Fintech is a Development Opportunity for High Potentials in Financial Services

Fintech is a Development Opportunity for High Potentials in Financial Services

What does the development of high-potential Financial Services employees have to do with Fintech? Possibly, quite a lot. 40-something executives climbing the corporate ladder, or anyone mentoring such a person, or anyone concerned with developing future leaders in financial services – this blog is for you. You have an opportunity to differentiate yourself if you act now.

There is significant energy and investment happening outside of the four walls of financial services companies. The question many incumbents are asking is, “How do we best engage with the new, external innovation ecosystem?” Catherine Stagg-Macey @Staggmacey and I just released a report that outlines a framework for leveraging this emerging business approach (Making the Most of the Innovation Ecosystem: Adapting to the New Insurtech World). The report includes insights from more than a dozen interviews with a range of players in the innovation system including internal company venture capital staff, independent venture capital employees, innovation service providers, system integrators, accelerator, and innovation lab leaders. A central conclusion is that the new innovation ecosystem will eventually mature into a form where financial services firms and startups coexist and regularly form partnerships to improve specific parts of the value chain. A few new entrants may find success as disruptors, but the predominant model will be a mix of joint ventures, partial ownership, and outright purchase of emerging technology firms by incumbents.   

This is very different from the traditional buyer-supplier relationship that financial services companies usually enter into with technology companies. The feedback we received from innovation participants is that differences in culture, process, the speed of decisions (or lack thereof), risk tolerance, and goals must be deliberately managed in order to get the most out of these partnerships.

Leadership experience on “both sides of the fence” – both in the startup and the financial services worlds – will be a differentiator. The candidate with a financial servcies background who can demonstrate an understanding of the challenges in bringing both of these very different worlds together will be very valuable. Those actively managing personal development plans in banks, insurance companies, and capital market firms are encouraged to:

  • Mentor startups though a technology accelerator that is focused on financial services; StartupBootcamp @Sbootcamp, Global Insurance Accelerator @InsuranceAccel, and Plug and Play @PlugandPlayTC are examples
  • Attend technology “meet ups” in your local area to learn about startups in your area and network your way into the community
  • Offer your services as a sounding board for new tech companies, either informally as subject matter expert or more formally as a board member
  • Communicate with your mentor and your H.R. career development resources about your goal to develop the necessary skills to effectively act as a “go-between”

The realization that such a role is valued is just beginning to emerge, so those acting now will be slightly ahead of the curve and well-positioned to step into critical leadership positions.

The Great Insurance Experiment

The Great Insurance Experiment

There is a battle going on today for the future of the insurance industry. Like other industries there are those within the insurance industry and new entrants who are seeking to test whether alternate, digital models will prevail. As a participant in the industry and an observer the intriguing thing for me is no one has proven the existing model is actually broken or that there is a better proposition out there. It seems the telematics experiment I wrote about a few years ago is expanding in focus.

I'm sure taxi drivers said the same when faced with Uber, hotels with AirBnB, the print industry, the travel industry, etc. However let's look at the benefits of digital propositions to customers and see if they apply to insurance.

Transparency
One of the key benefits of digital propositions is transparency and low prices – something that telematics and IoT propositions endeavour to deliver for consumers. The peculiar thing about insurance is that transparency and too much data is at odds with what insurance tries to achieve. Put another way, insurance is designed to hedge the risks to a population across the whole population, so that individuals pay a reasonable price and those that suffer a significant loss are reimbursed disproportionally to what they put in. Absolute data and visibility – transparency in its purest form – will reveal the poor risks and in practice deprive them of the very service they need. Good for some who will not see a loss, but not good for all and not good for society as a whole.

Propositions in this area have moved towards education and rewarding behaviours that reduce risk – the win-win for insurer and client. Many have observed that this is arguably not insurance but rather risk advice, engineering and management. Others observe that claims prevention is absolutely part of insurance and has been all along, albeit the tools of old have been regulation, law and classical education rather than the digital variants.

Existing experiments reveal customers care do care about not claiming, about limiting the impacts of a claim and about small rewards for good behaviour. Regulators have also shown they're keen that all parts of society have access to financial services and insurance at a reasonable cost. Use of transparency and data can go so far in insurance but there are limits to how far it can disrupt.

Control
Another key benefit of digital propositions is the just in time and just enough nature of them – the ability to finely control the product and as a result the costs. This is another area that is being tested in insurance with micro control over what is and isn't on cover available to customers via their phone.

