InsurTechs – Magical Thinking and Other Secrets of Success

By Neil Thomson Strategic Sales Director, Freelance InsurTech Consultant Much has been written about the disruptive threat of InsurTech and how traditional insurance as we know it will come to an abrupt end. I don’t believe this to be true, in fact I think the opposite. I see InsurTechs mixing it up with insurers, producing some very exciting opportunities. Insurance has never been better and the future of insurance is looking very good! But, is this really the case? Can InsurTechs and the traditional insurer thrive together, be stronger together, grow together? This chapter explores the InsurTech vs. insurer relationship from a different perspective, and discusses the wide spectrum of opportunities that can be driven out of this collaboration. Using shared experience and learnings, barriers to innovation can be overcome to deliver better customer propositions. The development of InsurTech continues to accelerate at a pace and the impact on insurance and wider communities is now a global phenomenon. Although InsurTech doesn’t have an official birth certificate as such, the term InsurTech is thought to have been first used in July 2015.1 This means we can successfully date InsurTech at the time of writing as being just over two years old. It may feel that InsurTech has been around for a long time but it’s only just blown the candles out on its second birthday cake! We refer to humans just over two years old as “preschool infants”.2 I believe there are a lot of shared characteristics between infants and InsurTechs, and that analysing these shared characteristics (see Table 1) can give us great insight into understanding how InsurTechs have become so successful. Table 1: Developmental characteristics shared between InsurTechs and infants Behavioural Characteristics Infants InsurTechs Very demanding Y Y Know what they want Y Y More importantly, know what they DON’T want Y Y Immediate gratification, want it NOW, not tomorrow Y Y Imagination runs wild, demonstrate use of “magical thinking” Y Y No boundaries or limitations when it comes to idea generation Y Y Challenge the status quo and ask Why? Why? Why? Y Y Fast and agile Y Y Don’t take “no” for an answer Y Y Limited patience Y Y Focused on the present and future NOT the past Y Y As you can see, quite a lot of these developmental characteristics are shared between InsurTechs and infants. These behavioural characteristics go a long way to explain the successful “rise and rise” of InsurTechs.3 They know what their customers want, their imagination runs wild, they are not patient, and they always challenge the status quo. If comparing infant and InsurTech characteristics gives us insight into their success, what about looking at traditional insurer characteristics? Bearing in mind that some insurers are over 300 years old and therefore “off the scale” in terms of human development milestones, if InsurTechs can be likened to two-year-old infants then perhaps we should

be comparing insurers with seniors! Perhaps describing insurers as seniors goes part of the way to explaining their current challenges. Being a senior is no bad thing: seniors are well established, have the benefit of experience, have the benefit of hindsight, and therefore generally know what works and what doesn’t work. Although the benefit of experience is a strong one, insurers are being held back in other ways, notably by ageing legacy technology systems. These ageing legacy systems may have been fit for purpose in the late nineties (the era of Netscape browsers, Palm pilots, mini-disc players, and Tamagotchi) but they struggle to compete in today’s world, let alone tomorrow’s. Insurers do know what their customers want but they struggle to react, and are not agile; they are often weighed down by heavy cost bases, bureaucracy, and legacy technology. One way in which insurers are hurdling these barriers is by mixing it up, with InsurTechs and working together. Digital Partners, Munich Re’s global venture established in May 2016, has established partnerships with nine companies: Blink, Bought By Many, Jetty, Next Insurance, Simple Insurance, Slice, So Sure, Trov, and Wrisk. In 2017, Aviva Ventures invested £5m in Neos, the first company to combine smart home technology with home insurance in the UK. What can 300-year-old insurers learn from three-year-old InsurTechs? Before examining this further, I’d like to highlight a wonderful example from outside insurance – indeed outside business – of how mixing up groups can produce opportunities. The Providence Mount St Vincent care home in Seattle is both a care home for the elderly and a preschool nursery. Five days a week, children aged from six weeks to five years interact with Mount St Vincent’s residents, whose average age is 92. Activities range from musical hour to story time to art classes. Workers at the care centre describe having the whole spectrum of life present and describe it as a joy and challenge to always be together.4 The mixture of preschool infants completely transforms the elderly residents, stimulating mental and physical activities. The infants are happy, comfortable, and innovative, always coming up with new ideas to play, have fun, and be happy. A movie entitled The Growing Season released in 2017, has been made about Providence Mount St Vincent. The movie title is a reference to the fact that these two groups of people – the preschoolers and the seniors – come together so perfectly well in the “present state”. This to my mind is similar to the mixing together of InsurTechs and traditional insurers. The InsurTechs are agile, inquisitive, and their imagination is not held back; they are constantly challenging the status quo and developing new and better propositions. The characteristic of asking “why? why? why?” is a dominant feature in their approach to disrupting the existing insurer model. And, despite a general perception that InsurTechs are a threat to traditional insurance, there are many examples of collaboration between the seniors and infants, generating value through the development of new propositions. Industry leaders like MetLife, Aviva, AXA, Allianz, and XL Catlin have recognized the importance of collaborative efforts, launching dedicated incubators. When considering the insurance landscape cocktail, InsurTechs and insurers are not the only ingredients to throw into the mix. We also need to consider the entrepreneurs and investors. There’s currently a tremendous investor interest in InsurTech and investors – following the money! The mixing of investors and entrepreneurs; the InsurTech upstarts and their wild imaginations; and traditional insurers, with their extensive customer base and large financial backing, makes a perfect cocktail and the financial gains potentially massive. Investors are looking for companies to create value by solving big problems and not just tinkering around the edges of an existing insurance company or systems. Investors will follow the money and invest where they see large potential gains. With a proliferation of new ideas and new startups, the companies with big ideas that can produce a step change will be chosen by the investors in an “X Factor” fashion. The ideas or companies with

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