Why and How P/C Insurance Carriers Should Work with Insurtechs
Startup insurtechs need partnerships more than they need money from insurance carriers, according to one leading venture capitalist actively funding insurance technology firms.
Venture firm XL Innovate’s Martha Notaras told Super Regional property/casualty insurer executives looking to get involved in the insurtech movement that there is plenty of venture capital available already for insurtechs, noting that they got $2 billion in 2016.
“I would really focus on partnering. Part of the reason is, investment is a different set of decisions. There are some very large funds available. I don’t think that’s what the insurtech ecosystem needs most from you,” Notaras advised Super Regional executives at the 2017 Super Regional P/C Insurer Conference last month in Lake Geneva, Wis.
“To me it feels like that’s a lot harder to defend to your board of directors but when you go down to really becoming a partner to a startup, which you can do on a case‑by‑case basis — you find an interesting startup, they’re solving a problem that is a problem that you have.”
Notaras was one of the insurtech panelists at the conference that was sponsored by actuarial services firm Demotech Inc. and Wells Media Group’s Insurance Journal and Carrier Management.
According to Notaras, startups are beginning to gain some traction and the interest from venture capitalists (VCs) shows no sign of waning.
“There’s VC money from traditional VCs. There are very large funds from insurers and reinsurers. There’s a lot of money still going in,” she said “There has started to be some exits. When you see some exits, that is an indication that there will be a continuation of money going in, so I don’t see any slowdown from the front end, in terms of the investments.”
Notaras, who in 1998 led the DMGT acquisition of RMS, which some consider the first insurtech, has invested in Lemonade, Cape Analytics and Notion among other startups at XL Innovate. She suggested that insurtechs are open to partnering, having come to the realization that they don’t know everything about the industry they are entering.
“A year ago, the insurtechs were saying, ‘Well, maybe I can go this on my own, and I’m going to be like the fintechs that launched 10 years ago, where they told us that all banks were idiots and they weren’t going to exist anymore,” she recalled.
But she says the new crop of fintechs is singing a different tune that goes, “‘Hey, I can cooperate with banks. This is cool.’ That’s what we’re seeing with the insurtechs. The ecosystem is turning out to be a lot more intertwined than what we expected.”
Robert Mozeika, Munich Re’s Innovation Executive, also an early Lemonade investor, said carriers should recognize that there are many more startups than the ones that get media attention and not all are out to replace carriers.
According to Mozeika, it’s unfortunate that attention has focused on a few direct models like Lemonade while there are hundreds of other types of insurtech companies out there looking to help the industry. “They’re not looking to be a carrier. They don’t have paper. They really want to come in and it’s great opportunity for a partner,” Mozeika said. “There are many, many more of those type of companies to work with, rather than one or two that seem to be getting all the press.”
Mozeika got Munich Re involved in investing in insurtechs including Trov, Lemonade, Root and Slice. He now works with the reinsurance division to match up Munich Re’s client needs with startups in technology, and helps them integrate the insurtech into their operations.
For pioneer Mozeika, insurtech is more about solving real problems than it is about disruption.
“Even my board of managers, when I was out in Silicon Valley said, ‘Bob, try to find the truly disruptive things.’ To be quite honest …I don’t believe in just total disruption. If anything, disruption is little incremental things that change over time. Then you look back over the five years, whatever, it morphed into something totally disruptive,” he said. “You have to work on those little things that improve your process, improve the connection to the customer, make it easier, make it more accessible, make it better to understand and transparent.”
Mozeika told the carriers it’s not too late for them to get involved but that they should start sooner rather than later.
“That’s part of the reason why I’m in my new position, is to help our clients get moving in this innovation market and hopefully we can find something we can co‑create, co‑collaborate together with our clients. That’s why we specifically made this. It doesn’t take much to get started but you really have to get yourself into this. ”
He said joining an accelerator is also an option. His firm is part of the Plug and Play Tech Center accelerator in Silicon Valley.
The panelists offered some advice for partnering with insurtechs, pointing to data as a good place to start coming to terms with the role of new technologies.
“Data is the new oil in this world right now and you need to start accumulating your data,” Mozeika said. “One of the things I see, many carriers, they don’t even have these new forms of data yet. You’ve got to build a history of these datasets.”
Notaras cautioned that sometimes a discussion around data between traditional carriers and new technologists can get bogged down on what data a carrier is willing to or capable of sharing.
