Although the term InsurTech (or insuretech) has been part of the property/casualty insurance industry’s lexicon for at least two years, stories about the technology-based insurance startups were missing critical details until March of this year.
That’s when Matteo Carbone and Adrian Jones, the guest editors for the “Innovation and Strategy” section of the Nov/Dec edition of Carrier Management’s print magazine, published the first of a series of articles about the InsurTech carrier financials on LinkedIn, specifically the results of three U.S. InsurTech carrier startups that file statutory blanks, reporting on their explosive premium growth but disappointing loss and combined ratios.
“There has been a lot of noise in the market since InsurTech started a few years ago—since people started to talk about InsurTech. My reason for this series of articles is to provide a different angle, a different point of view on the innovation trend—trying to use the voice that I built over the years to comment in a different way than 90 percent of the people that go to the conferences and publish articles about InsurTech,” said Carbone, founder and director of the IoT Insurance Conservatory, whose career as an insurance adviser includes a 10-year stint as a member of the financial services practice of Bain & Company. “Even those who had come to be interested in InsurTech from the fintech space had never seen an insurance balance sheet and were not able to distinguish a loss ratio and a combined ratio.”
Jones, the deputy CEO of SCOR P&C Partners in charge of Ventures and Strategic Partnerships, who also entered the insurance business through work at Bain, offered similar observations. “We started seeing a lot of articles that were devoid of numbers or using carefully selected numbers. I thought, ‘Wait a minute. Insurance is a numbers business. There are enormous volumes of numbers published every quarter. Let’s look at all the numbers and see what we can find out.'” (Jones noted that the articles were published in the authors’ personal capacities.)
It turns out that Carbone and Jones weren’t alone in wanting to know the values of key ratios that typically measure the success of an insurance enterprise. Carrier Management has republished versions of each of the LinkedIn articles on its website—the March analysis of 2017 financial results of Lemonade, Root and Metromile, and subsequent reports on first-quarter 2018 and second-quarter 2018 numbers of the carriers—and views of the articles quickly skyrocketed to become the most popular published on our website.
They have also generated conversation on LinkedIn, where the original posts of the articles have fueled nearly 400 comments from readers. Among the debates emerging discussed by commenters: When are startup numbers relevant? For any relatively new company, changes in premium volume from a small starting point can look astronomical, and single large losses can easily skew results in a single quarter, some readers noted. Some investors also suggested that expected loss ratios were likely to decline with scale.
Even the CEO of one of the insurers analyzed in the articles, Daniel Schreiber of Lemonade, made that point—parenthetically—in a LinkedIn comment addressing an analysis by Carbone and Jones pointing to a first-quarter gross loss ratio of 116 (excluding loss adjustment expense) that they said was “almost double what it should be to have a sustainable business.” Wrote Schreiber: “It’s appropriate to highlight our loss ratio (though a little bemusing when industry insiders, who presumably understand the impact of data-paucity in the early quarters and the fact that a loss ratio is a lagging indicator, derive doomsday conclusions from a loss ratio over such a short period, this early in the game).”
Still, Schreiber and Alex Timm, the CEO of Root, have since been moved to write about plans to fix their high loss ratios in recent blog items posted on their websites. (More about that in the accompanying article, “Startup vs. Incumbent: The Battle Rages as InsurTechs Grow Fast But Fail to Show Profits.”)
“The criticisms from startup CEOs are fair and are within the caveats that we put on the numbers. Still, I’d like to think that the articles impacted the way InsurTech has been discussed…When you see how mainstream journalists have started talking about InsurTech, they’re picking up themes that we raised for the first time in the first article,” Jones added, referring, for example, to a recent televised interview with Schreiber on Bloomberg TV in which a reporter began the interview with a question about the “sustainability” of InsurTechs and later queried the CEO about Lemonade’s use of reinsurance to contain losses.
“All that, I hope, is contributing to a more sophisticated discussion, which will lead to a better set of outcomes for entrepreneurs, investors and perhaps for the industry as a whole. They will more accurately be able to determine which innovations really work and ought to be backed, and which are just folly,” Jones said. “We are only going to discover that with the numbers.”
(Editor’s Note: Jones and Carbone tackled the specific question—”Does loss ratio scale?”—in their second article about first-quarter 2018 results available here: carriermag.com/wvh5t.)
Jones continued: “We are blessed to be in an industry where numbers are available. I don’t know of any other industry where a startup has to start reporting their numbers on Day One. It’s really an extraordinary view that we have in this industry into the economics of startups, so let’s take advantage of it.
