The Jarvish smart helmet IOT Insurtech from Taiwan is another First the Rest then the West story

Jarvish

Jarvish is a Taiwanese company that is doing a lot more than making it easier to buy insurance. They are using hard technology innovation to reduce accidents and therefore reduce the cost of insurance, using smart helmets that can monitor your driving.

We are seeing the same thing in the West with sensors embedded into cars. Jarvish is doing this in the Rest of the World where a motorbike is the first automated transport that a family can afford. Rather than selling into a motorbike market in the West with tens of millions of hobby bikers (they also have a car but just love to bike for fun), Jarvish is selling to the hundreds of millions of bikers in the Rest who use motorbikes as their primary means of transport.

Rather than having to negotiate with car manufacturers, Jarvish simply make the helmet and sell it to consumers.

That is why Jarvish illustrates a megatrend we have been tracking for a while that we call “first the Rest then the West”.

In doing so they are solving a Catch 22 for motorbike insurance. If driving a motorbike is so dangerous then claims will be high so premiums will be high, so the poor people who rely on motorbikes as their primary means of transport cannot afford insurance.

First the Rest then the West

This is one of the big stories of our time. It is the end of what historians have called the Great Divergence, when the Western economies rose to dominance.

For most of the 20th century, technology was limited to the West. Countries in the Rest (formerly known as developing, then emerging, then rapid growth economies) were “tech deserts” until those economies started to open up (first China, then India, then Africa). Then technology adoption started to flow from the West to the Rest; the last decade has been a boom time for Western tech firms selling to the Rest.

Now the flow is reversing as technology adoption starts in the Rest and then goes to the West. For example, look at Xiaomi to see the future of mobile phones and Alibaba for the future of e-commerce or Paytm for the future of mobile wallets.

This megatrend is not limited to Fintech. Within Fintech, mobile payments and mobile e-commerce is the big disruption and that is happening first in the Rest and then will flow to the West.

Technology adoption starting in the Rest rather than the West is one of the big 21st century megatrends.

Note that I am referring to technology adoption. Where something is invented matters a lot less than where and how it is adopted, as Steve Jobs taught us after wandering around Xerox Parc and seeing the first graphical user interface and using that to create a PC with a much better UX. What really matter is innovative customers and customer innovation is driven by blue ocean markets with big unmet needs and lack of legacy technology constraining innovation.

If you need a smart helmet to keep your family safe, you have a big and so far unmet need. That is why we think Jarvish is a company to watch.

The Asia Inurtech story 

We have already tracked Insurtech innovation coming from India, Korea, Singapore, China. This is the first we have seen from Taiwan. Asia has all the ingredients to become the locus of Insurtech innovation:

  • Big blue ocean markets with lots of unmet needs
  • Lack of legacy technology constraining innovation
  • Hard core technology skills linked to manufacturing expertise (so they can build physical products and are not limited to digital innovation).

Technology innovation not just UX layer digital innovation

The idea of a smart helmet is not new, but like so many Taiwanese companies, Jarvish competes through technology innovation. This is not just another digital UX layer startup. Jarvish has invested years and lots of Ph.D level resources to create a smart helmet that does not require Bluetooth. Even more critical from a safety POV, the Jarvish helmet does not use lithium batteries (which can overheat and explode) and they use “military-grade ceramic anti-explosive batteries”. First do no harm – the helmet has to be safe.

The best way to think about the Jarvish smart helmet is like the black box system that crash investigators extract from commercial aircraft, except that this black box is tiny, cheap and cloud-connected.

Like Apple, this is innovation from technology to consumer marketing and Jarvish is not shy about making the comparison:

“Much like smart phones, at first they were only cool high-tech gadgets, but quickly became an essential part of everyone’s daily life. In the near future, smart safety helmets will definitely be as common as smart phones.”

Illustrating the “first the Rest then the West” megatrend,  the Jarvish roadmap includes products we can envisage also getting traction in the West:

“all types of smart headgear, with such applications such as smart helmets for skiing, diving, firefighting, cycling, drones, extreme sports, and entertainment. All of which will include smart functions and module designs, as well as all the incorporated software needed. We also provide a cloud platform, and international-level third-party value adding services to users.”

The Art of the Chef – combining ingredients

You don’t need to look too hard to see a revenue model. Jarvish sell helmets to consumers with their smart helmet technology embedded. This is simple but powerful.  It illustrates what I call the Art of the Chef business model in my book Mindshare to Marketshare. The chapter entitled Turn Secret Sauce Into Unfair Advantage describes how Fast Moving Consumer Goods (FMCG) companies grew to dominance by avoiding commoditization by combining commodity ingredients into a differentiated package. The book uses companies like Coca Cola selling sugared water at high prices or Gillette charging a premium for razor blades that cost very little to illustrate how to combine commodity ingredients into a product that is highly differentiated. The book then goes on to show how companies such as Apple and Visa used this in technology. Jarvish is on the same path.