“What we’ve often seen is that startups will come and say, ‘What I need is your claims data,’ and there’s a huge deep breath. But very often what they need is something quite pinpointed within that and there is often a common ground that you can reach.”
That can be one of the language issues that bear watching in partnerships, she said.
“There are multiple ways in which people speak different languages. Absolutely one of the biggest ones is the concept of time,” she said. “I can’t overemphasis this. For an entrepreneur, if I call you and I want to talk to you, I meant maybe we could talk tomorrow if you’re not available today. Within the insurance world it definitely feels to me like, ‘So how is three weeks out next Tuesday? Does that kind of work for you?’ I think that has been a real mismatch.”
It also helps for the carrier to understand where the startup really is in its development. “Not what they tell you but where are they in terms of their problem definition?” Notaras said. “You can help them with the problem definition because they are very often super smart people, great experience in technology, not very much knowledge about insurance. So they really do need a depth of understanding about what’s the problem?”
Notaras agreed with Mozeika that data is key but she maintained that some of the upstarts in this area are indeed disruptive. She cited two of her portfolio companies, property data firm Cape Analytic and home telematics firm Notion, both of which provide insurers with better underwriting data.
Cape Analytics is disruptive in how it derives its data— through machine learning from imagery. “You tell me that’s not disruptive? That feels pretty disruptive to me because it’s absolutely a new channel, but it is the same type of information you’ve used before and, amazingly enough, when you get better property data, you can make a better analysis of your risk management,” she said.
Notion offers insurers information they have not had before. Using telematics it captures activities in the home and lets insurers look inside the home.
“When you are a homeowner insurer, you have no idea. From the day that I sign you up, all I know is where you live and, depending on the state, your credit rating, very little else. Now there are a whole bunch of things that I can know and I can understand whether this person is an appropriate risk and a risk I might put in a different bucket,” Notaras added.
Insurtechs want the industry’s help to improve their technology, agreed Laird Rixford, president of agency technology firm Insurance Technology Corp., or ITC.
“A lot of these technology startups, they don’t understand insurance,” he said.
He cited an example of a startup looking at homeowners’ insurance. “[T]hey were like, ‘We can do it just off the address.’ I’m like, ‘No you can’t.’ Dogs, pools, trampolines — things you can go buy tomorrow and install — drastically affect rate,” he said. “They’re deer in the headlights for a moment and I’m like, ‘There are ways to get around this,’ telling them about services that view Google Maps and find pools and as well as supplementary data that is available from companies like CoreLogic.
He also said carriers can educate startups on how insurance laws and regulations fit into the picture.
According to Brian Cohen, an operating partner at Altamont Capital, one of the exciting features of today’s environment for regional and small carriers in particular is that the cost of technology has dropped dramatically.
“You can literally leapfrog your technology from where it is today to being state of the art, and to do it on a software-as-a-service basis, which is really more of a leasing way to do it, and is a much more efficient and a much more inexpensive way,” said Cohen, who is also chairman of an MGA, Arden Insurance, sits on the board of Access Insurance Co. and previously served as CEO of Pacific Specialty.
“To me, that would be one thing, if you’re talking in general about insurtech. All of you now can look at things to do what just a few years ago would have been outrageously too expensive for you.”
For carriers deciding they want to invest, Cohen advised they find entrepreneurs in their very early stages—before people like Notaras and Mozeika get to them. “Figure out what you want,” he advised. “What is it that you think you could do a better way?” Perhaps, for example, it is using more and better data for underwriting homeowners. “You have a lot more data on water issues because they’re your biggest claims. What would you do?”
After a carrier figures out what it wants, whether data analytics or something else, it’s time to reach out to insurtechs.
“You want to look for the ones in the example that I used that are data analytics focused, that are focused on maybe water claims,” he said. “Then start looking for them and find the ones that don’t have a lot of VC money in them and don’t have a lot of PR. Find the ones that are looking for someone like you to get them to where a Martha [Notaras] will get interested, but get in there where you can drive their agenda, where you can have more control.”
Approaching them this way will give a carrier a lot more out of any insurtech innovation “than just waiting for guys to come to you and try to sell you on what their product is.”
Panelists agreed that insurtech is mostly an opportunity rather than threat for agents.
“Consumers are demanding a new way to purchase their insurance. There are new ways to do things. That’s what really I see as insurtech as really doing. The real disruption is the disruption of your lead channel. Traditionally, agencies have been the lead channel for carriers, agreed? That’s where a lot of carriers get their customers, is from the agents,” Rixford said.
