Panelists speaking at a recent Carrier Management Virtual Roundtable agreed that InsurTechs are sprinting ahead of insurance industry incumbents on the innovation spectrum but said that investments and partnerships can push traditional players up the curve faster.
Executive SummaryHow far have traditional insurers come in their efforts to integrate InsurTech offerings and their innovative cultures into their innovation strategies? Panelists at a recent CM Virtual Roundtable event discussed the question and gave advice to carriers and brokers about investment and collaboration strategies.
Phil Edmundson, CEO and founder of Corvus Insurance, described how InsurTechs are bringing new efficiencies to individual activities, such as insurance sales, claims and loss control, offering the example of MediaAlpha, an InsurTech specializing in customer-acquisition services, which recently had an IPO valued at more than a billion dollars.MediaAlpha “was nurtured inside White Mountains Insurance. So, it doesn’t mean that there aren’t roots in the traditional insurance business or that these folks aren’t part of the insurance ecosystem. But it is an interesting development because of the availability of capital and now the reception of broad capital markets to support these efforts,” Edmundson said.
“Certain functions are being hived out of insurance companies and moving off into tech-only companies,” he said. “In essence, a function that might otherwise belong inside each insurance company…is being pulled away, outsourced to a tech company. This type of innovation that might have been happening inside insurers is being outsourced and value is being created within our industry in a new category of players,” he said, listing online insurance marketplaces EverQuote for P/C insurance and SelectQuote for life insurance among them.
Panel Moderator Mike Fitzgerald, principal analyst, Insurance for CB Insights, citing a recent analysis by CB Insights and Willis Towers Watson, noted that third-quarter 2020 was the largest quarter in terms of venture capital-backed dollars flowing into InsurTech startups, asking Edmundson to talk about the impact of InsurTech startups on insurance industry innovation in 2020.
Edmundson described several categories of InsurTech players:
- Standalone carrier InsurTechs, like Root and Lemonade, that are competing with traditional insurers.
- Those building functional technology, like MediaAlpha and TruMotion, a telematics specialist that provides software to many of the top 10 personal auto insurers in America.
- Companies like Edmundson’s Corvus, which have adopted a managing general underwriting model to underwrite cyber and other commercial risks by applying machine learning to analyze new datasets.
“From my personal experience, I can say it’s certainly a smart way for a lot of technology to come to market, to be tested,” he said, referring to the MGA/MGU approach, noting that it offers the opportunity to deliver offerings to the marketplace, to get some feedback and figure out which parts are ready for fuller growth.
In general, what’s happening in insurance is not dissimilar to fintech, he said. “We can see a lot of cases where there were partnerships between fintech companies and the incumbent banks. The same thing’s happening in insurance,” Edmundson said.
Fitting the Pieces Together
Fitzgerald asked the Roundtable panelists to share tips for insurers to deal with challenges of integrating startups into their efforts.
Jeffrey Bohn, chief research and innovation officer for Swiss Re Institute, said in his experience, large insurers just don’t do a great job of integrating technology firms that they buy. What works better, he said, is “finding firms that have very specific capabilities that you don’t have internally, and they fit well into your process, or [working] with the InsurTech to think about how you’re going to re-engineer your process to take advantage of the new technology.”
“Often, I see innovation falling flat, not because it’s not a great idea, but it just doesn’t work with the current process,” he said, sharing an example of a company that had tried to implement some new deep learning image recognition for claims processing. “But they actually didn’t change the claims process. They still have the claims adjuster involved. So, they now just added expense to an already expensive process. And they didn’t get the cost improvement they expected.”
Phil Edmundson, Corvus Insurance
Jeffrey Bohn, Swiss Re Institute
Mike Fitzgerald, CB Insights
“So, you have to think about how you re-engineer the process,” Bohn said. “And often the InsurTechs don’t understand insurance well enough to provide a lot of insightful advice at the beginning,” he said, offering a second tip for insurers—to partner with InsurTechs early on.
“I find that in the startup community, they’re not looking for capital these days compared to a few years ago, from the insurers, as much as they’re looking for the business use cases and that insight,” Bohn reported. Swiss Re talks regularly with representatives of VC platforms in Silicon Valley, Boston and Asia, he noted, adding: “The thing they value the most is for us to come in and be very specific about the business cases. And then they introduce portfolio companies that could help solve that.”
“That’s much better in terms of providing a synergistic relationship between the two sides,” he said.
Asha Vellaikal, managing director and global head of Digital Labs for Marsh, drawing on her past non-industry experiences in the Bay Area of California, recalled “much deeper collaboration at very early stages, both in terms of information exchange and quicker experimentation.” She added, “It was almost a culture, a different culture of innovation. And I do think that in insurance still, it’s somewhat more formal, that divide…Culturally, it may have to shift to being a little bit more fluid [to] help both incumbents and startups.”
The Way Insurance Gets IT Done
Even if overall cultures are slow to change, insurers have warmed up to the idea of working with InsurTech, according to Roundtable Moderator Mike Fitzgerald, principal analyst, Insurance for CB Insights, who has been studying the intersection of technology and innovation as analyst for 13-plus years (after a long career working in the insurance industry).
InsurTechs are no longer completely foreign entities to insurers, he said during a post-Roundtable interview. “They’re from outside the organization. They do have a different culture. It needs to be managed differently than a standard vendor relationship. And insurers get that. Some of them have been at it longer, and working harder and challenging themselves,” he said.
“We’re very close to InsurTech being…just a different way to get insurance technology done. It’s not an outsourcing model. It’s obviously not build-it-yourself. It’s somewhere in between,” Fitzgerald said. “And it would be hard to imagine insurance technology without the startup environment. Two years ago, I wouldn’t have been able to say that,” he added.
Fitzgerald noted that graphs of investment activity in InsurTechs typically show an upward trajectory start to take shape in 2015. “We’re only five years into this…And now I would say it’s solidly an option. And it’s an option that many insurers, no matter really their size, are now starting to, or have been for a while making a part of their automation portfolio. So, it’s here. It’s the part of the way that insurance IT is done. It hasn’t realized all the value or all the potential yet though. It’s still evolving,” he said.
Asked whether he is disappointed or amazed at the speed of change in the insurance industry in recent years, Fitzgerald admitted, “I’m not as encouraged as I wish I would be. And I’m beginning to wonder if there’s some demographics involved here where the amount of change that really is necessary is just going to take on your generation of leaders,” he said. “I’m not sure the incentives are there and are aligned that incentivize the proper amount of risk-taking. So, I can’t say that I’m all that encouraged in the primary market,” he said, noting that he is, however, encouraged about trends happening in the reinsurance area, and “specifically some of the opportunities I see in captives, which might help move some of this forward.”
“But generally, I think it’s going to continue to be a tough slog for a number of years,” he concluded.