I liken this art of combining to cooking. You have lots of components that go into a dish. You might even have a secret ingredient that defines it. Yet the whole is obviously more than the parts.

It gets more interesting when you move from FMCG to technology driven businesses:

”Consider the greatest entrepreneur the tech world has ever seen – Steve Jobs. 

Steve Jobs innovated by combining multiple commodity ingredients into a very tasty dish. He was a technology chef.

At one level he combined multiple commodity ingredients to create unique devices such as the iPod, iPhone and iPad. He combined lots of commodity components sourced from all over the world into a uniquely beautiful and useful product by adding a touch of design magic. However, if he had only created “insanely great devices”, Apple’s business would be more vulnerable to competitors like Samsung and Xiaomi. The reason that Apple is so valuable is that Steve Jobs combined great physical devices with digital services like iTunes and AppStore into a combination that still mints money long after he died. That is why Apple has massive amounts of Unfair Advantage (aka moat, aka competitive advantage). 

You  also see this art of combining in payment network such as Visa, Mastercard and Amex. Yes, these payment networks have software at the core. Yes, they own the hardware servers that the software runs on. Yet they don’t license that as a SAAS product to banks. They wrap it into other services to deliver transactions to consumers via Banks. That is how Visa, Mastercard and Amex turn their secret sauce into Unfair Advantage. 

What Coca Cola, Apple, Visa, Mastecard and Amex have in common is the art of the chef – to combine commodity ingredients into value.”

I see this same art of combining in Jarvish. At one level they combine their proprietary smart helmet technology with the commodity components and manufacturing process of making helmets to create their own differentiated helmet. They combine their own yeast with water, flour and salt to make bread. The next step, akin to Apple moving from iPods/iPhones devices to device hooked to iTunes is to create a digital product that reduces accidents and thus reduces insurance costs.

Image Source.

Bernard Lunn is a Fintech deal-maker, author, investor and thought-leader. 

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Root Insurance and the unbundling of the insurance stack using Open APIs

3-layer-insurance-stack-1It took a long time for Fintech startups to become full stack regulated banks. This is happening much faster in Insurance because Insurance is a stack with three layers and tech centric players understand stack dynamics in their bones and know how to build a sustainable position within a stack.

Root Insurance – going after the auto insurance market – is an example of a full stack InsurTech player. They have been in the news recently with a public launch and new funding. What is significant is the third layer of the stack – reinsurance. That is why the disruption is happening faster in Insurance than it did in Banking.

Although it took a long time for Fintech startups to become full stack regulated banks, it is happening now. In most markets we see banks variously described as Challenger Bank or NeoBank or Digital Bank. Some are VC funded and some are Bank funded. This is 7 years after the Cambrian  explosion phase of Bank centric Fintech c 2009 after the Global Financial Crisis. Insurtech Cambrian  explosion phase came much later around 2014, yet we already see a lot of full stack Insurtech startups. This post explains why.

Root is leveraging external tech disruption that is fairly new

Bank centric Fintech Cambrian explosion c 2009 leveraged the distrust of Banks after the Global Financial Crisis and the fact that the Internet was now mainstream. There was no fundamentally new technology.

Root Insurance is able to leverage sensor data from devices both in-car and on-person. This tech is more recent. What appears to be clever about Root Insurance is how they can differentiate the trips that done by the customer as a driver as vs trips done as a passenger.

Auto Insurance and the 3 layer Insurance stack

Insurance has a 3 layer stack, whereas Banking has a single stack; this is just starting to change thanks to MarketPlace Lending.

Brokers are a legacy constraint for Insurance companies. They are like physical branches for Banks. That is why we see a lot of opportunity in traditional insurance companies that already sell direct (and why we profiled Progressive Insurance here).

A full stack Digital Insurance startup like Root Insurance sells direct using online tools, collects premiums and then manages the claims process. They are able to do this because of the 3rd layer which is Reinsurance.

Unbundling the stack thanks to L3 = Reinsurance

Root Insurance reports that their policies are  reinsured by Munich Re, Maiden Re, and Odyssey Re.

This what gives Root the financial stability to make regulators comfortable. Root can do Layer 1 and 2 (customer acquisition and claims processing). These processes are fundamentally digital/tech and can be capital efficient . Reinsurers are the ones who have to be very well capitalized.  Reinsurance can be extremely lucrative for those who know how to invest (just ask Warren Buffet) which is why Hedge Funds and other capital sources are moving into the business. So we expect L3 to become increasingly efficient and competitive (which will enable more players to jump in at L1 and L2).

