Tag Archives: startup

Why Haven’t More Startups Failed?

We’re about five years into the insurtech boom, but we’re also in the middle of a pandemic. Excitement around emerging technology and startup innovation has taken a backseat as the insurance industry shifted its focus to COVID-19. 

Yet startups have not failed as quickly as the industry might have predicted. It’s possible that some startups will begin to outrun their funding and close their doors in the next year or two. But for the time being, the insurtech market and funding remain relatively stable. What’s driving this?

COVID-19 and Insurtech Partnerships

The pandemic has altered insurers’ approach to insurtech investment. Insurers appear to be focused on tactical initiatives that can produce more immediate results. This contrasts with the R&D that was more prominent pre-pandemic. 

Yet it turns out that startup activity and the global pandemic are not necessarily mutually exclusive. Insurer priorities most notably changed focus to cloud computing and digital strategy — with digital covering both external channels and internal workflows. Cloud and digital are two areas in which almost every insurtech excels and have led to additional opportunities in many cases. Insurers expect that these areas will continue to be prioritized even when the pandemic is over. 

Lemonade’s IPO and What It Means for Insurtech  

Lemonade’s IPO cemented one of the most notable insurtech players as a certified unicorn. IPOs validate the potential returns of insurtech and will help attract more investment dollars into the space, whether from venture capitalists or insurer investment arms. Few other startups have gained the investment attention that Lemonade has, but others — like life insurance startup Ethos or property insurer Hippo — have received funding over $100 million. Each of these startups’ successes helps attract dollars for the rest of the insurtech ecosystem.

See also: How Startups Will Save Insurance

New Growth Paths 

Many insurtechs, especially startup MGAs, are exploring new revenue streams. For some, this means selling a wider variety of coverages directly online or embedding at different points of sale. Some MGAS are also moving to become full-stack carriers, like Buckle and Clearcover. Still other startup carriers, like Slice, Trov and Metromile, have gotten into the software business and are licensing their platforms out to other insurers. 

Platform and analytics players are also finding success proving value to insurers in the current environment. Atidot, for example, partnered with Pacific Life to analyze product and pricing changes to help optimize market penetration for the insurer. In addition, Principal is licensing Human API’s medical records platform to circumvent paramedical exams for disability insurance during the pandemic. 

Many startups have interesting ideas but haven’t thought through long-term financial or regulatory hurdles. The goal of many startups is to validate a business model first, then work out the details later. It’s possible that some startups will start to outrun their funding and eventually close their doors. But it will be interesting to see how insurtech evolves in a post-pandemic world, especially as new realities cause insurers to rethink processes that were manually intensive. For startups that can show value to insurers, this new normal may be an opportunity.

How to Win in the New Normal

There is little doubt the world has changed, forever, as a result of COVID-19. In the aftermath of any upheaval that affects society so broadly, there will be a shift in behavior as people begin to react and behave based on their perceived new reality. What compounds the effect of this particular event is a fear of the unknown made more concerning by a general lack of confidence that anyone actually knows what will happen.

After COVID-19 runs its course, will we return to what was? Will people’s behavior have undergone a permanent change?

Habits are supposedly formed over about 28 days of consistent behavior. If that is true, then lots of new habits are being formed over this period of physical distancing, isolation, scarcity (at least of toilet paper and adequate bandwidth for Zoom meetings and conference calls) and fear.

This uncertainty over the future has brought entire industries and markets to their knees. Markets hate uncertainty (see the stock market). Business is driven by the ability to make decisions, ideally based on information, not just intuition. Yet when data is no longer relevant to the reality of the moment, it’s hard to make reliable business decisions. The result is usually either paralysis or adherence to what you “know” to be true.

However, this moment affords a better course; it is an opportunity to renew your business. When forecasting the future, much is unknown, and, while it’s possible we return to what we recognize as normal, the absolute least likely version of the future is “no change.” Those companies that emerge from these uncertain times stronger will be those that use these times to successfully prepare their business to meet a “new normal,” whatever that may be, and create as much clarity from uncertainty as possible. 

