More than 1,000 technology startups are seeking a role in insurance and risk management, and they’re doing so with or without traditional distribution partner collaboration, an industry panel said during the 2017 PCI Annual Meeting in Chicago on Oct. 16.
The 1,500 startups pursuing this are supported by more than 140 venture capital firms that have invested some $6 billion to date “across the entire value chain of insurance, from sales, marketing and distribution to underwriting, loss control and claims,” said Tony Trivella, executive vice president of the treaty division of Munich Re’s Hartford Steam Boiler Inspection and Insurance Co. Trivella’s commentary was part of his opening remarks as moderator of a panel on innovation.
Panelists said that those venture capitalists need a timely return on their investments and InsurTech startups will not hesitate to proceed on their own if traditional carriers and intermediaries are slow to respond.
“There hasn’t been something like this before,” said panelist Jacqueline Lesage Krause, managing director of Munich RE/HSB Ventures.
About 10 years earlier, she said, technology startups were approaching insurers as vendors. “Now they’re no longer vendors,” she said. “They’re not waiting for you. They discovered the [capabilities] of becoming an MGA (a managing general agent).”
“Being an MGA allows these startups to go to market on their own,” she said. “They can innovate across the value chain from that vantage point. That’s what’s different this time.”
It’s a much smaller leap today from being an intermediary to becoming a full-blown insurance carrier, said panelist Tony Attia, CEO of Slice Labs, the software firm that in 2016 launched a platform for “on-demand” insurance for workers in the sharing economy.
“Right now, there’s a lot of capital, and the cost to develop an insurance company is a lot lower than it used to be,” he said. He estimated that it cost his firm about $3 million to get to the point where it issued its first policy in its first state—less than 10 percent of what he thinks it would have cost 10 years earlier.
“In the past, we might have heard a company say, ‘Integrate with our claims system,'” he noted. “Now we can build a whole insurance company faster than we can integrate into your claims system.”
Carriers Must Innovate Products to Capitalize on Tech Startup Opportunities
Attia and others said that traditional insurers have to conceive of their product offerings in new ways to capitalize on the opportunities presented by technology startups.
For example, “we designed a new policy form,” Attia said. “We have a hybrid form that has personal [coverage] sitting beside the general liability, with personal property [coverage].
“We also priced it differently, in time segments, and got rid of the submission-quote-bind-issue-endorse-audit-renewal process, all those transactions we as an industry spent 20 years automating.”
At least some carriers are apparently getting the message about innovation.
“The insurance industry is awake,” said panelist Keith Moore, CEO of CoverHound Insurance Solutions, which maintains a comparison shopping platform for personal and commercial lines P/C coverage “Carriers are open-minded about how to look at products in a different way.”
Moore suggested some of the trends cited by Krause may have already crested. “Several years ago, the industry forced us to become MGAs,” he said. “Because the industry is now awake, carriers are not forcing us to become MGAs. They’re willing to partner with us.”
Moore added that “speed and execution” remain the indispensable elements of a successful innovation effort. “The way to innovate is to compress time, to fail often and to fail quickly, and move on and learn from that.”
Panelist Ed Largent, chairman, president and CEO of Westfield Insurance, concurred, stating that carriers need to establish and cultivate partnerships with technology startups to have the “speed and agility” needed to compete effectively.
“We’ve got to get in the game,” he said. “Being on the sidelines is not the place to be.”
“We’re seeing the beginning of an evolution from InsurTech to risk transfer tech,” said Krause. “Because of all the capital going into InsurTech, it’s making people think a lot about risk transfer in ways that they didn’t before.”
“Disruption is only disruption if you are resistant to positive change,” said Moore.