Stacks Communicate via Open APIs

How does L1 work with L2? Or L2 with L3?  In ye olden days, this worked via long complex Systems Integration projects that made a lot of money for outsourcing companies and middleware vendors. Today the Stack below you creates an Open API and invites the layer above to innovate on top of their platform services.

Personalized Auto Insurance is a highly competitive market

As well as Root Insurance, Metromile recently did a big raise and there are some agile Incumbents such as Geico and Progressive that are not burdened with  legacy agent networks. Given how fast InsurTech is moving we expect to see acquisitions happening soon – this market is moving from Cambrian Explosion to Consolidation much faster than usual.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

Metromile big raise and the InsurTech hype cycle

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An eon ago in March 2015, we wrote Not that many InsurTech startups – yet. Since then we have seen an explosion of startups including two very high profile ones – Lemonade and Metromile – hitting the headlines in recent weeks. InsurTech is now so hot that a sentiment crash (a turn in the hype cycle) cannot be far behind.

Today is about Metromile and the promise of personalized Auto Insurance.

TL:DR. Hype cycle and reality cycle are disconnected. InsurTech is real even if some expectations have lost touch with reality and we may soon have headlines debunking it.

Metromile and the promise of personalized Auto Insurance

The idea that in-car sensors can deliver the data to enable personalized Auto Insurance is sound. The status quo – that all of us have equal risk profiles, differing only by age and location, is clearly wrong. It took in-car sensors to deliver the data to change the game.

Metromile is the startup to watch. This is a full stack startup that competes head on with existing carriers. They raised $191.5m to buy an existing carrier. Their consumer pitch is “pay per mile” (which is one aspect of personalized Auto Insurance), but as a full stack play, Metromile has the opportunity to incorporate whatever innovation is needed and enabled by in-car sensors and wearables to compete head on with existing carriers.

Metromile is perfectly positioned for the ride sharing change (aka Uber and Didi). This is not good news for people who make money driving others; pay per mile must increase their premiums.

InsurTech has hit the hype cycle.

All this excitement has turned boring old InsurTech into the latest hot new thing. InsurTech has gone from ignored to top of the hype cycle in less than two years

Hype cycle and reality cycle are disconnected. The Insurance consumer needs are real and the tech enablers are real. That is also true in P2P Lending, but that did not prevent a sentiment crash in P2P Lending after a minor scandal at Lending Club. A sentiment crash in InsurTech will probably come soon. If it happens in the private markets it will be muted (no shorting allowed in private stocks means down rounds get little media attention).

Incumbents are not asleep at the switch in Insurance

P2P Lenders could innovate while Banks were asleep at the switch. In contrast, Insurance companies are alive to the threat and opportunity.

Insurance Incumbents with large agent networks are like Banking Incumbents with large retail branch networks. They may see the change coming but their hands are tied – the Innovators Dilemma is tough.

Imagine an Incumbent without that legacy constraint.

That is what we see in Auto Insurance where two Auto Insurance carriers – Geico and Progressive – can innovate without the constraints of an agent network. We profiled Progressive here.

Banking & Insurance are cousins

We view InsurTech as a subset of Fintech. That is why Daily Fintech dedicate one day per week – Thursday – to InsurTech. There are many points of intersection:

  • Citigroup was formed by combining a bank – Citicorp – and financial conglomerate – Travelers Group – that originated as an Insurance company. This heralded the end of the Glass Steagal era.
  • What both Sandy Weil (who created Travelers) and Warren Buffet figured out is that collecting Premiums upfront leads to cash flows that can be invested. One part of Insurance sits within the Wealth Management business.
  • Life Insurance companies started pitching their product as a Wealth Management tool.

Who will buy who first?

In banking, the assumption is that incumbents will buy startups. Metromile buying Mosaic Insurance shows that we are in a new era when the reverse is just as likely. Given that Metromile faced agile incumbents such as Geico and Progressive, this was an essential move.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

A simple way to profit from the InsurTech boom

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InsurTech is booming. Or at least a lot of investors think it will boom soon as demonstrated by how much money they are investing – hitting US$1bn across 47 deals in H12016 according to the latest quarterly fintech venture capital report from KPMG and CB Insights. How can your average person profit from this boom in a simple way? If you are an InsurTech entrepreneur or investor you can profit from this boom; but this is complex and the option is only open to a few investors on the inside track and to entrepreneurs willing to do whatever it takes to grab the brass ring. 

