“Trying things out is about knowing where you are heading but being flexible on how to get there”
Innovate faster, new pilots in the insurance sector, how collaboration will help all to grow, and connections between InsurTech companies and large corporations! Just a few of the topics discussed when Carey and I chatted on the inaugural episode of Ins Nerds’ brilliant (If I do say so myself) Golf Course podcast.
First of all, let me say that insurance companies are well aware of the numerous inefficiencies in their value chain and are putting measures in place to improve them. For us at KASKO, the key element was reducing opportunity costs of creating value to policyholders. This sits at the intersection of insurance product design, digital user journey and connectivity to customer touch points (e.g. distribution partners) and other value-adding third party services. Thus, we created an “insurer in a box,” offering the capabilities to design products (quote, offer, bind), manage customers (cancel, refund, renew, adjust), take payments and distribute these via REST APIs and mobile-first front-ends, allowing insurers to follow product-market opportunities without having to reprioritise their internal IT, so we coined the now increasingly popular phrase “InsurTech as a Service”.
So in practice this can mean:
- Setting up a multi-item insurance programme allowing Baloise’s sales agents to onboard >700 offline distributors to offer insurance at the POS
- Creating an API-first legal risk insurance for Roland Rechtsschutz to power InsurTechs and other insurance partners alike
- Digitalising Zurich’s existing cyber SME product with more to come
Of course, we have also done some crazy stuff for Allianz Suisse and Co-Op Insurance UK, like creating an insurance wallet where customers can manage their insurance policies on demand and invite other people into a virtual insurance group, or, creating the first photo-AI powered watch insurance for Baloise.
We believe that failing fast doesn’t mean failing often or intentionally. Trying things out is about knowing where you are heading but being flexible on how to get there (e.g. price, wording, features, distribution partners, own brand vs white-label etc.) Approaching it from a viewpoint of “what am I willing to invest to find out,” rather than “how much revenue do I need to gain in order to make the business case work,” this creates a forcing function towards speed and execution rather than analysis paralysis. It is always much more about having an entrepreneur’s mindset focusing on solving a problem today whilst keeping in mind where you want to go rather than lazily try to innovate without being willing to educate. So in our view, “InsurTech as a Service” is as much about technology as about mindset.
How to Collaborate
One of the key differentiators for any company moving forward will be figuring out how to collaborate. The key point here again is thinking big, starting small, scaling fast. You don’t marry on the first date. So set up the initial engagement in such a way that if it doesn’t work for whatever reasons both parties can happily go their separate ways and if it’s working well, build on the initial agreement (fast). We know that signing that big contract is sexier but usually riddled with pitfalls and totally arbitrary expectations.
On the other hand, for startups that want to break into the insurance industry, it’s crucial to gain access to distribution channels operated or occupied by larger insurance companies. This is where KASKO comes in as a new paradigm connecting insurers and their distribution partners via one central platform because to be honest, distribution sometimes trumps the product, and distribution can define what is and what isn’t a successful insurance product.
At the beginning of our journey, we thought that we would target banks, ecosystems and marketplaces, identify their demand, specify product and then go to capacity providers. It soon turned out that this model didn’t work so well because the most interesting distribution channels were already captured by the incumbents we were challenging. We found that we needed to convince the insurance companies, showing them a way to tap into more opportunities and then they’ll bring KASKO into their distribution channels. Insurance companies are hard to convince, but very loyal once you’re with them and doing your job right.
A VC-led changing of the tides
Overall, we were incredibly lucky when we started four years ago as it was a time when insurance companies started looking into working with startups. Six years ago it wouldn’t fit their way of doing things. It has been interesting to see how the changes in the attitude of insurance companies towards startups has been influenced by the VCs beginning to back InsurTechs. The more success there is in the market, the more funding there is and the better it is for anyone in the insurance industry. However, there is not one coherent interest group and companies like Lemonade show that the proposition can look differently.
Millennials are actually important
Another challenge for insurance companies these days is having Millennials as a new customer group. They are a purchasing group that carriers are still trying to figure out. Millennials have a very bad credit and no financial history, which makes them a difficult target for insurance companies. The best way to go around it is to try different approaches in small bites, which are faster and cheaper, and also accelerate timelines. If you don’t want to do anything differently, you’ll have a very short conversation with the new generation.
Nevertheless, there are more reasons why insurance companies reach out to startups. First of all, their governance is simply too slow. They spend so much time sitting in rooms and getting everybody aligned. Startups can help them create a fast track to market.
Secondly, insurance companies struggle with attracting and retaining digital talent against the likes of startups, banks and tech companies. There are people coming from startups who are keen to solve problems, but they join a big company and sit in a meeting room where people think about doing things more than actually doing them – the young go-getters want a project they can own, and one that acts fast.
We get approached by a lot of companies that have an existing system that they want to change. The first step you need to take is focusing on product and distribution, on an MGA type of layer and also figuring out where new customers are coming from. Afterwards, I believe it’s the best to buy a state of the art policy administration system from the market and use a green field approach to see how much flexibility, costs and advantages you get from the system. Once you have stress tested the target operating model, you can start migrating. Easy, right?
What I would definitely discourage anyone from doing is spending hundreds of millions on large digital transformation programmes that are bog-down for five years without having the flexibility to react to the market. A big part of this is data, you need to learn as much about your customer as possible. It’s a continuous process of optimization and you only stop when there is nothing more to learn.
Generally speaking, when we are dealing with a new client, it has shown that it is often easier to ask them right away how quickly they want to go to the market with a new product and how much budget they have than asking what they want and offering how much KASKO can do for them. It allows us to spend for instance only half the budget and figuring things as we go, rather than spending it all and ending up with a product that doesn’t work for the client.
Of course, it can happen that things don’t work out the first time. However, especially in the insurance industry, it should be more than possible to calculate chances to getting it right the first time and making bets on it. After all, portfolio risk management is in insurance companies’ DNA.