London is still the most vibrant Insurtech innovation ecosystem, despite the momentum we have been reporting on in Berlin, Zurich, India, China and Singapore.
To learn what is happening in the Insurtech innovation scene in London we interviewed Robin Merttens who, with some partners, runs InsTech London
You call it Instech, we call it Insurtech, but we won’t call the whole thing off.
Collapsing Value Chain
Robin described how Insurtech is moving beyond the early buzz created around P2P, drones, Blockchain and AI as concepts. The focus now is on solving actual pain points that the incumbent insurance industry fully recognizes, the most pressing of which is how to better engage with customers. There is less hostile talk of disruption and more about the power of partnerships.
The backdrop to all of this is the collapsing value chain in Insurance. This is what we have referred to as Reinsurance As A Service.
Leading the way is MunichRe with Digital Partners. We profiled 8 ventures that have partnered with MunichRe here. One example that Robin referred to is the Blink travel insurance app, which would not have worked in the old horizontal stack but works well when a new venture like Blink can simply plug into the someone else’s insurance infrastructure. This is a win/win for Reinsurers and for startups. As Robin acknowledged, what’s taking people by surprise is how easy it is disrupt traditional Insurance carriers in this way. It was always assumed that brokers would be disrupted, but the collapsing value chain with startups at the top of the stack focused on user experience and Reinsurance at the bottom of the stack focused on data, underwriting models and capital leaves the middle of the stack including the insurance carriers, vulnerable to disruption. Robin told me that the leading Insurance carriers have accepted the InsurTech reality and are devising and executing strategies to evolve within this new reality. He mentioned innovative work being done by Axa, Allianz and Aviva. There is now an understanding that Insurance carriers will compete with their brokers in some classes and that Reinsurance will compete with their Insurance carrier customers. Even if public statements don’t reflect this, privately this reality is acknowledged.
That does not make it easy for digital insurance startups. Robin emphasized the brand value and safety factor that consumers seek from an insurance vendor and how a full stack Insurance startup needs many $ millions in their marketing budget to overcome this.
Robin also talks about the core of Insurance being the pooling of risk and how that is hard for a startup insurer because they don’t start with a pool of risks and that early customers may be the customers who self-select a startup carrier because they are high risk. Lemonade is possibly one company that understands this well and can overcome the problem.
Ask It Never
Robin reckons that 90% of Insurtech investments today are consumer related. That is where innovation around user engagement is so critical. One user engagement area that Robin highlighted was how to solve the form filling barrier, which has such a big impact on the customer experience and therefore the Customer Acquisition Cost (CAC). This is a data game. If there is enough data from existing internal and public sources, the user does not need to enter much new data. Self -learning machines only works well if they have the data to work on.
Robin mentioned what Aviva is doing with Ask It Never. This confirms what we have observed as the difference between how banks reacted to the first signs of disruption (largely ignoring it until late in the cycle) to how Insurance companies reacted to the first signs of disruption (innovating and engaging with the market).
Although most investment is going into consumer, Robin suggested that SME was a great InsurTech opportunity where the same models can be applied. The data is all there in SME, e.g. in Companies House and other sources of open data.
Lack of investable talent with Insurance expertise
Robin highlighted something that is very different in banking. Too many startups lack investable talent that combine a) digital/tech expertise b) entrepreneurial execution track record and c) a deep understanding of how Insurance works. You need all three to succeed. The last one – a deep understanding of how Insurance works – is often missing. In Banking, there are plenty of ex Bankers willing to join a digital startup (because the writing has been on the wall for a while). In Insurance this is much less true, perhaps because InsurTech is newer or due to the natural risk aversion of anybody who chooses Insurance as a career path.
Robin confirmed that early stage funding was the issue. Lots of ventures wanted to come in at the Series A and beyond stage, but most investors were running from the early stage risk. He mentioned two specialist InsurTech venture funds who are targeting this early stage with 100% focus on InsurTech:
In the Blink of an eye
Robin mentioned Blink in two ways. One was to illustrate what we call Reinsurance As A Service. We had briefly mentioned Blink when we looked the 8 ventures that have partnered with MunichRe here.
Robin also mentioned Blink in the context of investable talent, referring to Paul Prendergast as the kind of investable talent that every investor wants.
Investors will have to wait because Blink is already showing an exit only 6 months after being founded. It is an aptly named venture!
The exit amount was only EUR 1m. That is an amount that would be a failure if they had raised VC, but it was self-funded. EUR 1m for 6 months of work is good and shows the power of Apps plugging into an insurance platform. The acquirer, CPP, is a UK public company with a market cap around $172m.
This is a sign of what we are hearing anecdotally from many entrepreneurs. If you have the metrics that will enable a Series A, you also have the metrics that will enable an exit. The smart entrepreneurs go into that phase weighing up both options.
Bernard Lunn is a Fintech thought-leader, investor and deal-maker.
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