The challenge here of course is that this again removes some of the hedging. By assigning a cost per item turning everything on will typically yield a higher price for insurance than a classic contents policy which offers blanket cover for items in a property or even while travelling.

The other benefit of the classic policy is that one doesn't have to engage with it. It's all well and good that one can turn cover for items off and on quickly but to really take advantage of this capability the insured has to care deeply about the level of cover or the cost.

There will be customers who want this level of control in their insurance and will actively seek it – but for the mass market a good enough policy at a reasonable price will be just fine.

The long tail
Now here we could see some disruption, or at least shake up of the market. We're already seeing some splits in the market as people interested in health rewards take up the various incarnations of vitality insurance, young people take up telematics car insurance after being priced out of the classic policies. There will be customers interested in control over their policies, customers who give up human interaction in favour of digital cost control.

In this way we might see smaller, more agile companies with lower cost bases taking their share of the market by satisfying a niche.

Conclusion
In practice, the jury is still out and the experiment still continuing. Do todays consumers want the products they have always been offered or something new? What of tomorrows customers?

In Insurtech, Partnership Will Override Disruption

In Insurtech, Partnership Will Override Disruption

There is much discussion in the press and at conferences about insurance incumbents and the disruption that is coming their way. A close examination of what is actually going on reveals that what is being labelled disruption is actually partnership.

Complicating a meaningful discussion about what is happening is clarity around what is meant by the word “disruption”. The term is used so often that it now carries a range of meanings. On one hand, it refers to a specific market phenomenon defined by Clayton Christenson’s theory of Creative Disruption. On the other end of the scale it represents a recognition that technology is changing the industry.

In most articles and presentations the term is not explicitly defined. Many times disruption is used in the context that portends doom for insurers and that predicts that the revolutionary shifts will cause insurers to go the way of the photo film industry or pre-digital music firms. This is a compelling argument given the challenges incumbents face because of the burden of their legacy systems, their aversion to failure, and a habit of extended decision cycles.

However, there are several significant barriers for newcomers to address if they are to displace incumbents. Celent’s analysis of what has happened to date in Insurtech concludes that the need to overcome these challenges results in a model of cooperation rather than destruction.

First, capital considerations must be taken into account. This is not the capital required to build a technology solution. Agreed, it is no small feat to fund the activities required to build, test, pilot, launch, and sustain a technology solution. However, this pales in comparison to the amount of capital required to underwrite risk (pay claims and hold necessary reserves). To date, a few startups have overcome this challenge by securing relationships with primary insurers or reinsurers, but if this is the approach, it is cooperation, not disruption.

A second barrier is regulatory expertise. This is not only a knowledge of regulation, but the ability to account for regulatory requirements from the earliest stages of ideation, through design, to sustained maintenance.  For startups, detailed regulatory experience can be bought, but this is an additional capital expense. It also can be sourced from a partner, but obtaining this assistance is not likely if the startup is a “disruptor”.

Finally, there is the biggest barrier – customers. As examples of this challenge, startups in the P&C and Life space that have been around since 2010 to 2012 have failed to achieve significant scale. In insurance, attracting and retaining customers is much more expensive (there is that capital problem again) and more difficult than in consumer goods.

The inherent challenges faced by both “tribes” argue for a partnership, rather than a replacement, solution. Insurers can address their legacy technology, risk aversion, and decision challenges by working more closely with the new technology firms that actively seek risk and have a bias to action. Startups need risk and regulatory capital and expertise as well as a customer base to serve.

Partnerships between insurers and startups are a new business model. Unlike supplier-buyer relationships of the past, where a contract is negotiated through an extended procurement process, these partnerships must be governed by a common vision and controlled through active communication from both sides. Celent’s research into the best practice in these partnerships emphasizes the importance of adjustments on both “sides” of such relationships. (see report Accelerating Insurance Transformation: The Good, the Bad, and the Ugly of Innovation Relationships).

It will take time to work out the best ways to accomplish this new model, but the barriers faced by both sides will force each to adjust. Economics will drive transformation to occur in a collaborative manner. Success will come to those insurers and startups which are able to make the necessary adjustments to their own preferences, cultures, and working models to create meaningful partnerships.

The predominant Insurtech approach will be one in which startups coexist with, not replace, insurers.

The UK’s First Personal Insurance Policy for ‘driverless cars’: Too early or just in time?

The UK’s First Personal Insurance Policy for ‘driverless cars’:  Too early or just in time?

