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Insurtech 101 ANZIIF Insurtech Conference 2018
- 1. INSURTECH 101 BRENTON CHARNLEY CHAIRMAN & CO-FOUNDER, INSURTECH AUSTRALIA 7 SEPTEMBER 2017
- 2. INSURTECH 101 TECH TO WATCH SO WHAT? WHAT YOU CAN DO SUMMARY
- 3. 3
- 4. 4
- 6. 6 WHAT GAME ARE WE PLAYING?
- 7. INSURTECH 101 TECH TO WATCH SO WHAT? WHAT YOU CAN DO SUMMARY
- 10. INSURTECH: A DEFINITION the application of technology innovation in the insurance industry value chain to solve known challenges, and discover unknown opportunities, in order to deliver value for customers “ ”
- 11. INSURTECH ON THE RISE https://www.willistowerswatson.com/-/media/WTW/PDF/Insights/2018/01/quarterly-insurtech-briefing-q4-2017.pdf
- 12. Business Model Operating Model New Applications Risk mitigation INSURTECH Partnerships Improvements New products Platforms Distribution IT’S MORE THAN TECHNOLOGY
- 13. ENABLING MORE THAN DISRUPTING https://www.willistowerswatson.com/-/media/WTW/PDF/Insights/2018/01/quarterly-insurtech-briefing-q4-2017.pdf
- 14. WHAT ARE THEY ENABLING? EY & Insurtech Australia Ecosystem Report 2018
- 15. WHAT IT’S NOT ONLY DISTRIBUTION JUST STARTUPS 5 YEARS AWAY SOMETHING TO IGNORE
- 16. INSURTECH 101 TECH TO WATCH SO WHAT? WHAT YOU CAN DO SUMMARY
- 17. CHANGING THE VALUE CHAIN Today more than ever, some of these intermediaries run the risk of getting disintermediated sooner rather than later because they are unable to adapt their business model, disruptors are penetrating their markets, or technology is changing the entire industry. “ ”Walter Kielholz, Chairman SwissRe 2016
- 24. INSURTECHS – USAGE ON DEMAND http://www3.weforum.org/docs/Beyond_Fintech_-_A_Pragmatic_Assessment_of_Disruptive_Potential_in_Financial_Services.pdf
- 25. INSURTECHS – EMERGING RISKS http://www3.weforum.org/docs/Beyond_Fintech_-_A_Pragmatic_Assessment_of_Disruptive_Potential_in_Financial_Services.pdf
- 26. INSURTECH 101 TECH TO WATCH SO WHAT? WHAT YOU CAN DO SUMMARY
- 28. SPEAKING TOO SOON? I am sure as hell not worried about insurtech(s) disintermediating what I do for a living. They’d better be good at their jobs because I’m damn good at sales. “ ” Steven DeCarlo, CEO AmWINS 2017
- 29. DISRUPTION HAPPENS QUICK-ER Neither Redbox nor Netflix are even on the radar screen in terms or competition. “ ” Jim Keyes, Blockbuster CEO 2008
- 30. “ ” Olli-Pekka Kallasvuo, Nokia CEO 2008 From a competition perspective, the iPhone is nothing but a niche product DISRUPTION HAPPENS QUICK-ER
- 34. WHAT GAME ARE WE ACTUALLY PLAYING?
- 36. RUGBY = INSURANCE TEAMS = COMPETITORS RULES = REGULATIONS NEW PLAYERS = BETTER GAME NEW TECH = IMPROVE THE GAME
- 37. 37 ENTERTAINMENT
- 38. WE’RE PLAYING A DIFFERENT GAME Rugby 20th AFL 4th BBL 5th
- 39. HOW CAN YOU BE A GAME CHANGER?