We do not know what the future holds; none of us do. But we do have an approach. There are three steps to begin the process of preparing your business for what’s next.

See also: COVID-10 Moral Imperative for the Insurance Industry  

First, transformation is achieved through a renewed mindset. No one ever does anything they cannot first imagine. Your executive team must adopt a new mentality, a new understanding, a new commitment to thinking differently. 

More than about how COVID-19 has changed the world and your place in it, a renewed mindset projects a much greater opportunity. Are your executives willing to face the possibility that the business model you operated under six months ago and the business model you may have six months from now do not align? Are they willing to do what it takes not to avoid compounding the current crisis with another crisis?

A change requires companies to examine their purpose, their strategy and their customer in light of these continuing changes. Guesswork and speculation are easy and entertaining. Converting to clarity requires shift in mindset. 

This renewed mindset is an irreplaceable cornerstone of planning for the future. Every company today should approach these times like a STARTUP, or at least a RESTARTUP.

Second, you need to identify every assumption and thesis that underpins your existing business model. From the resources and relationships you require to operate, to the customers you serve and their behavior and how you engage your customers, many assumptions may no longer be valid (if they ever were). 

Is your supply chain still valid and sustainable? Has your target customer changed? Have customers changed the way they feel about your products or services? Do people view your value proposition differently?

This self-examination may be uncomfortable, but it is necessary. Identifying assumptions and theses requires executives to actively participate and be open to suspend long-held beliefs. We are not saying these beliefs and assumptions must be surrendered, but they must be examined. The assumptions and theses that kill businesses are those that are so embedded they go unrecognized. 

The ability to facilitate this self-examination by a protagonist, who is not bound by the unrecognizable constraints inherent in the business and is willing to approach the exercise with no preconceived answers or bias, is critical. If you fake your way through this, you will fail.

Third, you must test every assumption. Discernment only comes with examination, with testing. Testing assumptions and theses requires executives be completely open to a future that is highly undesirable but still plausible. 

Identify what data points you will need to ascertain whether each assumption or hypothesis is true. Assembling the right data on which to test assumptions and theses may hinge on accessing new technologies to gather data and finding new ways of analyzing the data. 

An effective facilitator in this process guides executives to identify which assumptions are actually relevant, those that have the most uncertainty, those that have the most potential impact. The ability to ask the not-so-obvious question is important, as is the discipline to examine motivation, why people behave or react the way they do. 

Executive teams must be able to ask “why do we do that?” “what if?” and “what’s possible?” at every turn. You have to face the unthinkable. No assumption goes unexamined, and nothing about the past is sacred.

Those companies that successfully prepare their business to meet a “new normal” will be those that undertake this renewal process and gain a new understanding of their supply chain, of the resources they need to execute and of their customers’ problems, attitudes and needs. Every executive will face shifts in the market that could not have been anticipated.

Our renewal process is an approach to emerge stronger. Our renewal process will cause executives to examine every aspect of their value chain, including resources, supply, engagement and the ultimate transaction. 

The strong will renew their businesses, then, based on the strategies and constraints developed from this process, they will undertake an intentional scenario planning process and innovate in the context of what the “new normal” might be.

See also: How Agents Are Adapting to COVID-19  

This call for renewal is applicable to all businesses. But, because of our historic emphasis on insurance and risk, I want to be clear. I’m not talking about renewing insurance policies, nor renewing any aspect of what was; rather the process requires a renewal of the mind. It results in a reimagining of what should be.

We all thought insurtech was going to produce a seismic shift in the insurance industry, and to an extent it has. By contrast, the global reaction to this virus will create a tectonic shift. People and businesses will reconsider what they truly need and don’t need and why they feel they need it, from whom they want it and how they want it delivered. This will create a broader world of opportunity.

So, I am officially planting the flag of the future on the hill of RENEWAL. Renewal will lead to transformation fueled by constrained innovation, resulting in accelerated growth. 

Our renewal process will accelerate your restart. You want to be on the right side of the starting line.