Yesterday, we received a press release announcing the launch of a new insurance proposition targeted at personal use for ‘driverless cars’ from Adrian Flux in the UK. This news arrives hot-on-the-heels of the Queen’s Speech last month that announced the UK Government’s intention to go beyond its current ‘driverless’ trials in selected cities and legislate for compulsory inclusion of liability coverage for cars operating in either fully or semi-autonomous mode.

As the press release suggests, this may be the world’s first policy making personal use of driverless cars explicit in its coverage (we haven’t been able to validate this yet). Certainly, up until now, I suspect that most trials have been insured either as part of a commercial scheme or, as Volvo indicated last year, by the auto manufacturer itself or trial owner. 

What I find particularly interesting about this announcement is that they have laid the foundation for coverage in their policy wording and, in doing so, been the first to set expectations paving the way for competition.

Key aspects of the coverage (straight from their site) include:

  • Loss or damage to your car caused by hacking or attempted hacking of its operating system or other software
  • Updates and patches to your car’s operating system, firewall, and mapping and navigation systems that have not been successfully installed within 24 hours of you being notified by the manufacturer
  • Satellite failure or outages that affect your car’s navigation systems
  • Failure of the manufacturer’s software or failure of any other authorised in-car software
  • Loss or damage caused by failing when able to use manual override to avoid an accident in the event of a software or mechanical failure

Reflecting on this list, it would appear that coverage is geared more towards the coming of the connected car rather than purely being a product for autonomous driving. Given recent breaches in security of connected car features (the most recent being the Mitsubishi Outlander where the vehicle alarm could be turned off remotely), loss or damage resulting from cyber-crime is increasingly of concern to the public and the industry at large – clearly an important area of coverage.

Given the time taken to legislate, uncertainty over exactly what the new legislation will demand, and then for the general public to become comfortable with autonomous vehicles, I suspect that it may be quite a few years before a sizeable book of business grows.  Often, the insurance product innovation is the easy part – driving adoption up to a position where it becomes interesting and the economics work is much harder.

Maybe this launch is a little too early?  Or maybe it's just-in-time?  Regardless of which one it is, in my opinion, this is still a  significant step forward towards acceptance. I also suspect that some of these features will start to creep their way into our regular personal auto policies in the very near future. I wonder who will be next to move?

If you’re interested in learning more about the potential impact of autonomous vehicles on the insurance industry, why not register here for Donald Light’s webinar on the topic tomorrow.

 

Reporting from Celent’s Model Insurer Asia Summit

Reporting from Celent’s Model Insurer Asia Summit

If 2015 was the year of FinTech, 2016 will surely be the year that InsurTech comes into its own. Celent has been presenting our views on InsurTech and emerging technologies at insurance conferences throughout Asia for some time now, so naturally we see this as a welcome—and inevitable—development.

We held our 7th Annual Model Insurer Asia Awards event in Singapore last month, with presentations focusing on InsurTech and digital financial services. Celent Research Director Karlyn Carnahan set the tone with a keynote presentation on the challenges facing insurers as customers are increasingly seeking real-time, digital interactions tailored to their personal needs and channel preferences. Karlyn outlined the steps to becoming a digital insurer and provided many insights on how insurers can embrace the digital paradigm. In the afternoon session, Karlyn also led a peer-to-peer discussion on how insurers in Asia are responding to these significant changes in the digital landscape.

We were delighted to have GoBear, one of the stars of Asia InsurTech, on the program. GoBear is an online financial services aggregator with a decidedly digital offering that is expanding at a remarkably fast pace throughout Southeast Asia. In his keynote presentation, GoBear’s CEO Andre Hesselink discussed how his firm developed their product with the goal of better serving consumers while at the same time satisfying the business needs of their suppliers, the insurance carriers. Quite the balancing act I am sure.

Celent Analyst KyongSun Kong presented the results of Celent’s annual Asia Insurance CIO survey, revealing that nearly 80% of insurers surveyed are engaged in digital transformation initiatives.

Finally, we came to the heart of the event: the Model Insurer Asia Awards themselves. This year we celebrated best-practice technology initiatives at 14 insurers, including ICICI Lombard General Insurance, Taikang Insurance, multinationals Aegon and MetLife, and online insurance innovator DirectAsia, among many others. All winning initiatives are profiled in our report Celent Model Insurer Asia 2016: Case Studies of Effective Technology Use in Insurance.

Slice: Insurance disruption in action

Slice: Insurance disruption in action

Most “disruptive” Fintech propositions are actually incremental; Slice.is promises to be an exception.

