Top 10 Insurance & InsurTech Questions Answered (Part 1)

Over the past month, I've been approached with some great questions on LinkedIn seeking my views on the current pandemic and its affect on the re/insurance and InsurTech industries.

I thought I'd share the Top 10 with you and my answers to each of them. This is Part 1 covering the first 5 questions. Next week I'll share Part 2 with the final 5 questions and answers.

I look forward to your thoughts.

Q) How do you think the current Covid-19 pandemic is going to affect the insurtech industry which seems to have had a good run so far?

A) There are a couple of lenses to look through when answering this question.

Firstly, the activity of insurtechs themselves will change. Many are beginning to pivot their models to address the current environment. Those with a focus on digital business models and transacting business electronically will do well. Those with more questionable ‘AI-driven blah blah’ will find it hard unless they can show true value-add to clients.

Secondly, the venture capital (VC) industry is taking a bit of a pause. Before Q3 2019 the whole VC industry was in ‘land grab mode’ with subsequent valuations increasing with each funding round. Outside of our industry, Softbank’s investment in WeWork is the probably the most high-profile example of this. Funding for top line growth at the expense of all else. With the bursting of the bubble and the escalation of the pandemic, that party has come to an end. I speak with VCs and they are now being much more judicious with the deployment of capital and supporting only those investments they truly believe in. For InsurTechs, that will mean you need a solid business model and credible management team to get backing now.

Finally, the activity of incumbents is shifting. InsurTechs have almost morphed from ‘disruptive’ players to more ‘collaborative’ players with their larger incumbent cousins. Incumbent carriers will be interested in how InsurTechs can accelerate their digital trading capabilities (now we’re all in lockdown and its likely once we are through this crisis more people will look to work more frequently from home). Those that can help incumbents with this, I expect will do well.

Q) Lloyd’s of London has embarked upon an ambitious vision to transform itself into a future-proof, digital specialty re/insurance marketplace [Future of Lloyd’s] – what are your views on its likelihood of succeeding?

A) I’m a big fan of the Lloyd’s marketplace. There really is nowhere in the world quite like it. Skilled professionals in underwriting, claims, actuarial, finance etc all within walking distance of each other in the City of London's 'Square Mile'. The market has prided itself on insuring the most difficult and complex of global risks which no other marketplace can tackle for over 300 years.

But the cost of doing business at Lloyd’s has shot up dramatically in recent years. For every $1 of premium coming into the market, nearly 40 cents go out in expenses (overhead and broker commissions) before paying out a cent in claims.

The Future of Lloyd’s vision to help digitize the marketplace and make it a more cheaper, efficient and business-friendly place to trade is the right one. It’s ambitious, bold and makes no secret of the desire to embrace technology and innovation to maintain its relevance in the global re/insurance arena. It is no doubt the right vision with a call to arms to take Lloyd’s firmly into the future.

The proof is going to be in the execution. Lloyd’s' history is littered with expensive change programmes which have been mothballed, failed and seen millions wasted. Memories are long are so people who have seen prior failures are naturally sceptical. I do feel though that they have some wind behind their sails and they’ll need that going into the execution phases of their plan. I really hope they do succeed.

Q) I’m thinking about my choice of career and the insurance industry has piqued my interest. What advice would you have for someone at this very early stage of their career on how to succeed in insurance?

A) Firstly, may I congratulate you on considering our fantastic industry in which to forge a great career. You will certainly not regret working in insurance if you play your cards right. My advice falls into a couple of buckets:

1.    Firstly, try and understand what you enjoy the most.

Is it deal making? – if so, underwriting or broking might be a good path for you. Do you like working closely with clients? – perhaps a career in claims might work for you. You might really enjoy numbers and therefore a career in finance or actuarial science might suit you. If you really enjoy it, you’much more likely to be successful as it won’t feel like hard work and you’ll be more committed. Speak to people and read like crazy to get more information on what roles might suit you best.