Who Will Win: Startups or Carriers?

Who will win: carriers or startups? It’s a question that has dominated conference panels, opinion pieces and many of the conversations I’ve had with insurance industry friends and colleagues throughout 2018. On the surface, this question feels appropriate. For many consumer-facing insurtech startups, their valuation is rooted in the promise of capturing market share from large carriers. While this has led to a major boom in the number of direct-to-consumer (DTC) insurtechs, in reality, 2018 hasn’t yielded any new startups that are able to make a significant dent in the collective portfolios of the large insurers (Lemonade aside). As many carriers are awaiting the fruits of their multiyear organizational transformation programs, the lack of inroads may prompt a sigh of relief. If the trends we have seen this year continue, perhaps there will be enough time for the product innovation to spring from within the old guard, keeping the industry pecking order intact.

Not so fast.

Reframing the Debate

Before breathing their sigh of relief, carriers might start asking themselves another question: If not carriers, then whom? As far as innovation goes, we continue to see resistance across the large carriers to properly invest in a “test and learn” approach for their internal product development teams. At the end of the day, standing up a new product that would generate only $10 million in additional annual premiums just doesn’t get the runway it would for a startup. Instead, we’re seeing the rise of venture groups, innovation labs and incubators (Metlife Techstars, NYLV, SOMPO Digital Labs, etc.) that are to innovate, then potentially bringing the work in-house.

Adrian Jones, who leads investment and reinsurance terms to insurtech startups for SCOR, recently wrote about changing market conditions for reinsurers and their increased exposure to getting “disrupted.” Jones outlines how simpler and leaner startups have eaten away at the markets with the highest profit margins for reinsurers. This has the potential to become one of the most significant factors affecting the consumer space in 2019. Given their new financial exposure, reinsurers will be highly motivated (in a way that carriers currently are not) to adapt and discover new ways to increase their returns. This very well could be the fuel needed to truly ignite the customer experience (CX) advancements the industry has been promising. For a reinsurer, $10 million in annual premium from a startup is not only $10 million. It’s a path to diversify their risk portfolio and, more importantly, to develop an acquisition channel that can yield much higher margins than the current carrier model.

See also: Insurtech: Revolution, Evolution or Hype?

In the larger conversation, reinsurers are generally seen as key observers in the carrier vs. insurtech showdown, not major players. But given their advanced underwriting capabilities, global footprints, lack of direct customer acquisition workforce and substantially less technical debt compared with their carrier siblings, with the right set of partners reinsurers can provide the scale and expertise the new players typically lack. This enables startups to focus on their differentiators: seamless customer experiences and innovative acquisition strategies.

You may or may not be surprised to learn that this trend isn’t new. Many insurtech “darlings” are already taking advantage of this partnership model. Jetty is backed by Munich Re, Root Insurance by Odyssey Re and Ladder Life by Hannover Re. Noteworthy is what these startups can offer consumers outside of the coverage itself. Jetty offers financial resiliency for renters. Root has an IoT-powered auto insurance underwriting model based on mobile data. Ladder Life has significantly trimmed their underwriting questions for term life. Yes, there may be flaws in each value-add example, but that is beside the point. These startups are able to experiment with modified underwriting parameters, and, once they fine tune these products for the masses, the major carriers will pay heavily either by losing market share or by acquiring the startups.

In a recent conversation with an executive from one of the largest P&C insurance companies, the executive told me that he sees reinsurers like Munich Re as very strategic partners, yet an ever-growing risk because, in his words, Munich Re could “start cutting us out.” The threat is real.

What Should Carriers Do?

For starters, carriers need to identify how to enable a top-notch customer experience (CX). In 2018, there has been plenty of talk about improving customer journeys, but few incumbents have released anything remarkable. The time is now for mid-sized insurers and MGAs. There is no reason not to take a cue from the reinsurer playbook. Whether it’s backing an insurtech, creating a direct-to-consumer channel (like our friends at ProSight) or forming platform integration partnerships (as AP Intego is doing), there are opportunities to jump into the fray because the space is perfectly fragmented. Identifying a similarly positioned insurtech is a promising strategy for carriers with a wealth of data in niche markets. But working with an insurtech or building a DTC offering requires underwriting customization and collaboration. If that’s not something a carrier excels at, determining how to leverage existing technology or marketing capabilities is critical. For those with a technology strength, parametric insurance, such as Jumpstart and Floodmapp, may be a better fit. It’s an emerging market I especially have an affinity for.