Celent’s Banking and Capital Markets analysts have tracked Fintech since 2013 and continue to track movements in areas such as payments, digital banking, and blockchain. More recently, our insurance team has begun looking at Insurtech, especially the initiatives coming out of the Global Insurance Accelerator (@InsuranceAccel) and Startup Bootcamp.

One observation emerging from this experience across the three verticals is that most startup propositions are actually incremental innovations. Despite numerous broad claims of disruption, most of the solutions alter part of the traditional value chain. In insurance, for example, start ups target narrow activities such as claims settlement or customer engagement with advanced algorithms, direct distribution schemes, and/or new data sources. Undoubtedly, some will deliver value, but to label them as disruptive is a reach and strikes me as sensationalist.

An exception to such incrementalism surfaced today in the launch of Slice. Its press release today announces $3.9million in funding and describes their approach as one addressing a new market – the on-demand economy – with a new product – one that combines both personal and commercial coverages into a single contract. The stated goal is to not only change the way we work with insurance products, but to change the way the insurance product works. This is why I consider this as one of the very few examples of disruption – delivering a new proposition to a new market.

Slice has worked with primary insurers and reinsurers to develop policies which provide insurance coverage on a per event, time period-specific basis. Their forms combine what is traditionally both personal and commercial coverages in order to address ridesharing, homesharing, and (eventually even delivery) services. It acts as an MGA, sourcing business both directly and also through on-demand apps such as Uber and Lyft driver platforms. Their goal is to close the current gaps that are not addressed by traditional products and cover the exposures which are often unintentionally retained by operators.

It is exciting to see a new market / new product proposition in the mix. Examples such as Slice reframe the discussion around what true disruption looks like in insurance.

A long time ago in a galaxy far far away, I went to a two hour meeting to reinvent insurance

A long time ago in a galaxy far far away, I went to a two hour meeting to reinvent insurance
It was in the Galaxy InternetBubble, stardate 2000.12.1. I was at a technology firm that was riding the Internet rocket up—and a couple of years later rode it back down. (It actually made a soft landing, and those early Web-anauts lived to tell the tale). In those heady early days of the web, there was a general feeling that the Internet was going to “change everything.” True, there wasn’t a lot of clarity about what “everything” or “change” were, but it was something many people said (and possibly believed). In any event, there was a steady stream of VC-funded insurance start-ups that would visit us, asking for our vision of what the web would wrought—while we were trying to think of some ways to be hired by those start-ups to make those visions real. If any of this sounds familiar to anyone, let me know. So there I was, minding my insurance Subject Matter Expert business, and someone asked me to attend a meeting that afternoon. The purpose of the meeting was to reinvent insurance. And I thought, “Why not?” I entered the conference room, and saw that the other attendees (bright and articulate professionals each and every one of them) had very limited insurance experience. No one in the room (with the exception of your humble blogger) could have defined hazard, exposure, or probable maximum loss, or the law of large numbers, and so on. At the end of the two hours, we had in fact not reinvented insurance. There was no follow-up meeting. Why bring up this bit of ancient history? Because we have arguably entered another period in which claims are made that technology, or digital, or insurtech is going to, if not change everything, at least disrupt everything. As an example, see these Celent reports about the end of auto insurance, or the Internet of Things, or digital strategies. If you want to separate the disruptive wheat from the buzz-based chaff this time around, here are some basic questions to ask:
  • Does the proposed use of a new technology impact the basics of the insurance model?
  • Can it scale?
  • Will it change the relationships among cost, price, and value in a way that is fair to the insurer, the distribution channel and the policyholder?
If the answers to these questions are all yes, maybe maybe someone will reinvent insurance this time around. This time around, may the In-Force be with us.

What if… the insurance industry didn’t innovate?