2.    Secondly, get yourself a mentor.

Someone who is 15-20+ years ahead of you in their career. Why this timescale? – it’s likely they’ll have had a full economic cycle under their belt and have experienced all the ups and downs of booms and recessions at least once. Ensure they’re someone who has achieved success and then offer to take them out to lunch or coffee (or a Zoom call in the current environment) to pick their brain and get to know them. Don’t ask on the ‘first date’ for mentorship, but instead look to build a fruitful relationship over time. You’ll be surprised at how many people will agree to this. Our industry is actually very good at making time for and helping others earlier in their careers. In my 15+ years in the industry, of all the people I’ve approached to talk to I’ve only ever been turned down by 3 people (and two of them were busy at the time so we met up a few months later!).

3.    Learn everything you can about the business you’re in.

If it’s a carrier, then make sure you get to grips with underwriting, the claims process, how reserving works etc. If it’s broking then ensure you learn how the machinations of a brokerage work. Ask people. Read a lot. Study. I’m always gobsmacked at how many people don’t understand how the business that pays their salary actually works. If you take the time to study & learn, you’ll stand out amongst the crowd. That is great for your career. Period.

Good luck!

Q) What do you think the future of the venture capital industry in the insurtech industry is going to be?

A) I think the venture capital industry is beginning to wake up to the possibilities to find opportunities for real change and innovation in the insurance industry. Insurance is one of the last few large, global industries to truly embrace technological innovation.

I believe the future is positive but the landscape will shift. We’re going to see less ‘land grabs’ and growth for growths sake and more judicious use of capital to back only the most promising InsurTechs. The whole Covid-19 pandemic has forced the VC industry to take a long, hard look at itself and ensure it is investing its capital wisely. I would not at all be surprised if we see some of the rock-star VC firms like Sequoia, Andreessen Horowitz, Lightspeed etc begin to focus their glare more readily at InsurTech opportunities.

Q) What in your view do you think will be the opportunities emerging from the current pandemic for incumbent insurance players and insurtechs?

A) There are going to be a number.

Firstly, most of us are in full lockdown mode and have been for a number of months. Business still needs to happen and so those InsurTechs that can help incumbents with trading more effectively in the digital world will be winners. E-trading and E-placing platforms are good examples of this.

Secondly, I’ve been bullish on parametric insurance (paying out claims via trigger of a pre-defined set of metrics) for a while now. The current crisis has put the spotlight on businesses that have sailed close to wind on cash or have challenged cash flow profiles. They are now at real risk of going bankrupt without the cash needed to continue to trade. Parametric insurance helps customers get their hands on cash quickly and so players in this space have a real opportunity to succeed.

Finally, any crisis throws up a lot more data points to study. Those players focused on data science and using its capabilities to gain a more privileged view of the risk portfolio/landscape will also do well. Insurers want to select, price and underwrite risks with more insights and data that can tell them things they would never have known in the past.

There are a number more – but too much to write here. Reach out to me and I’m happy to discuss.

Q) Why have insurance players traditionally been slow to adapt to innovation & technology?

I would only partially agree with this. Traditionally, our industry has been very innovative when it comes to underwriting new risks. Lloyd’s of London embraced the internet and the digitization which has followed by being one of the few places to take on new cyber risks in the early days. This has been a growing area for the industry for well over a decade and the industry has improved the way it has underwritten these risks, which in effect are shifting all the time as technology evolves and relies on sparse data sets compared to other risk pools we insure.

Where I think the industry has been behind, is in its embracing of technology. A lot of that can be attributed to the age and legacy of our industry. Much of the industry (on the carrier side) is still highly fragmented with no one player having more than 5% market share. As well as being an old industry, we have also been highly acquisitive. Bringing together disparate legacy systems via M&A brings its own challenges. The spend/capital expenditure required to address this ‘technical debt’ is huge and growing year-on-year.

However, InsurTechs have been one of the great bright spots for our industry. Incumbents are now beginning to partner, invest, buy and build with InsurTechs to leverage new and emerging technology like artificial intelligence more than ever. I think that demonstrates an industry that is self-aware enough that it needs to change or risk becoming irrelevant in the years to come.

Until next week for Part 2...

Disclaimer - the thoughts in these posts are my own and do not reflect the position of my employer, peers or colleagues