attainable. But among the best-kept secrets in the insurance industry is the reality that exponential markets waiting to be discovered outnumber those currently being addressed by existing insurance product lines. So, here is a possible goal: “By year-end 2027, we will have grown by improving the lives of 1 billion or more people by creating products that leverage the technological application of___________________.”

Incumbent insurers must understand how these converging forces relate to discover clarity and scalable growth. A short list of essential questions leading to viral growth strategies needs to include: Which insurtechs will feed my strategy to grow _________ opportunities?

These types of questions can map the insurtechs within the industry and near term to the longer-term, much broader landscape of opportunities. Clarity of these exponential forces—then mapped back to the products, services, and new business models among insurtechs—will open the door to achieving four significant deliverables:

  1. Improve the solicitation, selection and vetting of new ideas generated internally and collaboratively;
  2. Improve the returns on early-stage investments;
  3. Improve the vision, focus and identification of M&A opportunities;
  4. Improve the expectations and returns on new products and services developed and launch by internal innovation teams.

Strategic Framework for Member Services

The world outside of insurance looks into this industry with skepticism with respect to innovation. What is so often misunderstood is that three of the most significant societal shifts of the past 200-plus years were essentially enabled by insurance innovation: homeownership in the late 18th century, the viral adoption of the car and advances in medical treatments as an outgrowth of adoption of health insurance. The DNA for exponential innovation resides within this industry.

Seeing insurtechs as a means to fulfill a longer-term innovation strategy is where the opportunities are being discovered by those who will lead this industry for decades to comes.

See also: Insurtech Is an Epic Climb: Can You Do It?  

To provide feedback, ask for additional information or learn how to apply these concepts, contact Guy Fraker, guy@insurancethoughtleadership.com.

Do you want to follow Guy Fraker’s commentary and insights, and be notified as new posts are added?

Subscribe to Guy Fraker's blog

It’s Time to Act on Connected Insurance

It is not a secret that I’m an insurtech enthusiastic; I have shared my view about the need for any insurance player (insurer, reinsurer, distributors, etc.) to become an insurtech-player during the next several years. This will mean: organizations where technology will prevail as the key enabler for the achievement of the strategic goals.

It was only 12 months ago when I published my four Ps to assess the potential of each insurtech initiative. My approach is based on four axes related to the fundamentals of the insurance business:

  1. Productivity: Impact on client acquisition, cross-selling or additional fee collection for services;
  2. Proximity: What an insurtech approach can do to enlarge the relationship frequency, by creating numerous touch-points during the customer journey — a proven way to increase the customer’s satisfaction;
  3. Profitability: What can be done to improve the loss ratio or cut costs without an increase in volumes; and
  4. Persistence: Increasing the renewal rate, and, thus, stabilizing the insurance portfolio.

The insurtech ecosystem has shown terrific growth in the last 20 months, after many VCs complained about the absence of insurtech startups. The updated Venture Scanner’s map shows more than 1,000 initiatives, with more than $17.5 billion invested. The needs for a pragmatic approach, the ability to prioritize the initiatives and a stronger focus on innovation have become more and more relevant.

See also: 10 Trends at Heart of Insurtech Revolution  

I strongly believe in the effectiveness of the aforementioned four axes to evaluate a business. In the last few months, I followed this view to make investment and career choices.

Several months ago, I invested in Neosurance, an insurtech startup currently accelerated by Plug & Play in Silicon Valley, and I’m supporting the company as a strategic adviser. This company developed a platform to enable incumbents to sell the right product with the right message at the right time to the right person. By using artificial intelligence, Neosurance aims to become a virtual insurance agent with the ability to learn and improve how it sells. I fell in love with its model because of its productivity angle, the first of the four Ps.

Let’s consider all the non-compulsory insurance coverages. The large part of the purchases have been — and still are — centered on a salesman’s ability to stimulate awareness and to show a solution. In a world that is getting increasingly more digital and is becoming less about human interaction, I’m skeptical about the ability to cover the risks with the current approaches of online distribution, comparison websites and on-demand apps. All three of these approaches require a rational act and a lot of attention. But many customers look like more to Homer Simpson than to Mr. Spock.

Those are the reasons I’m optimistic about Neosurance’s business model. On one hand, its B2B2C model aims to be present where and when it matters most for the customer. And, its “push” approach is able to preserve underwriting discipline, which is the only way to continue in the middle term and distribute a product that keeps a promise to the customers. My investment choice was based on the business model evaluation, the company’s pipeline and the quality of its team. I hope to be able make more investments.

Connected Insurance Observatory from Matteo Carbone

I also decided it was time for a job change at the end of 2016. After 11 years, I left my career with Bain & Company, where I advised the main insurers and reinsurers on the European market. I had focused my activity on the insurtech trend, because I’m passionate about connected insurance. In the last several years, I have advised more than 50 players on this topic — from insurers to reinsurers and from service providers to investors. I consider the use of sensors for collecting data on the state of an insurable risk and the use of telematics for remote management of the data collected to be a new insurance paradigm. For years, many of the use cases we have seen globally have only somewhat used the potential of this technology to support an insurer and achieve his or her strategic goals.

My belief could be well understood by observing the best practices of auto insurance telematics and their performance regarding the other three Ps:

  • Let’s start with the proximity angle. Insurers have provided telematics-based services that have reinvented a driver’s journey. More and more players are focusing on this opportunity to create an ecosystem of partners to deliver their suite of services. Discovery Insure is one of the best at doing this because it is able to reward clients with a free coffee or smoothie for each 100 kilometers they drive without speeding or braking hard. Is there a way for you to be closer to your client?
  • The Italian market shows the potential benefits in terms of persistency. There are more than 6.5 million cars with a device connected to an insurance provider in Italy, and the telematics penetration reached 19% in the last three months of 2016. On average, the churn rate on the insurance telematics portfolio is just 11%, which is lower than the 14% churn rate on the non-telematics portfolio.
  • Last — but definitely not least — is the profitability side. The Italian telematics portfolio shows a claims frequency that, risk-adjusted, was 20% lower in comparison with the non-telematics portfolio, as I mentioned in a paper last year. The best practices were able to achieve an additional 7% average claims cost reduction by acting as soon as a claim happened and by reconstructing the claims dynamic. These savings let insurers provide an up-front discount to the clients. This makes the product attractive and achieves higher profitability.

See also: Insurtech: Unstoppable Momentum  

My day job is now to run an international think tank focused on connected insurance. More than 25 companies have joined the European chapter since the beginning of the year, and eight players have joined the North American chapter since March. This initiative is developing the most specialized knowledge on insurance IoT, which is based on a multi-client research. I personally deliver the contents through one-to-one workshops dedicated to each member. Throughout the rest of the year, I will host plenary meetings with all the players to discuss this innovation opportunity.

I felt honored and privileged last spring when former Iowa insurance commissioner Nick Gerhart invited me to present my four Ps at the Global Insurance Symposium 2017 in Des Moines, but I did not realize how this framework would so deeply influence my life decisions.

It is definitely an interesting time to be in the insurance sector.