See also: How to Partner With Insurtechs  

Regardless, it’s important that carriers develop a set of hypotheses on what will make them successful in whatever their new venture may be. At Cake & Arrow, we heavily rely on design thinking and qualitative research as a low-cost approach to validate strategies. Overall, being nimble, cross-functional and exceptionally tactical will be critical to success, which is why I consider large-scale organizational transformations not applicable here.

If all else fails, get the pocketbooks ready, because we will see no shortage of bidding wars in the coming year.

This article originally ran at Cake & Arrow

5 Tips to Ensure an Insurtech Fails

You are reading the headline correctly. If you follow these tips, your insurtech will either fail or will be heading toward failure.

#5 – Get too much feedback.

I truly believe that feedback is the breakfast of champions, but, if you are focused too much on customer validation and discovery, you will fail, as you haven’t executed. To avoid analysis paralysis, I recommend doing enough exploration to test your use case. If you are getting five people telling you directionally the same information, then you are good, and it is time to act. Go Execute! If you are getting five people who are telling you totally different things, then revisit or take your hypothesis and break it down.

Also, keep a watch on who is your feedback base. Are you talking to decision makers or industry experts? Remember: Insurance is a very old and broad industry, and change is difficult. Ensure your feedback base is made up of industry personnel who face the pain that you are going to solve or have knowledge of it.

As a serial entrepreneur, I meet folks every day who are an expert in everything. Really? Getting false confirmations from someone you won’t be serving or, on the flip side, someone who doesn’t believe you are addressing a real problem can be dangerous for startups. BEWARE. Learn to let the feedback go in one ear and out the other. Here comes the best tip ever: RUN from such advice. (j/k. Be respectful of everyone and develop a filter.)

#4 – Form an imbalanced team.

If you are a technology company with no tech, you have a problem. If you have a product but lack industry expertise in your team, you have a problem. If you are the type who wants to be in every conversation, not only will I say you have a problem, but your team will have problems. The list can go on and on. Having the right team can make or break an insurtech and requires much TRUST.

See also: The Failures and Successes of Insurtech  

As an insurtech, having the idea and perhaps the technology is fantastic. Having a team that can implement the product in a frictionless way is the key to more clients and more money. Don’t take shortcuts for implementation. Hire the right people: project managers (ensure they have startup experience or come from a Lean/Agile background), DevOps, QA, etc. Also, ensure you either have a team member or a mentor who specializes in change management to ensure smooth implementation.

If you aren’t from the industry (like me), get completely immersed and surround yourself with mentors, go to events such as Insurtech FastTrack from Startupbootcamp, Global Insurance Accelerator, Insurtech Week and NAIC events (especially if you are doing work that affects regulators).

#3 – Bootstrap.

Most startups fail because they run out of cash. Developing a product is one piece of the puzzle, but how to market and sell takes capital: $$$s and resources. There is a lot of testing and strategy within marketing and sales to get the leads that may convert to customers — and I haven’t even touched on customer retention or operations.

It is a great time to be a startup in the insurance industry. There are so many companies that have created a VC arm to their company or are partnering with accelerators to boost startup activity. Some don’t even take equity in your company, like Hartland.

But don’t take fundraising lightly. If you want to sustain, you need to start the process of understanding the investment landscape during the idea stage. Even if you have someone who is interested in funding, you are not going to get a check the next day miraculously. Due diligence takes a long time – anywhere from three to nine months, sometimes longer. Also, finding the right lead investor or VC company is critical. Don’t get desperaten and sign with whomever; be strategic, as you are forming a marriage. Find the partner that aligns with your goals and can open doors with future customers and investors.

