The Lesser Spotted Start-Up

I had my holiday in Scotland this year. It’s a place I’ve nearly gone to each summer for the last 30 years. I love fishing, walking and am a keen naturalist so come spring it’s on the holiday shortlist, but then in the ensuing months the hedonist in me means it always gets trumped by the more obvious appeal of fine food and wine and the more reliable weather of the Med. As a result of the unique dynamics of 2020, Scotland finally won through.

Despite my worst fears the weather was great – in fact it was sunny every day. What was missing though, was the wildlife - all those rare animals and birds I went there to see. We stayed by a loch in the far North West famous for it otters and occasional Golden Eagles - never saw a thing. The next day we went to a forest apparently teeming with red squirrels and occasional pine martens – nothing. Next up was a cliff top walk in the Summer Isles where in August you might see Minke Whales and three species of dolphin – others might, but not me.

 After a whole week of seeking the best nature the Highlands has to offer all I saw was three baby rabbits, a couple of seals and a red squirrel running across the road. So, was it me not knowing where to look or perhaps not being sufficiently attentive? Or did I just I fall hook, line and sinker for the Scottish Tourist Board promotional banter? Probably the former.

I’ve been back a week or so now and nothing much has changed. This week I’ve swapped red squirrels searching for InsurTech start-up hunting. At @InsTech London we’re always on the look out for them, it’s in our DNA, but this week it was a particular focus because on the 3rd September we’re running the UK leg of the ITC + DIA Global Tour and we want some new and exciting UK businesses to showcase. Don’t get me wrong, some very interesting start-ups applied, but as a breed they’re definitely getting rarer and those led by female founders seem to be critically endangered (more about that another day).

I put this down to climate change. Not the change of weather, but the changing dynamics of the environment in which InsurTech startups have thrived this past 5 years. Consider this confluence of factors

• In uncertain times, there will be a lot less people considering leaving the safety of full time employment to start a new venture. A career in insurance is, in relative terms, well paid and secure. Even at the best of times there were very few seasoned insurance professionals prepared to give InsurTech a go and there will be still fewer now.
• Early stage funding has largely dried up as a result of COVID. Angel investors and the crowd funding platforms they support have much less to play with and they are only likely to return in force once there is a more settled investment environment. This is the oxygen of new ventures and they’re gasping from the lack of it.
• Even if you can attract the right people and get yourself some seed funding you probably won’t be able to find an insurance company willing to help you refine and validate your proposition anyway. They have other things on their minds and finding those with the tolerance and time to help early stage businesses in the prevailing circumstances is very hard. 

Let’s also examine what has happened to insurer attitudes and priorities over the past 6 months

• Their focus has shifted to infrastructure and the technological consequences of the new ways of working. Put another way, the CTO is getting most of the technology budget now and there’s a lot less available for investing in doing things better or differently.
• Premium rates are on the rise again meaning that insurers will be able to grow their income and margins by just concentrating on their core renewal portfolio and increasing the prices they charge. Who needs to worry about new sources of business and even addressing concerns about acquisition costs and operating efficiency when the market dynamics will fix all that for you (temporarily) anyway?
• Insurers experience of working with startups in the last few years has taught them that few address more than a small part of the value chain. As they need to address far more fundamental issues right now, the choice of technology partner inevitably moves away from small startups to bigger technology companies who they can partner with to address a broader range of issues and provide a wider range of services.

Am I sounding the death knell for the InsurTech – about to make one of those impassioned pleas about the need to save InsurTech? The sort that Sir David Attenborough makes at the end of every documentary programme he narrates to the effect that unless we take action InsurTech will be extinct within a generation? No, but I do have a thoughts I’d like to share to that effect that InsurTech fulfills an important role in the insurance ecosystem and we should be aware of that and the consequent need to preserve and nurture it.

These reflections were most spawned during a most enjoyable chat last week with my fellow InsTech London partners @Matthew Grant and @Paolo Cuomo. We got together for our 100th podcast and a look back at the genesis of InsurTech, how it has changed and what’s been achieved both generally and by us as an organisation during that time.

I hope I’m not being too harsh if I say that a key observation I have is that insurers are still not very good at innovating or adapting and are not significantly better at either despite 5 years of InsurTech. Sure, they managed the changes necessary to get through the pandemic with varying degrees of success, but few if any have built a genuine culture for innovation or have the kind of diverse and curious workforce that embrace change and can be relied on to generate organic innovation - that constantly looks for new products, new distribution models and better ways of working. 

To the extent that there is any innovating going on in insurance it’s because of InsurTech. It was the vibrant new start-up scene spawned from FinTech in 2015 that gave rise to all the innovation now feeding its way into the mainstream. Insurance is only able to insure Cyber risk because of the new breed of real time data analysis and monitoring tools from companies like @CyberCube and @Envelop Risk. Availing ourselves of the full range of property risk data provided by, for example, @E2Value, @McKenzie Intelligence or @Shepherd Insurers provides fundamentally better understanding of property risk than was possible 5 years ago. We can now monitor and price marine risks in real time because of companies like @Concirrus. We can provide usage-based insurance because of the platforms built and run by companies like @Zego and @Flock. I could go on.

And it’s not just about startups. One of the most profound changes to occur to us at InsTech London has been the extent to which in the last 18 months we have been embraced by some of the really big technology and data analytics providers. They have deeper pockets, larger customer bases, more data to analyse and are greatly improving their understanding of the issues insurance is facing. They are an increasingly influential part of the InsurTech scene and need to be embraced as such, not distrusted or feared.

 The insurance industry has, in effect, outsourced most of its R&D and the origination of new technologies and products to Insurtech. There’s nothing wrong with that, insurance outsources lots of key services and it makes sense if it’s not a core competence. It does, however, require an acknowledgement and realization of the importance of this dynamic. To revert to the nature theme, this is genuine symbiosis – a partnership that is established between two or more organisms, usually between a microorganism (innovators) and its host (insurers).

This symbiosis is why I say InsurTech is here to stay. Its lasting legacy is not how many unicorns have or will be created (I see plenty more on the horizon from those gradually progressing their full stack insurer ambitions). Let others speculate on whether Lemonade is over-valued. I’m not so bothered by their share price, what I really congratulate them for is the extent to which they have influenced the industry as a whole. They have made insurers think, persuaded plenty of smart investors that they have the insurance model of the future and insurance is having to improve itself as a result.

The greatest achievement of the InsurTech scene in the last 5 years was that collectively it has helped insurers realise that they need to change. It has made innovation and the potential threat of disruption a boardroom topic. It started as something to enquire into, then something to engage with then something to partner with even invest in and now, in my view, something that the industry cannot easily live without. If InsTech London has played a small part in that, then it would be a source of great pride.

Enough retrospection and time to for me to return to the day job – identifying the innovations and innovators that will change the future of insurance, bringing them together with incumbents and nurturing them whenever we at InsTech London can. I hope while we’re doing that, the Scottish Wildlife Trust is working just as diligently to preserve and nurture the otters, red squirrels, pine martens and ospreys of Scotland. I’m coming back for them another day.

#InsTech London