- 40. INSURTECH 101 TECH TO WATCH SO WHAT? WHAT YOU CAN DO SUMMARY
- 41. 7 STEPS TO INSURTECH SUCCESS RESPOND DIVERSIFY STRATEGY EXPLORE EXPERIMENT BE READY SEARCH USE YOUR CORE PEOPLE FIRST EXECUTE
- 42. RESPOND
- 43. IT’S AN INCUMBENT PROBLEM It’s hard for big carriers to innovate as they have so much to contend with already – industry headwinds, legacy issues. But they need to be in the game, right now. “ ” Caribou Honig, Cofounder of QED investors
- 44. INNOVATOR’S DILEMMA Should we invest to protect the least profitable end of our business, so that we can retain our least loyal, most price- sensitive customers? Or should we invest to strengthen our position in the most profitable tiers of our business, with customers who reward us with premium prices for better products? “ ”Clayton Christensen, Innovator’s Solution
- 45. DIVERSIFY
- 46. Core Business 90% Better. Faster. Cheaper 10% Change the Game 0% WHAT INVESTMENT IS OFTEN LIKE
- 47. CHANGE THE GAME 100% STARTUP INVESTMENT (x10)
- 48. Core Business 70% Better. Faster. Cheaper 20% Change the Game 10% TIME TO GET IN THE GAME
- 49. EXPLORE
- 50. DISRUPTIVE INNOVATION Clayton Christensen, Innovator’s Solution “ ” …disruptive technologies offer other benefits— typically, they are simpler, more convenient, and less expensive products that appeal to new or less- demanding customers
- 51. TECHNOLOGIES TO ADOPT EY & Insurtech Australia Ecosystem Report 2018
- 52. EXPERIMENT
- 53. NEW PRODUCT DEV IS HARD 50-60%New product developments fail
- 55. BE READY
- 56. 5 STEPS TO BE STARTUP READY NARROW FOCUS, GET BUY IN PROCUREMENT & LEGAL INTERNAL CHAMPION MOVE FASTGET OUT THE BUILDING
- 57. USE YOUR CORE
- 58. Core Assets LEVERAGE CORE ASSETS Custom ers Brands Data People CapitalPartners Operati ons Market
- 59. BUT, PLAY IN THE RIGHT SANDPIT
- 60. PEOPLE FIRST
- 62. INSURTECH 101 TECH TO WATCH SO WHAT? WHAT YOU CAN DO SUMMARY
- 63. SUMMARY INSURTECH IS HERE & ENABLING MUST RESPOND WITH A FOCUSSED STRATEGY NOT JUST TECHNOLOGY - BUSINESS MODEL, PROCESS & PRODUCT LEVERAGE CORE ASSETS & PARTNER GET STARTUP READY
- 64. THANK YOU BRENTON CHARNLEY CHAIRMAN & CO-FOUNDER, INSURTECH AUSTRALIA E: BRENTON@INSURTECHAUSTRALIA.ORG W: INSURTECHAUSTRALIA.ORG
Editor's Notes
- Introduce topic Thank you
- Run through topics what to cover today
- 2003, Rugby world cup when England beat Australia Johnny Wilkinson kicks the field goal to secure the win off his boot, right foot kick Johnny was known for his ability to win the game off his boot He was a game changer and meant that it was difficult co compete
- And how about 2015 Wallabies get defeated again, this time another game changer Dan Carter of course drop goal from almost at half way to secure the win for the 2015 world cup Now, you’d be thinking what does rugby have to do with insurance And to me quite a lot – its about game changing
- Both Dan Carter and Johnny Wilkinson were great players that changed the game of rugby Change how the game was played And I look at this and would like to pose some questions to you today. That question is: Firstly, what game are we playing in insurance and second, how can you change the game here in NZ? If insurance is the game we are all playing, then what can you do to change it?
- The second question is, what game are we playing? Is insurance the game we are competing in, or is there another? We will come back to this later in the presentation, but something to consider whilst we go through the insurtech 101 and technology to watch.
