How to Pick the Right InsurTech Startup for a Partnership or Investment
This template enables insurers and investors to make the right decisions: Check if they are "real" InsurTechs, distinguish between innovators and inventors, and review their operating model.
Keynote at Global InsurTech Summit
This recording is intended for those who wonder how the business of established insurance companies can be developed with the help of InsurTech startups. It was an honor to give the opening speech at the Global InsurTech Summit in Istanbul.
The Talk in Transcription
Note: This transcription is edited, slightly smoothed and shortened for reading purposes.
The Consequences of Working With Unsuitable InsurTechs
If I (the insurers) choose the wrong InsurTech startups to work with, then we don't improve our business, we waste our time and money, and my boss will not be happy with me and the colleges That's why I chose this picture for the cover slide because we have to make a wise choice. In my organization, we can only choose one startup at a time. And I have to think wisely about which startup I should choose next.
Framework How to Pick the Right InsurTech Startup
This is a template that you can use to select the right InsurTech startup for collaboration or investment. It is based on three picks and will shorten your list of potential candidates. Let’s get started.
1st: Pick True InsurTech Startups - Based on Three Characteristics
How do you find a true InsurTech startup? They have three main characteristics.
The first characteristic is that they are working inside the insurance value chain, they bring value to the core insurance business. Let me give you an example: A startup that helps the insurer handle claims. That is the core of the insurance business. A startup that improves the payment benefits for employees does not improve the core business. So that would not be a good choice when we look for true InsurTech startups.
The second characteristic: The startups should work on tech-based solutions. So they are bringing some technology to the insurance company. Another example: Detecting fraud in claims based on an artificial intelligence platform is a good technological solution. That would be interesting for insurers. Sending our detectives to identify fraud in claims. That's not tech-tech based. So that's not a good fit.
The third characteristic, true InsurTech startups are in a startup mode. In simple terms. They are a baby company and they need outside funding. They're not able to run their business with the money they make. They need to find a product that the customer is willing to pay for and they need to be profitable.
These are the three characteristics of true InsurTech startups. If you make a list of InsurTechs, meet with them and ask a few questions, you will quickly see who falls into this category.
2nd: Pick InsurTech Startups With Strategic Fit
Let us provide a template for picking up startups for your insurance company by dividing the remaining startups into two groups.
The first group is the improvers. Improvers are startups that enhance the existing industry structure. They take the insurance industry as it has been decades and apply technology on top of it. They (sometimes) take technology from other industries like finance or e-commerce and bring it to the insurance space. And start to build new products and new processes on what we have already running.
KASKO is an example of this. Baloise was able in the collaboration with KASKO to implement a wristwatch cover in just a few days. That's very fast, this was around 2017. The core insurance business got improved by KASKO.
The second group is the inventors. Inventors think differently and take the principles of insurance re-evaluate them and come to alternative conclusions. They reinvent the insurance business. This is a great challenge for (us) traditional insurance thinkers. I show you here the example of FLOCK offering drone insurance.
The drone insurance from FLOCK is a pay-as-you-fly service. You can buy it on your iPhone app if you want to fly now. You do not need a long-term contract. You can be insured for one or two hours or one or two days. And it's location-specific. If you fly your drone for filming in a city, it can be more expensive than flying it out in my very small village where I live. Because it's not so dangerous out there.
These are the two groups you should check for strategic fit. Now the list is getting smaller.
3rd: Pick InsurTechs Startups with Operational Fit
In this third pick, we look at whether the startups are suitable for your business operations. Each insurance company has a value chain, it is an existing configuration of its operational activities, and it is unique to each company. This is what drives your business results.
Let us get back to the first group. Improvers take the industry as it is and apply technology on top of it. You can divide them into three types. The first type is intermediaries, like the digital insurance broker CLARK. They sell insurance as an agent, as a broker on MGA. So that's the most common type. And most insurance companies started with brokers in the InsurTech area. The second type is enablers like KASKO. They enable insurers to digital, to get on the Internet quickly for a reasonable price.
The third type are full-stack carriers. A full-stack carrier is a new insurance company that runs all the activities of a large insurance company. That means they acquire the customers, make the insurance confirmation, handle the claims and customer management. They do everything that traditional insurers only do faster and 100 percent digitally. I have added the logo of the German digital insurer to Baloise. It is our baby. And this insurer is called Friday. The guys there thought that every insurance company should be so cool and have so much fun that it should be like the best working day of the week: Friday.
The second group is the inventors, who reassess insurance and come to different conclusions. They can be divided into two types of inventors. The first type is startups that work in new markets. Like the example of Flock, where the drone insurance opens up new markets. There are also very big other new markets like the gig economy. For example, Uber drivers are looking for insurance solutions. And another example of a new market is the Sharing Economy. For example, renting your apartment through Airbnb. They all want to be well covered, creating a very large multi-billion dollar insurance market. There are many start-ups that are striving for this new market.
And the second type is startups that operate a new business model. For me, this is the most interesting type, but also the hardest to understand, because these InsurTechs think differently. The results are different products and different activities. One example is Laka. Laka is a start-up company that offers simple and "normal" bicycle insurance. But what happens inside Laka is very interesting. They don't have underwriting profits and they have no conflict of interest in case of claims. That's a very interesting business model. In this type, there is the most potential for disruption and it's still very early.
Three Pick Summary: How to Pick the Right InsurTech Startup for a Partnership or Investment
This is a template that you can use to pick the right InsurTech startup for collaboration or investment. On the left side you see the picks 1, 2, 3 and on the right side is the corresponding diagram or hierarchy. Take your long list of InsurTech startups and select the first option. Identify the "real" startups by the three characters. Now the list becomes a little shorter.
Then make the second pick. You can divide the remaining startups into Improvers and Inventors. This is about the strategic fit. If your company wants to digitize what you have, then work with improvers. Inventors do things differently, it's about new markets and new business models. Now you can decide whether you want to opt for improvisers or inventors. If you have enough people, you can work on it at the same time. But if you just start, I would choose one group.
Then make your third pick. It's about the right type of InsurTechs you want to work within your operational activities within your specific value chain. The easiest way is to work with intermediaries and digital brokers. You will learn a lot from them and then move on to the right side. I have entered new business modes directly, which is quite complicated. So to win quickly, I suggest you start from the left side and then move to the right side step by step.