JoeQPublic could invest in public traded InsurTech ventures – if there were any.

There are publicly traded Fintech stocks. For example, you can buy into Lending Club (disclosure, I invested after the CEO was fired) or Square. However, there are no publicly traded stocks that are pure play InsurTech (AFAIK, please tell me if there is one).  However I think I may have found an Incumbent Insurance Company that can profit from the InsurTech boom. Before telling, I should say that this is NOT investing advice, I have no credentials to do that and I have not yet decided to invest in this company. I am just sharing my notes as I dig into this possible opportunity. 

The Agent channel problem

Having to keep an Agent channel happy can be a big drag on innovation and an innovator’s dilemma.

Amy Radin does a good job explaining why in this post. Digital ventures can sell direct and change the user experience. Incumbent Insurance companies are constrained by the legacy of their agent network. As Amy Radin points out, the traditional agent model is riddled with issues:

  • A continuous decline in the agent workforce,
  • A mismatch between agent demographics and overall population trends,
  • A prospecting model out-of-touch with the times, and
  • A compensation model that encourages churn and does not align interests between the agent and either the carrier or the client.

So I went looking for an Insurance Company that sells direct and immediately thought of Geico. Unfortunately Warren Buffet got there a long time ago. You cannot buy Geico stock. You can buy Berkshire Hathaway stock and that may be a good bet, but you cannot call that an Insurance pure play.

I ended up with Progressive Corp (stock symbol = PGR, key stats are here, valuation looks reasonable, not cheap but not expensive either).

Convergence theory in Insurance

Our thesis at Daily Fintech is that 2016 sees the start of the Great Convergence between Banks and Fintech. At the end of this Convergence, we won’t be able to tell the difference between:

  • A Fintech upstart that matured, became regulated and added some people into the service delivery process (because that is what customers wanted).

And

  • An incumbent Financial Institution that automated enough of the service delivery process to be cost competitive with Fintech upstarts and learned to deliver digital first.

This is as it should be. All the sturm und drang around disruption and conflict is great for getting media attention and selling conference tickets, but the reality is a more nuanced cooptition – some competition and some cooperation. Customers don’t care about disruption. They only care about better, faster, cheaper services and they don’t mind who delivers that to them. And the competition is on a surprisingly level playing field. Banks have access to the same technology as the Fintechs and the Fintechs have to keep the same regulators happy with the same rules as the banks. May the best entity win – the customer benefits either way.

The same theory can apply to Insurance. You can build a “full stack”, fully regulated InsurTech venture that can sell Insurance to the general public. That is what is happening in Health Insurance (see this post). Or an already fully regulated Insurance Company can transform their operations to the extent that they have the same efficiency metrics as a digital first InsurTech venture.

The end result – for both customers and investors is the same thing.

Coming from the Insurance Company end, Progressive could get there first. That is why they are an interesting company to look at for investors.

Like GEICO, Progressive focus on Auto Insurance.

Yes, but Auto Insurance will be killed by driverless cars?

That theory is being put about. Warren Buffet has expressed an opinion along those lines. The theory goes that we will have much fewer accidents in driverless cars, so we will buy less insurance. It is pretty likely that driverless cars will become mainstream at some point and that will make driving safer, but whether that reduces Insurance and in what timeframe is unclear:

  • It is likely to be a gradual process via increasing automation from cruise control to ABS to automated parking and we may always want to sit “in the driver’s seat” and have insurance “just in case”.
  • Perception lags reality. So we may be safer, but we will still want Insurance. A few headlines about crashes in driverless cars will be like plane crashes – statistically insignificant, but enough to scare us into buying Insurance.
  • In many jurisdictions, at least some form of Insurance is mandatory.

New CEO

Progressive is an unusual company. You can read the history on Wikipedia.

Progressive was founded in 1937 by Joseph Lewis and Jack Green as Progressive Insurance Company. Starting in 1956, the company found its niche insuring more risky drivers. In 1987, the sum of the company’s written premiums breached $1 billion.[3] In 2016, that number crossed the $20 billion mark.[4] It has generally attempted to live up to its name by being innovative in the industry. It boasts being the first auto insurance company to have a website, allow customers to purchase policies via that site, and later to pioneer allowing the use of mobile browsers and smartphone apps for rating and managing policies.[5] It was also the first to offer 24/7 claims reporting.[6] As it has grown, Progressive has sought to be a one-stop insurance provider for families in order to more competently compete with other top-insurers. It’s leadership has been marked by consistency, having only 2 CEOs in its history.