- Overview of insurtech, what it is and why is it important now
- Now let me guess, who is thinking something like this? Insurtech, a couple of guys in a garage hacking away and eating ramen noodles, late at night playing computer games Well I guess to some extent you are right, and maybe where it started, but today it is certainly something more Insurtech has certainly left the garage, and is now in the boardroom So what is it?
- Insurtech at it’s highest level is a subset of fintech Broken down into it’s two components Insurance – the industry or application Technology – the innovation Average age of insurtech founders is well over 30
- More specifically, I have developed this definition “the application of technology innovations to the insurance industry value chain to solve known challenges, and discover unknown opportunities, in order to deliver value for customers” Customers both consumers and businesses Known problems and unknown opportunities But ultimately, looking to deliver value for the end customer Importantly, innovation is broader than just the application of technology
- And that is insurtech has been on the rise Since 2015, we saw our fist insights of insurtech as a search term according to google trend analysis And since 2015, we have seen a dramatic increase in the use of insurtech online globally 2017 however saw a cooling of insurtech investments
- Insurtech can also have applications across operation model, into new applications and also new business models Improvements – most common, reduce costs, improve services Partnerships – Applying the insurance business model into new platforms like Trov, or AirBnb, Uber Platforms – E.g. tesla, changing the way insurance is delivered Risk mitigation – from managing claims to reducing risk New products – existing business, but meeting new demands and products, e.g. cyberinsurance or renters Distribution – using technology to distribute existing or new products, such as or digital devices like blockchain Many ways that insurtech can have impact
- 60-65% of technologies are enabling We have seen this played out across multiple global surveys from mckinsey and this one from willis towers watson According to McKinsey 61% of insurtech are actually looking to enable the insurance value chain rather than disrupt This places incumbent insurers in a wonderful position to access to technology and improve your businesses through partnering, rather than compete on disruption Partnering key opportunity In Australia, our EY and Insurtech Australia report - 65% of insurtechs exist to enable the incumbent industry, yet 83% disagree with the statement that incumbent players are doing enough to collaborate with insurtechs in driving innovation into the industry's practice. Insurtechs listed collaboration with incumbents as their #1 ambition for the coming 12 months.
- New products to deliver customer value Innovative marketing and distribution Pricing and underwriting agility Eifficiencu insurance administration Smarter loss prevenvtion and remediation – claims If you are an incumbent player – looking to invest, these are perhaps a good place to start
- Importantly, insurtech is not something that should be taken lightly, Now we have talked about what it is, let’s talk about what it is not Only distribution Just startups 5 years away Something to ignore
- With that background on what it is and the context Let’s look into some of the activity that has been happening
- In particular, the re-insurers have been looking to move up the value chain and have been investing heavily insurtech In particular, this quote from Walter Kielholz, Chairman in SwissRe in 2016 Today more than ever, some of these intermediaries run the risk of getting disintermediated sooner rather than later because they are unable to adapt their business model, disruptors are penetrating their markets, or technology is changing the entire industry. I think this gives a good grounding into the concern that the re-insurers see, and in turn what drives their behaviour
- This excitement is increasingly shared by incumbents. While many insurance companies initially ignored InsurTech activities and denied their relevance, the picture has clearly changed. Virtually all major insurers and reinsurers have initiated digitalization programs. Quite a few have responded by setting up captive accelerator or incubator programs, or by making direct investments The likes of MetLife and IAG establishing innovation labs in Singapore for example from the global players to get ahead of the trends
- While insurers ranging from AXA and Allianz to MassMutual and Liberty Mutualhave gotten busy in tech startup investing, leading reinsurers Swiss Re and Munich Re and their subsidiaries have also explored a number of strategic moves across the startup landscape in their own right. Swiss Re launched the InsurTech Accelerator in India focused on “Internet of things (IoT), systems of engagement, and smart analytics.” Munich Re has sponsored accelerator Plug and Play’s insurance and IoT programs and also partnered with Alma Mundi Ventures in Spain to launch its own accelerator MundiLab. Munich Re has also invested in several IoT startups including Helium, Waygum, and Augury through its corporate venture arm, Munich Re/HSB Ventures, and backed soon-to-launch P2P P&C insurance startup Lemonade with reinsurance capital. Munich Re, through its Digital Partners program, has also struck a number of underwriting partnerships with startups including Trov, Simplesurance and Slice.