“Now these alternative channels are creating a way for those leads to be distributed, either to new ways of selling insurance, or to carriers who have chosen to invest in insurtech, or invest in their future to make sure they’re meeting the needs of when and where a consumer wants to reach them.”
Cohen was bullish on what insurtech means for agents and brokers:
“What I’d say is insurtech for the agent and for the agent‑based distribution channel, this is the golden age. There are things that are coming down the pike that are already here, that are going to allow an agent to be able to do everything that they thought that they couldn’t do before. That is be able to engage with their local customer immediately.”
Cohen cited the example of a startup named Engage that simplifies putting online buyers in touch with an agent right from the results of their Google, Bing or other search. “What Engage does is, if somebody goes online and they search insurance, auto insurance or commercial insurance, an agent’s face pops up and, if the customer clicks on that agent’s face, they’re immediately connected to that agent,” he said. “It’s been done in the travel business, and it’s being done right now starting in the insurance space.”
Mozeika noted that the early hype around insurtech was that insurers had to be “digital and direct” and the agent was in the way. But that’s not the way it is turning out.
“What clearly you saw over the last two years is that the agent’s not going really away anytime soon at all, but you still need to be digital. You still need that better access. If agents want to work with something digital, easier, or less questions, whatever makes their job easier, it’s still going to be worthwhile today,” Mozeika said.
Rixford said much of the insurtech that’s available to carriers is also available to agencies and maintained that agencies that adopt new technologies grow because they have more time to sell.
The ITC executive referred to his own company experience with Google, which dropped its insurance sales venture.
“One of the things we really pushed for them is that we wanted them to have agents in the mix because single carriers don’t have the pivot. Whenever they’re doing self‑fulfillment, they can’t pivot to a different product, can’t pivot, but agents can,” Rixford said.
“Google went down, and when they walked away from, and one thing they said, “We looked at it wrong,” is that having the ability to pivot and have multiple markets and choice for them to sell insurance was really a key benefit of it. I was going, ‘Well, that’s what agents are.'”
While insurtech may not be a threat to agents, what it means for carrier employees is less clear.
It depends on the line of insurance, according to Mozeika.
“Some of the simpler commodity type, everyone’s looking at auto‑underwriting,” he told the carriers. “But I believe that more complex risks, commercial properties, once you get into that, I think a lot of this is only going to help your employees.”
he said carriers are always going to need underwriters but their skill set may need to change. “Think about it, in today’s day and age, it’s not just insurtech that’s changing, our industry — our world is changing. There are new forms of data out there all over the place. If you’re not looking to get that new data in through like Cape Analytics and so on, you’re going to be falling behind the eight ball. But you’re still going to need the underwriting skill there at the end of the day.”
Cohen agreed underwriters will still be needed.
“I don’t think the human underwriter’s going away. I think the tools the human underwriter is going to use are going to be based on AI [artificial intelligence] and machine learning, but they’re going to have a different role. The different role is going to be, they’re going to be an arbiter of last resort. They’re not going to be doing the front end underwriting for risks that are fairly easy to be able to be done,” according to Cohen.
“Humans have a way of screwing things up,” Rixford said. “We’re forever changing. We’re changing at a rapid pace. You’ve got to keep up with times.”
In the end, they see insurtech making insurers better in the future.
Mozeika sees insurtechs helping insurers develop new products to address new risks.
“There’s still a lot more to go in product development. I think partly, with all the new data sets available. Our world is changing,” he said. “Our risk is actually going to change and you have to be at that forefront on that change. That’s what’s going to see on the long haul. ”
Notaras sees insurers of the future becoming focused more on risk reduction.
“I would say actually one of the things is they’ll become better insurance companies, where they literally are identifying risks that can be taken out of the system, sharing with the insured knowledge about how to reduce that risk. That could end up that you end up with lower premiums in certain areas, and yet better loss ratios,” she said.
“Then you have availability to insure other risks, so I actually think that when you think about the noble purpose of insurance, of enabling business to happen and protecting people, you actually have the potential to close much more of the protection gap.”
For Cohen the promise of insurtech is in great part that it can help the industry address its recrutiment challenge.
“What’s exciting to me about insurtech is that finally we have platforms and capabilities and challenging opportunities for young people looking to come into the insurance industry, and we really are fulfilling what insurance is,” Cohen said. “It’s an information and data analytics business where you get to make decisions and make decisions on taking risks, and if you’re right and you do it well, you can make a lot of money.”
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