What if… the insurance industry didn’t innovate?
As a techy with long hair and a beard when I stand up and speak on technology an audience generally expects a futuristic view of the world and a call to action. Of late I’ve been more tempered in my view. Having talking about IoT, telematics and drones for five years now Armageddon hasn’t come, the sky above the insurance industry has not fallen and to be honest, many insurers are still running as they did five years ago with little challenge to their bottom line. In short, in many parts of the globe, insurance hasn’t changed. Have I changed my mind? Only regarding the timescales. For those that are looking – the proverbial canaries are falling. The signs can be seen in multiple countries globally that real change is coming, whether it’s the rise of price comparison websites, the rise of data aggregators, the rising population of connected sensors – whilst the industry hasn’t changed, the world it is sitting in is gently coming to a boil. Whilst the timescale of change to the industry itself is uncertain the possible impacts to the insurance industry won’t be random. That is the driver behind our What if event in February. A key part of event is to inform the audience about the possible scenarios that might befall the industry, to offer tools to consider the impact of these scenarios on their business and current investments. Our hope is to invite the attendees to consider how they would respond and if their current investments are preparing them adequately. Back to the title of the blog – what if an insurer didn’t innovate? An innovation agenda is one response to change and opportunity – whether that’s a change in competitor activity, customer expectations or change in distribution. Other responses could be to increase the agility of the organisation, finally address those legacy niggles or to simply improve the companies research capability to better keep an eye on what changes are coming. What if isn’t solely about innovation, but rather a look at likely scenarios and ensuring your organisation is prepared. If you haven’t registered yet, the event is in February in London and you can view the agenda and register here. For a list of other benefits have a look at Mike’s blog from earlier in the year, along with a reveal of the magical venue.

Personal musings from one of the world’s first InsurTech incubators

Personal musings from one of the world’s first InsurTech incubators
Last Friday (and flowing into the weekend), I was privileged to take part as a mentor in the final selection process for the first “InsurTech” cohort of the StartupBootcamp’s accelerator programme targeted at the insurance industry. This programme claims to be one of the first specialist “InsurTech” accelerators to be run globally by an independent firm. The programme has attracted pretty impressive backing from the industry with firms like Admiral, Allianz, Ergo, Intesa SanPaulo, LV=, Momentum, LBG/Scottish Widows, Tryg and UnipolSai taking partnership roles. To give you an idea around the scale of achievement of those who got through, the process started with circa 1.3k interviews, 250+ applications, 42 short-listed ideas and then whittled down to just 18 finalists…from which just 10 could be accepted onto the program. These ten firms will now go on to be mentored during their start-up phase, have their ideas challenged and further developed from people within the industry and independent entrepreneurs and, in doing so, build the network they will need to both attract funding and find new clients. Over the two days that I spent with the finalists, there were a number of themes that came through the submissions. Here are my personal musings: Data featured strongly across nearly all of the initiatives. Having access to either unique sources of data (whether from a home move, from a travel plan or from connected world) and a model for assessing underwriting risk appeared to be a winning combination. Digital engagement, aggregation and ‘robo-advice’ are hot topics. What I found most interesting was the focus on underserved markets, whether targeting prospects with poor health records, in difficult to reach populations around the world, or educating Gen-Y/Z of the value of insurance. Addressing underserved markets profitably is a big issue that the industry often struggles with. A fertile area if tackled well. What impressed me the most, however, was the passion and sense of purpose displayed by the teams in fixing something that just feels ‘plain wrong’ to them. The Internet of Things (IoT) is going to change the industry’s client engagement experience and liability profile. Five initiatives related to the IoT were submitted. Three were focused on wellbeing, one on the connected home and one on drones. Although it didn’t quite make it into the final ten, I found the drone initiative fascinating. With Amazon and others itching to launch commercial drone services at scale, this is a market that is set to grow. Drone insurance could be the next ‘fleet’ or ‘auto insurance’ (as was pointed out by my fellow mentor Charles Radclyffe). Certainly, the current risk models in use today are immature and unlikely to be adequate for a world where autonomous vehicles are delivering packages across our heads 24×7 (assuming the regulator allows it). Sadly, the drone initiative didn’t quite make it into the final ten. Personally, I wonder if it’s just maybe a little too early, but perhaps still one to watch for the future? As with anything IoT related in insurance currently, each initiative will face a shared challenge. Although the proposition concepts may be compelling, the instrumentation rate of adoption will ultimately set the pace for growth. The IoT is still in its infancy across the industry and convincing prospective clients to share their instrumented personal data is no small undertaking. Data permissions are a growing concern for both individuals and regulators. It was refreshing to see some of the propositions pitch personal digital vaults as part of their propositions, whether for managing data from connected devices, personal wellbeing or personal belongings. Although it’s not yet clear how the market will develop for these services or how they will be monetised beyond a simple subscription model, services like these may suddenly find themselves in the limelight once regulators step in to protect personal privacy. Regulatory compliance. It wouldn’t be the insurance industry unless there was at least one idea focused on regulatory compliance. What if you took all of your regulatory compliance reports produced, aggregated them, and then analysed them? A really simple idea without a huge amount of cost involved. It was a refreshing couple of days. I look forward to seeing how their ideas and propositions develop over the next year. If you’d like to know more about each of the final ten, details can be found here.