Author: Peter van Aartrijk
Two worlds collided as the insurance industry met new technology in Las Vegas last month. Some 3,800 professionals from multiple continents were on hand for the second InsureTech Connect. With thousands of startups eager to demonstrate revenue traction, one theme has emerged: despite the noise about disruption, the existing insurance industry has much to offer the newbies. Here are some highlights.
Follow the Money
The billions of dollars of outside investment in the insurance industry hasn't let up - Nor has investment from the industry itself. A representative from a large venture capital firm in Silicon Valley said it receives as many as 1,000 new business plans a week. (The youngest startup CEO was at the ripe age of 13, he noted.) Another VC said 2018 will prove to be the first year that the earliest startups will need to show actual results to their investors.
An attendee joked, "There are 2,000 CEOs in the room," but that wasn't too far from the truth—many young entrepreneurs were seen sitting with investors in a large room of tables designed for networking.
Meanwhile, most major insurers also were represented at the conference by their delegates who run innovation/incubator labs (read: money). Mike McGavick, CEO of XL Catlin, said, "We don't just look for companies to invest in that address what we already do, because we think a breakthrough could happen anywhere. We know it's about partnering with others. For example, we would not expect to have the brightest people on cyber working at XL."
"Do people in this room dream secretly of being the Jeff Bezos of the insurance industry?" McGavick asked.
Status Quo Vs. Innovation
Conference chair Caribou Honig referenced the collection of carriers and startups in the room and called the competition the "grand context for the next year." He quoted the CEO of Netflix, who said in 2013: "The goal is to become HBO faster than HBO can become us."
"It's a question of speed," Honig added. "Can the innovation executives from existing companies that have been around for 30, or 300, years bring the strengths of the startup? Who can restructure their tech stack? Who can reorient to the customer-facing mindset? Or can the startups be the customer-facing, next generation of the insurance industry? Can they build on the strengths that make the insurance company so effective?"
"In the long run," Honig concluded, "they both have to work."
Interestingly, many of the thousands of the insuretechs from around the world have built some form of managing general agency (MGA), Honig noted.
A lesson can be learned with the evolution of financial technology, or fintech, some years ago, speakers noted. When they emerged, online startups such as TD Ameritrade and E-Trade rocked the financial services world. But big banks responded by partnering or innovating on their own, and they're obviously still competing today. The cab industry didn't partner with Uber or Lyft, and as a result the value of tax medallions in cities has shrunk.
Benoit Claveranne, group chief transformation officer at AXA, said, "We're not the smartest or fastest on our own. It's all about partnership. I would welcome innovation from the startups." An example he offered is how innovators can help with client interactions in an age of heightened regulatory compliance in insurance and banking.
Speaking of compliance, some 23 insurance regulators attended this second InsureTech Connect. "This is important because innovation doesn't happen in a vacuum," said Honig. "If the regulators aren't part of the conversation and they're not listening to you and you're not listening to them, then innovation isn't going to happen to its full potential."
Advisory Role
Various speakers said the role of the agent and broker will evolve toward an advisory role. It will not be enough to sell products in silos; rather, agents will need to play a risk management role or a family CFO role for families and businesses. While talent will be a differentiator, machine learning will play a role as well.
"In three to five years, I think the winners will be more focused on solving customer problems than selling products," said Paula Downey, president and CEO of CSAA Insurance Group. "We will see much more bundling of products. We will work together to be more customer led."
There was considerable discussion about the basic insurance product itself—how it is packaged and how it is sold. Speakers talked about how coverage would be embedded in products—not just autonomous cars, but in all sorts of consumer goods and services.
Newcomers to the industry are evolving the basics of insurance coverage, said Matt Leonard, a partner in Oliver Wyman's insuretech platform. "The core insurance product hasn't fundamentally changed since Lloyd's was founded. Imagine a world where, instead of a passive contract, you hand over active control of your risk to a third party…someone who can turn on the sprinklers in your house; someone who can pull over your car; on the business side, someone who can shut down your operations if there is a real or emerging threat.
"That's a much more intimate relationship than the current relationship, which is very transactional and arm's length between the customer and the insurance industry. Handing over control is a big deal; it requires trust and very difficult skills."
He predicted that underwriting floors would be replaced by "war rooms" of professionals monitoring myriad risks for clients.
Next year's InsureTech Connect will be at MGM Grand in Las Vegas, where some 5,000 are expected to attend.
Peter van Aartrijk is an ACT News contributor. peter@Aartrijk.com