Actually, make that 3 CEOs as Tricia Griffiths took over as CEO in July. Some headlines talked of uncertainty. I see a new CEO for a new era and a woman (a benefit in a market that has been too much of an old boy’s club). The company promoted somebody who knows all the operations of the company. This is not a turnaround executive because that is not needed – they need more of what they are already doing. See her LinkedIn profile.

Continuing a tradition of innovation

Progressive are the first auto insurance company to:

  • have a website
  • allow customers to purchase policies online
  • allow customers to use mobile browsers apps for rating and managing policies
  • offer 24/7 claims reporting.

That is quite a track record of firsts and they clearly don’t intend to rest on their laurels. They launched their Business Innovation Garage in April of this year. Quoting from their site:

BIG, as it’s known to employees, exists in a virtual testing environment, and works with partners across the company to collect and cultivate business solutions, with the end goal of exploring and testing new ideas. The garage has a physical location at company headquarters and is staffed by a team of analysts and IT developers working for a garage manager who prioritizes the work and oversees the innovation process.

“Over the last five years, we’ve had countless discussions about the need for an internal ‘lab’ to test and learn,” said Ray Voelker, CIO of Progressive Insurance. “Innovation requires some degree of speed, so BIG allows us to fail fast, innovate faster and get best-in-class products to market in such a highly-regulated environment like the insurance industry.”

There is plenty of room to grow. They are # 4 in Auto Insurance in America with 8.74% market share and could move into other Insurance lines with a direct model and/or could expand internationally.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

21 InsurTech Ventures Changing Auto Insurance

CarAccident

Auto Insurance is growing fast in emerging markets as people get their first car. Telematics can create a more personalised risk premium. Claims processing is in transformation as auto body shops and consumers form into networks through maps and mobile phones.  Meanwhile consensus is emerging that greater adoption of driver automation and augmentation will dramatically reduce insurance for the good news reason that it will dramatically reduce accidents and the sharing economy is reducing the number of people whop buy cars (as opposed to simply using cars as needed). 

We found 21 ventures going after Auto Insurtech and put them into 4 categories – Claims Process, Comparison & Robo Brokers, Just in Time Insurance  and Telematics

Telematics

We start with the biggest category – Telematics – with 13 out of 21 ventures. The basic premise is that sensors in your car will record how safely you drive and how much you drive and this will enable a more personalised risk premium calculation. How much resistance we see from consumers on the privacy front remains to be seen – personally the trade off seems worthwhile. Think of this as Internet of Things in your car or Fitbit for your car.

Just in time and the sharing economy.

I am always intrigued when I find a category of one. We define Cuvva as Just in Time Auto Insurance and reviewed it here. As the Sharing Economy continues to expand, we expect to see more Insurance like this. Living in a country with great public transport, I don’t bother owning a car and use rentals (both new and old model) and taxis/Uber as needed. So the idea of owning a car and buying auto insurance is already more in my past than my future. I like the experience of driving, but ownership is a hassle.

Networked Claims Process

In ye olden days of Traditional Insurtech, claims process meant enterprise business process and workflow to make internal processes more streamlined. Modern Emergent Insurtech puts the consumer and the vendor (eg the auto body shop you need after a fender bender) in a three way network through maps and mobile phones. It was fun to see Claim Di emerging from Bangkok; anybody who has experienced Bangkok traffic knows this city is  fender bender heaven. These ventures offer the ability to radically reduce claims processing costs and democratising the process (opening it up and making it transparent). We envisage these becoming infrastructure services used by consumer facing InsurtTech ventures via Open APIs.

Auto Focussed Comparison & Robo Brokers

We have already reviewed the comparison sites and robo broker services. These usually cover many types of insurance as well as other financial products. We also found a number that appear to be laser focussed on Auto Insurance.

America Leads the way

We counted 13 of the 21 ventures from America, 4 from Europe, 3 from Asia and 1 from Latin America. However this is not a Silicon Valley dominated market space, we found ventures from Southern California and 6 other states.

The 21 Ventures

Venture Category

AccuScore Telematics

DriveWay Telematics

Metromile Telematics

Octo Telematics Telematics

RootInsurance Telematics

TheFloow Telematics

TrueMotion Telematics

Wunelli Telematics

OkChexian Telematics

Acculitx Telematics

DriveSpotter Telematics

Telematic Telematics

Citymile Telematics

Goji Robo Broker

Cuvva Just In Time

CoverHound Comparison

Insurify Comparison

RenewBuy Comparison

TheZebra Comparison

ClaimDi Claims Process

SnapSheet Claims Process

Please tell us in comments of any that we have missed or if we have allocated any of the above in the wrong way or if you have any insights into this market.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.