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digital innovation

The 7 Colors of Digital Innovation

InsurTech is now established in a class of its own, no longer a sub category of Fintech. In 2015, $2.65 billion of venture capital was invested in InsurTech. We now have InsurTech-focused accelerators, with the excellent Startupbootcamp in London, the Global Insurance Accelerator in Des Moines, Iowa, (about to start its second cohort) and Mundi Lab announcing its start-ups for its insurance program in Madrid.

In the past year, I have interviewed more than 50 InsurTech start-ups, and I have seen the full spectrum of characteristics and common themes that run through these innovative digital insurance businesses, which i call:

From Distribution to Data, the Spectrum of InsurTech

Red – Distribution

Distribution is all about making insurance easier to buy, consume and understand. Innovators put the customer first and build their insurance proposition from the customer out (unlike incumbents, which organize their business around internal capabilities).

These start-ups are all about the customer, and their propositions are characterized by convenience, on-demand, personalization and transparency (and, of course, digital).

Examples include;

  • Bought by Many
  • Knip
  • Cuvva
  • Insquik
  • PolicyGenius
  • Moneymeets

Orange – Enterprise

Here we see a new breed of enterprise-class software providers. These are software as a service platforms running on the cloud. They have consumption-based pricing models that replace the traditional, million-dollar, up-front license fee and multi-year implementation.

In the main, these InsurTechs have taken hold of the small and mediums-sized business (SMB) space, but it is a matter of time before they prove themselves as genuine enterprise solutions for Tier 1 insurers.

Examples include:

  • Vlocity
  • Zenefits
  • Insly
  • Surely
  • Riskmatch

Yellow – Mutual 

New peer-to-peer business models return insurance to its roots of mutualization and community. The model relies on the notion that social grouping and affinity will change behavior and address moral hazard (thereby reducing claims payouts and premiums).

The question of scalability still hangs over P2P insurance, but, if it succeeds as a business model, it could form the foundation of a new breed of insurer. Just as kids call to their parents in their hour of need, customers will call to the insurer in theirs.

Examples include:

  • Friendsurance
  • Guevara
  • TongJuBao
  • Lemonade
  • Uvamo
  • Gaggel

Green – Consensus

Blockchain technology will fundamentally change the way the insurance industry works (as well as banking and society as a whole, IMHO).

The promise is huge although as yet unproven. From smart contracts to identity authentication, from fraud prevention to claims management, blockchain technology will provide the underlying technology foundations for a trustless consensus that is transparent to all parties.

Examples include:

  • Everledger
  • Tradle
  • SmartContract
  • Dynamis
  • Blockverify

Blue – Engagement

For me, this is the most significant of the characteristics from InsurTech in personal lines. The product becomes integrated in the customer’s lifestyle. It becomes sticky and overrides the annual buying exercise, where price is the key buying criterion. Digital natives are responding well to lifestyle apps that sit on top of the underlying insurance product.

Examples include:

  • Vitality
  • Trov
  • Oscar

Indigo – Experience

The true value of insurance is only realized when the customer makes a claim. New tech solutions that improve the customer journey through the claims process will not only improve the customer experience, they will also reduce the cost of claims and claims payouts.

Examples include:

  • 360Globalnet
  • RightIndem
  • Tractable
  • Vis.io
  • Roundcube

Violet – Data

This is all about new sources of data to rate and underwrite risk. This is about using data science, machine learning, artificial intelligence and high-performance computing to process data in completely new ways.

While distribution is vital to change the way customers interact with insurers, it is the data players that hold the key to fundamental change in the way insurance is manufactured, especially in personalisztion of insurance premiums and policies.

Examples include:

  • Quantemplate
  • Analyze Re
  • Meteo Protect
  • The Floow
  • Fitsense
  • Influmetrics
  • RiskGenius
tech

Where Are the InsurTech Start-Ups?

As a technology investor, I spend my days scouring Europe in search of the next big thing.

London’s FinTech scene has been a profitable hunting ground of late. With the U.K. FinTech industry generating $20 billion in revenue annually, it is not surprising that $5.4 billion has been invested in British FinTech companies since 2010.

A daily journey on the Tube is a testament to how rich the FinTech scene has become, with the capital’s underground trains now wallpapered with ads for Crowdcube, Transferwise, Nutmeg and other innovative companies. And London has played host to FinTech Week, celebrating the contribution these firms are making to the capital’s evolving financial services industry.

But where are the insurance tech entrepreneurs?

It is frequently—and accurately—argued that it is London’s birthright to play host to the poster-children of FinTech because of the capital’s impressive legacy and world-leading position in banking.

Read more: London FinTech investment in 2015 has already surpassed last year’s total.

The same can be said of insurance: The concept of modern insurance was solidified in Edward Lloyd’s coffee house in the 1680s. Yet there isn’t a day celebrating InsurTech— let alone a week of conferences, events and after-parties.

This is even though the insurance industry, with trillions of dollars of annual insurance premiums globally, is comparable in size to the rest of the financial services industry put together. Digital insurance should be an obvious target for technological disruption, especially as traditional insurers have struggled to adapt to the digital age en masse.

Recent research by Morgan Stanley found that consumer satisfaction with online experiences in the insurance industry is well below average, with only real estate and telcos finishing lower in the 16-industry league table. The big insurance brands have very little contact with their end consumer because of intermediaries such as offline broker networks, and, as a result, brand advocacy is often low. Put it this way: When was the last time you raved to your neighbor about your insurance provider?

Technology has the potential to drive worthwhile change in insurance. There are already a few success stories, but only a few. Insurance comparison engines such as Moneysupermarket, Compare the Market and Check24 have fundamentally altered how consumers discover their insurance providers. Black Box Insurance, based on telematics data, has become a mainstream product for young drivers, fueling the growth of companies such as InsureTheBox and Marmalade.

Read more:  These are the most influential people in FinTech

These are all fantastic firms, but there is not a long list beyond these examples.

So, why don’t we see more of this type of innovation? Insurance does have far higher barriers to entry than many other industries. To simply get an insurance company off the ground, it requires a colossal amount of cash to cover any potential claims. Additionally, regulation is tough, with good reason. The European Commission’s Solvency II Directive sets a high standard for the capital requirements for insurers to hit to be classed as an eligible provider.

This type of money is hard for a start-up to find. Having said this, very similar challenges are being overcome in retail banking, with challenger banks such as Metro and Atom obtaining banking licenses and putting regulatory capital in place. The successes that many have encountered in FinTech should buoy potential InsurTech entrepreneurs, as should the appetite of venture capitalists to invest in the insurance sector.

I don’t just speak for myself; insurance has excited many colleagues from other funds, especially as the industry is starting to give us some success stories. Slowly but surely, companies such as The Floow, BoughtByMany and QuanTemplate are demonstrating that technology can disrupt the insurance industry. London’s centuries-old legacy in insurance has created a talent pool that is, arguably, the best in the world. Combine this with the strong tech talent in the capital and you can see that the raw ingredients required to build extremely interesting companies are readily available. Additionally, certain large incumbent insurers are beginning to show interest in nurturing the capital’s potential InsurTech community. AXA is a particularly good example, having recently launched Kamet, a €100 million accelerator program aimed specifically at InsurTech entrepreneurs.

The combination of VC appetite, available talent and support from existing players demonstrates that London is a powder keg of untapped potential. The only missing ingredients, at the moment, are the world-beating entrepreneurs willing to put their ideas to the test.

FinTech has shown that London can lead the world in industries that are steeped in tradition and ripe for change. It’s time for InsurTech to step out of the wings.