- Investment is also not limited to just distribution Investment is going into insurtech’s right across the value chain From a customer’s perspective - there are insurtech looking to both enable and disrupt the industry value chain from awareness, to purchasing and distribution to purchasing and claims
- With all of these startups, technology is certainly at the core of each of their value proposition Great examples of insurtech at its core But, where do you as NZ incumbents to start, what technologies should we prioritise This from McKinsey is a useful summary of what technologies most insurtech’s are leveraging Un surprisingly, data is the centre of most insurtechs But importantly, not all are looking to disrupt, but also enable
- @Simon Disclaimer around the positioning @4/24 Position of CoverGenious
- According to a recent World Economic Forum report, there is disurption happening in some specific areas of the value chain For example Modularity – That is, increased modularity in the insurance value chain is enabling new combinations of players and threatening the position of incumbents For example Bought by Many Tesla
- Usage on demand is another area that the insurance value chain is seeing new market entrants and disruption Usage-based, on demand and object specific insurance products are emerging in response to shifting customer lifestyles in property and casualty AirBnb for example is fastest growing segment Slice is marketing what they call the pro-sumer, those consumers that need both personal and commercial insurance needs
- Insurtech – emerging risks The development of products to insure emerging risks is becoming critical to carriers profitability, particularly as margins in traditional products erode Cyberinsurance Connected devices using IOT to prevent claims in churches
- So now you know what it is What activity So what?
- The question is, will it happen to us? Is this the moment where we know we should react and respond? Importantly, disruption happens slowly, and there have been many who may look back and regret they didn’t act, or turned a blond eye For example
- Speaking during a CEO broker panel at the S&P Global Ratings Insurance 2017 conference last week, DeCarlo was responding to a question posed to S&P Director Julie Herman about the prospect that InsurTech startups or existing carriers, such as Berkshire Hathaway, Travelers and Allstate, launching direct-to-customer initiatives in the small business commercial insurance space created a long-term threat to brokers. His response But importantly, we can learn from other industries and their “innovator’s dilemma”
- How about this one from the CEO of Blockbuster in 2008 2004 Blockbuster $6b, Netflix $500m 2010 Blockbuster Bankrupt, Netlfix $2.2bn
- Or this one from the CEO of Nokia in 2008
- The So what? – the time is now to respond and to embrace the change. Being an incumbent affords know unfair advantage, and in some circumstance it is a disadvantage Particularly, according to a PWC global CEO survey, insurance is the industry most likely to be next. There is much to worry about, insurance CEOs are acutely aware of the disruption and change facing their industry Concerns over regulation, the pace of technological change, shifting customer behaviour, and competition from new market entrants have continued to rise from their already high levels
- Keeping pace with these changes isn’t just a matter of new technology, but also how to be innovative and develop the customer intimacy needed to meet fast-shifting market expectations, while continuing to drive down costs. And the pressure is heightened by competition from lean and agile InsurTech entrants, which can get closer to customers while still being able to undercut more established businesses on cost and price. Incremental innovation and marginal cost savings won’t be enough to sustain profitability and growth in this disrupted marketplace.
- In response, insurance CEO’s have said their plans for growth include M&A, strategic alliance and joint ventures Imn addition collaboration with entrepreneurs and startups, insurtechs Which is a great strategy, but then the question is, who is ready and will they come? With such must disruption in the industry, my concern is the top two responses in plans for growth for the 12 months, and that is cost reduction and organic growth With that in mind, I would like to come back to my the question I posed earlier Next slide
- And that question is, what game are we actually playing? Are we in fact playing in insurance, or are we playing something else? And to answer this, I’d like to use the rugby analogy again
- The Wallabies Coming back to the rugby analogy Wallabies once a great team, could get backt to the top But questions is what games are we playing and what does it have to do with insurance?