“I want all these InsurTechs to succeed, especially the ones we write about. I want to believe that in the long run, the innovators will win,” he said.
More About Our Guest Editors
Carbone, who is himself an avid supporter of InsurTech, said he isn’t comfortable with “cheerleaders for innovation,” who applaud new ideas simply because they are new or different.
In addition to founding the IoT Insurance Observatory, Carbone is an adviser and investor in Neosurance, a Milan-based InsurTech that offers instant relevant coverage through push notifications on your smartphone (including travel accident and health cover recommended when you start a trip). He also co-founded Archimede SPAC, a Special Purpose Acquisition Company that has already raised $55 million and combined with a non-life insurer for small and medium-sized banks with the goal of turning the insurer into an InsurTech.
Also the author of a book titled “All the Insurance Players Will Be InsurTech,” Carbone notes, “I have been talking about innovation for a few years, and before it was called InsurTech. And I started from an insurance angle. In my career, I have advised insurers, reinsurers, tech players that were providing solutions to insurers. And I have built my voice in the market on a specific idea, which is that I strongly believe that technology is not good per se. It is good if it is bringing some concrete value—meaning profitability, something that can improve the profitability of an insurance company, something that can allow them to sell more—to generate more product, or something that can allow them to be closer to customers (proximity), or something that can reduce the lapse (persistency).”
In short, the technology needs to “generate tangible economic value,” said Carbone.
In the pages that follow, acting as one of the guest editors for this section of the magazine, Carbone, who has worked directly with players that account for more than 80 percent of the international IoT insurance volumes, co-authors three articles that specifically describe value-creating best practices in telematics around the globe and also provide a value creation framework for IoT generally.
Tapping into his experience advising insurers on digital strategy development, insurance product innovation, channel strategy and other growth, technology and innovation initiatives, Carbone also addresses three myths preventing siloed carriers from pursuing well-intentioned innovation strategies, co-authoring an article titled “Are You Tapping the Positive Innovation Energy in Your Company?” that could have just as well been titled “How Can Industry Elephants Become Innovative and Agile?”
“We have worked in and with large and international organizations and know well how these complex elephants live and how difficult it is to set formal processes able to…orchestrate innovation as a “living, breathing and relevant” process, he wrote in the article, co-authored by digital business leader Sri Nagarajan. “This issue is big and complex, and there is no magic wand to solve it,” they write.
Jones, whose experience includes eight years working for two large global reinsurers—Paris-based SCOR and RenaissanceRe Holdings in Bermuda—attacks the same problem from a different perspective. In his article, “So You Wanna Be an Innovator in a Big Company,” the 38-year-old innovator who has tried to make things happen with walls of established industry giants gives a top 10 list of tips for other young insurance professionals trying to move their companies.
Writing in a direct and uncomplicated style that also comes through in his joint publications with Carbone about financial results (yes, they asked whether Lemonade’s insureds are “schlimazels” and they did start their analysis with an analogy to the movie “The Princess Bride“), Jones actively shares his ideas about innovation and strategy on social media. “You don’t have to be the CEO and get invited to deliver keynote speeches in order to influence the way an industry thinks,” he told Carrier Management recently, explaining one impact of this activity.
Working his way up, Jones was named to a Deputy CEO role at SCOR P&C Partners in charge of Ventures and Strategic Partnerships in early September. He joined SCOR in 2016 as head of Strategy & Development at SCOR Global P&C—a position he still holds. He also founded SCOR P&C Ventures and is responsible for P&C InsurTech at the reinsurer.
Also a former Bain consultant, Jones wasn’t always involved with insurance. “Eleven years ago, I was working at a chocolate factory helping them make more chocolate,” recalling his most colorful assignment.
“I once decided that whenever I had the opportunity to go out for lunch, beers or any other social event, I would take it and stop doing whatever else I had to do. To my surprise, my performance went up, the job got easier, and I was promoted a year later. For all its numbers, insurance is still a people business, grounded in trust,” he writes in his article listing innovation tips in this edition.
Returning to the numbers, Carbone and Jones spoke to Carrier Management about the David vs. Goliath—or startup vs. incumbent—story that’s is emerging as VC-backed InsurTechs continue to grow premiums while insurance-backed innovators focus instead on profit-first strategies. (Related article: “Startup vs. Incumbent: The Battle Rages as InsurTechs Grow Fast But Fail to Show Profits“)