#2 – Attend a lot of networking events.

For insurtechs, go to the conferences that will get you exposure. We have been very thrilled with NAIC events as we do have a module that needs regulators’ feedback. Also, Insurtech Rising was the very first conference we attended back in May, and we were grateful for the outcomes. We can’t wait to attend InsureTech Connect in Las Vegas in October.

But have you calculated the time you have spent on your business vs. about your business? (Thanks, Action Coach!) Don’t get me wrong, networking is AWESOME, but if it doesn’t help your company, your clients or you on a personal level (thanks, Brent Williams), you are wasting time. Might as well take a nap or, even better, go work out!

See also: Touching Customers in the Insurtech Era  

#1 – Solving all the world’s problems.

If your product serves everyone, then you will most likely fail if you don’t pivot, focus on a segment or market it correctly. Even Facebook started with a focused audience initially before it took over the world. It is incredible to solve problems for various industries, but go deep into one industry first. Having focus and clarity is critical for startups. As an example, Benekiva as a platform solves problems for any organization that maintains beneficiaries. But, rather than being generic and solving everyone’s issues, we decided to focus on the life insurance industry so we can have pinpoint focus and go deep in the organization.

How Insurtechs Can Win Consumers’ Trust

Insurance technology companies can be innovative, efficient, agile. They can delight their customers with modern user-experiences, impress them with low costs from reduced overhead and surprise them with swift service. But there is one area where they face an uphill battle to take market share from large, established insurance institutions. Trust. Why would a customer risk choosing an insurtech company with a young record in the industry over a traditional player with a long-held reputation for being well-capitalized? When the hurricane hits, can the insurer be trusted to honor the payout?

See also: The Insurer of the Future – Part 9  

The answer for insurtechs is not to focus on battling the behemoths to create equally huge capital backup. Insurtechs have to win the battle for hearts and minds. Insurance is about customers achieving peace of mind. But the industry is plagued by major misalignments of interest. Customers may well understand that the major players have enough money to pay their claims but they don’t necessarily believe they will pay out. There is a trust deficit. Large companies with capital have high costs and, unfortunately, making payouts can directly impact their profits. Regulators aim to protect customers and ensure fair payments. But, in the end, the cost of the additional compliance bureaucracy is passed on to a distrustful end-customer anyway.

Insurtechs need to rely on their competitive advantage — technology. That technology, and specifically blockchain, can be deployed to ensure customers receive their payouts automatically. As a customer, you can have no better peace of mind than knowing you will receive payment immediately with no questions asked. Insurtechs can provide “parametric” insurance policies where events trigger automatic payments, eliminating the burden of customers’ claims processes. Parametric policies can work, for example, for flight-delay insurance. If a customer buys a policy against a late arrival of an hour or more and a plane is indeed officially logged as behind the clock, then payment is made automatically. Blockchain technology has the power to create an unalterable database that can be trusted immediately by the insurer and customer alike, meaning the transaction is transparent and automatic. In this way, blockchain enables provable fairness to allay consumers fears over the industry’s misalignment of incentives. The same parametric insurance mechanism can be used for weather. A six-week drought can prompt payout to farmers who fear their crops will shrivel. The farmers do not have to prove their loss. The data executes the policy automatically.

See also: 10 Trends at Heart of Insurtech Revolution

It is possible to imagine a world of insurance with vastly reduced overhead – a world where payments are automatic and there is no need for cumbersome claims processes. This clearly means insurance policies can be cheaper – and cheaper policies opens the possibility of more granular policies targeted at the real lives of customers. This is another way the insurtechs can win the trust of customers – by being perceived as helping solve their actual, specific problems. A sports club can organize a tournament and insure its players against injury. That kind of specific policy is currently likely to be seen as low value for the big insurance companies. But with their lower costs, insurtech companies can use blockchain to design a bespoke policy that serves customers and creates profits.The insurtechs can use their cost efficiencies to provide bespoke policies that create an intimacy with a customer and that, in turn, builds trust.