- To explain this analogy further Rugby = game of insnraucen Team = insurance carriers competing against each other Rules = regulations Net technology entering the industry = improvements to the game New players = better game, more interesting and entertaining But in rugby, attendance has been declining globally, and I would ask that you no longer compete again other teams – you are competing against other forms of entertainment The game has changed
- Entertainment is now the global game that you compete against in rugby Other codes For example
- I did some comparison of average attendance in 2016 of outdoor league games Coming in around 20th was rugby 4th was AFL behind the EPL, NFL, MLB and Bundesliga And surprisingly, the Big Bash League was 5th A game that has been around for a couple of years, is excelling in average attendance They changed the games If we acknoweldge that we are playing a different game, then our strategies change, we don’t stick in our existing business models. We intentionally look to change the game and compete in a different way, just like the BBL
- So the question is now, how can you be a game changer What opportunity do you have to influence insurance locally and globally?
- Next we look into how you can respond to insurtech in your business
- 7 Steps to insurtech success Investing in insurtech Respond Diversify Explore Experiment Be-ready Use your core Grow Talent
- First step is to respond Importantly a strategic response is required not just from an insurance perspective but that of an incumbent Tackle the ever challenging innovator’s dilemma
- Most insurers, though, do not have innovation in their DNA. Regulation has curbed incumbents’ ability to experiment, while limited competition has given them no particular need to do so—the size of their in-force books makes it hard for new entrants to build market share, and start-ups seldom want to take risk on to their balance sheets because of the capital required to offset it. But innovate they must. Although there is significant opportunity to capture value in the short term by digitizing their current business, you will get left behind if they fail simultaneously to use digital technology to innovate and build new business.
- To seize the opportunities and overcome the threats implicit in digital disruption, incumbents have no choice but to innovate, but there in lies the challenge This challenge is commonly termed the innovator’s dilemma as coined by the famous management consultant in Clayton Christensen Should we invest to protect the least profitable end of our business, so that we can retain our lest loyal, most price sensitive cutomers? Or should we invest to strenghten our position in the most profitable tiers of our business, with customers who reward us with premium prices for better products? In thie diagram CC depicts the three strategies in response Sustaining strategy, low end disruption and new market disruption Which one you choose is of course not that simple The innovator’s dilemma is at full tilt, putting most incumbents in difficult positions when shareholder expect returns etc Importantly a response is required, and even sustaining innovation requires investment To pursue the others requires careful consideration of strategy, technology and funding to achieve success CC’s book The Innovator’s Solution gives some good insights in the good and bad strategies
- Often this is what investment of incumbent funds looks like When pursuing new technologies and future strategies – this often only results in sustaining innovations To change the game, requires increasing investment in both better, faster, chepaer and changing the game Importantly, the challenge is how to do this to win against the new entrants
- Startup strategy on the other hand is 100% about changing the game And again, this is not just one startup trying to do this, it might be 10x or 100x the companies looking to win Even with a failure rate so high, the numbers stack up against the incumbents when looking to disruptive innovation
- To get in the game, a simple but often useful is to spread investment across all three portfolio’s Important not to throw the baby out with the bathwater Leverage the core assets But keep the new ventures from the core assets Managing two very different organisations
- EXPLORE TECHNOLOGY Munich Re heatmap MCKINSEY PAPER More than digital BUSINESS MODELS Exploration Blockchain
- But consider when looking to technology innovation, technology is often the enabler that allow you to explore markets that may have otherwise not been profitable New technologies can enable escape from the legacy systems, not slowing you down Then this allows you to go after different customer segments A good example here was the Sony transistor radio Another Disruptive innovations don’t attempt to bring better products to established customers in existing markets. Rather, they disrupt and redefine that trajectory by introducing products and services that are not as good as currently available products. But disruptive technologies offer other benefits—typically, they are simpler, more convenient, and less expensive products that appeal to new or less-demanding customers
