Insurtech startups: disruptive or just stupid & hyperactive?

The start up world of Insurance Tech moves fast – striving to distance itself from the conventional insurance world (“Fat and Blind”) whilst acknowledging that without partnership and investment the “Stupid & Hyperactive” start ups will go nowhere. So Dennis Just, CEO of Knip, told us at EXECinsurtech last week.

This was the first EXECinsurtech conference, located in Dock One, in Cologne. Bare bricks and cracked plaster contrasted with the polished concrete, great coffee, slick organisation and generally laid back atmosphere that has come to characterise such events around the world. It was the first conference I've signed up for that required passing a selection interview - or was it to ensure I wasn't a wealthy corporate or investor trying to get away with paying the reduced 'founder' rate? It seemed to work, 150 of us each of wearing our badge with coloured lanyard declaring our interest turned up and shared our stories.

Events such as EXECinsurtech, DIA BarcelonaInstechLondon meet up are still sufficiently novel so as to be able to attract good speakers and attendees (founders, heads of investments funds, senior execs in big insurance companies) and haven’t yet suffered from the problems faced by more established events which can struggle to attract the people getting stuff done (whether building it, or spending money on it). Even catastrophe modelling, arguably the ground zero of Insurtech, is suffering from attendees conference fatigue. A recent cat modelling conference in London had more speakers than attendees. The core insurance market is even worse. Last year I sat on a panel at an event hosted by a leading investment bank in Boston where the four panellists outnumbered the audience 2:1.

EXECinsurtech was put on by the team behind Pirate Summit, which claims to be Europe’s craziest tech conference and EXECfintech. There was a strong line up for the day, and despite an agenda which seemed only loosely connected to what was published in advance, the sessions and presenters covered a lot of ground in a dynamic and engaging way. Still mostly personal lines though, reflecting the general lack of new solutions for the commercial insurance and reinsurance markets (which is somewhat dominated by cyber and drones right now).

Jens Hasselbacher, the head of P & C retail and distribution for Axa Germany, kicked off by confessing that “no one trusts insurers” then took us on a rapid tour of how Axa is staying close to the insurtech world. As the largest insurer in the world Axa can afford a strategy of launching a portfolio of businesses with specialist insurance tech categories which includes: Axa Strategic Ventures, (14 funded ventures, $225m of funding), Kamit the $100m incubator and Axa Partners (dedicated to setting up partnerships, globally). They're playing the long game. “Be patient” said Jens, "digital cameras took 10 years to achieve pictures of comparable quality to traditional film photography". (Paul Saffo believes that most disruptive technology takes at least 20 years, as shown in his excellent HBR article “Six rules for Effective Forecasting”).

Jens highlighted a theme that others came back to throughout the event: most new business models are focusing on advice and sales, but very few are disruptive. Others later questioned whether disruption was even what the industry needed the most - maybe the core business model of the large players isn't broken, it just needs some help with innovating?

Dennis Just, the self confessed "hyperactive stupid" CEO of Knip explained how insurers and reinsurers are beginning to consolidate and become one. It is true that the increasing interest in using MGAs (Managing General Agents) enables insurance and reinsurance capital to get closer to the customer, and starts to blur the line between the two (look out for a future post on this topic) - and many of the global insurance groups have acquired reinsurance arms following the consolidation in recent years. Denis did seem a bit confused by the difference between writing reinsurance (what reinsurers do) and buying it (what insurers do) claiming that Axa is the sixth largest reinsurer. Axa is one of the companies that actually has actively distanced itself from issuing reinsurance, having sold off its reinsurance arm in 2006, and carrying only a relatively modest ($550m) of collateralised reinsurance and cat bonds through Axa Investment Managers. Axa is one of the largest buyers of reinsurance protection globally.

Matt Connolly of Tallt (based in Bristol despite the exotic name) has a database of a million start ups and also is failing to see many signs of disruption in the insurance market. It's Matt’s opinion that many insurance companies are struggling even to figure out how to make use of the customer data they already have (true). How will they cope with the next wave of data coming in from IOT?

Tallt’s Insurance Disruption Report for 2016 gives a refreshing - if maybe slightly hyped - overview to the “global startups perfectly positioned to disrupt the entire market” - and takes itself less seriously than some of the other similar publications. It’s a bit light on European startups considering there are well over 100 already active (BoughtByMany and Massup get a mention whom I've discussed before) - and interesting to see that two of the world’s largest insurers – Berkshire Hathaway and Tokio Marine made into the “ones to watch” section, alongside $15K funded Kasko. Warren Buffet will be proud!

Matt reminded us not to neglect Asia – I have already written about companies such as Singapore based GoBear which presented at DIA Barcelona and demonstrated how fast it’s possible to grow in a market with a young, demanding population, lacking in choice. Look out for more innovation from this part of the world - they are moving very fast. 

With parallel sessions it wasn’t possible to see everything, but the blockchain workshop was standing room only. Andrei Martchouk (KI labs) and Stefan Graunke (ubirch) provided a live demo of real-time readings from a sensor writing to the blockchain, re calibrating as the audience drove the room hotter and more humid. Or rather, it would have been a live demo, if the wireless router had been working. I seem to recall a similar problem with a live demo relying on internet at DIA in Barcelona. “We are able to automate our lives, blockchain is the new internet” we were told. With 100 trillion sensors (+/- a few billion..) to be active by 2030, I think we need to fix the www plumbing before we can trust IOT to take over our lives ("Hal, open the pod bay doors - I'm sorry Dave I can't do that, the wifi is down..."*).

The duo were able to show some of the potential applications for blockchain that are starting to emerge, many operating on the Ethereum platform. Take a look at the 246 blockchain applications running on to see what’s happening. One early stage, but illustrative concept of how blockchain could be used to enable new insurance products is the provision of flight cancellation insurance. Half a billion airline passengers did not claim for airline insurance payment for delays that they were entitled to in a recent 12 month period. Insurance cover, potentially bought alongside a flight purchase, can be directly linked to publicly available flight times. If the flight is delayed by more than three hours, payment can be made automatically to the policy holder via the blockchain. This is a natural progression from how mobile phones and sensors in the field enable automatically payment to small farmers that have suffered from excess drought or flooding in Kenya (see my prior article). The concept of automated claims will be both a great marketing ploy and reduce major claim adjusting costs. The biggest hurdle to overcome will be insurance regulation: most jurisdictions want to have an explicit link between the size of the payout and the quantity of the loss; simply paying out a lump sum may not be acceptable. Jumpstart Recovery has been trying to launch an alternative to the traditional (and not very appealing) earthquake insurance available in California where a top up payout would be based on the size of the earthquake. If they can succeed in a state where gambling is against the law, and a country with one of the most highly regulated insurance industries in the world, trigger, or parametric insurance could be a very appealing business. But blockchain is still struggling to find it's true place in the insurance tech world. It has a number of advocates, but still has the feel of a solution looking for a problem to solve. 

Look out for more to views and opinions from the EXECinsurtech conference and others. For another perspective on the day, see Nigel Walsh's commentary. Thanks to all those who posted photos to #EXECinsurtech which I have taken the liberty of using here. 

Matthew Grant is an insurtech veteran and recent founder and Executive Director of Abernite, providing advisory services and investment for companies delivering new analytics and data to improve decision making in the p & c insurance market, with a particular focus on commercial and reinsurance applications.

*2001: A Space Odyssey