- MunichRe IT Trend radar Help to shortcut the technology process Explore what technologies can work in your organisation and to add value to the customer Those in the Adopt and Trial buckets, naturally ones to look to first Further experimentation can be done outside the business model
- Next is to experiment Best way to make the future is to create Future backed strategies – no longer can we rely upon what has happened in the past to predict the future
- According to Clayton Christensen, around 70-90% of investment that goes into new product development fails Of that that that succeed, only 40% of those generate profit above the GDP growth rate Therefore, when dealing with new technology, need to adopt new approaches to help you to explore and validate whether new technology works
- Need to use a series of intentional hypothesis in which explore what the future might hold To experiment effectively, need new approach to technology adoption Test and Learn or experimentation to help validate the future The Leadn Startup, made famous by Eric Ries is all about using startup thinking in the corporate world. This approach shows how to bring together design thinking, lean startup and agile development principles into one method HBR article - https://hbr.org/2013/05/why-the-lean-start-up-changes-everything
- IMPORT V EXPORT STRATEGY NZ FINTECH BE SERIOUS, DON’T WASTE TIME WITH INSURERS BE REALISTIC Partnering Out-reach to your global counterparts Find partners locally and across the ditch
- 37% OF CEO’S IN THE PWC Survey hihglighted the need an want to work with startups Narrow your focus – look for startups that can add value in specific areas, known value exchange, business model. If your strategy moves about, or you don’t know what you want, this does not help stgartups Get out of the building and drive Engagement – FintechNZ, Insurtech Australia, find and meet them understand more about startups Change the way you procure – Flamingo story, pilots People deal with people, but businesses. Nominate internal champions and give them authority and pre-approved budgets Time – this kills moves startup ventures. When you only have 12 months runway, waiting till next quarters Board meeting, to maybe get approval doesn’t work. Move fast and trial many things to help you validate
- Out-reach to your global counterparts Find partners locally and across the ditch Capturing value from the core – insurers existing customers, brands, data and technical skills are valuable business assets if they can be cataputled into the digital age Existing market’s in particular Partnering
- To seize the opportunities and overcome the threats implicit in digital disruption, incumbents have no choice but to innovate, but there in lies the challenge This challenge is commonly termed the innovator’s dilemma as coined by the famous management consultant in Clayton Christensen Should we invest to protect the least profitable end of our business, so that we can retain our lest loyal, most price sensitive cutomers? Or should we invest to strenghten our position in the most profitable tiers of our business, with customers who reward us with premium prices for better products? In thie diagram CC depicts the three strategies in response Sustaining strategy, low end disruption and new market disruption Which one you choose is of course not that simple The innovator’s dilemma is at full tilt, putting most incumbents in difficult positions when shareholder expect returns etc Importantly a response is required, and even sustaining innovation requires investment To pursue the others requires careful consideration of strategy, technology and funding to achieve success CC’s book The Innovator’s Solution gives some good insights in the good and bad strategies
- Organisations don’t innovate, people do Who are your stars? Will they come from different games/industries to help you in the game? Game Changers Players can change Look outside for game changers – might not be people, or those promoted from the ranks
- To summarise: Insurtech is here and and time to act and respond Need to respond with a focussed strategy – that helps to overcome the innovators dilemma. Consider a portfolio approach and partnering is a great way to overcome the initial hurdles Insurtech is not just about technology – it has impacts across operating model, new applications and business models 39% of CEO’s were looking to work with startups. But this means you need to get ready. Particularly around strategy, funding, legal and procurement and having internal champions ready Look to partner relationships to overcome early changes
- Introduce topic Thank you