The Reality of Getting Innovation into Insurance

There is a common narrative in tech innovation. It has a hero and a villain. It centres around a brave plucky underdog startup who disrupts and eventually dislodges an industry leader. It is Microsoft and IBM, Google and AOL, David and Goliath. It is alluring, it is motivating  and it is also a little misleading.

Barriers to innovation

The reality is that some industries have greater barriers to innovation than others. In insurance, two of the barriers are regulation and the need to raise lots of cash to carry the risk.  The lack of innovation also reduces the urgency for incumbents to innovate creating a vicious circle of inactivity.

Regulation slows everything down

The speed at which you can develop, deploy and improve is slower when working with a regulator. In finance, a lack of regulation will stop you releasing a single product, and with very good reason: the product you make will affect people’s lives often when they are at their most vulnerable.

None-the-less, it means many talented people interested in financial technology will tackle other problems with fewer obstacles. We provide  an alternative way; we help startups with their regulation by providing a platform with the permissions they need.

Access to cash is a little less obvious

Insurance innovation requires the usual capital for office costs, cloud computing and staff but the big difference is access to a balance sheet. Either you can raise money on your own, or you need to work with a partner to use theirs.

The benefit of a company raising its own balance sheet is limited. Firstly,  the numbers involved are vast. You may need tens if not hundreds of millions to adequately cover yourself against risk volatility. Secondly VC money is impatient. It looks for a return quickly.

Incumbent insurers are crying out for risk to serve their own underutilised capital and, unlike VCs, they are happy to be patient for returns. They can afford to wait.

The perfect partner

The problem for both startups and insurers is finding each other and separating the good opportunities from the terrible. That’s where we come in. We work with (re)insurers with a proven appetite to partner, and match them with the best startup innovations

For example, we matched By Miles, a ‘pay-by-the-mile’ car insurance solution, with Axa, a global insurer. They have a deep knowledge of motor insurance and the ability to underwrite as much risk as By Miles can attract.  Conversely, we introduced FloodFlash, a parametric flood insurance product, with a panel of reinsurers who have a large appetite for catastrophe risk. Both parties benefit.

Amazon’s coming

Why now? Insurers have woken up to the fact that major disruption could be coming to their industry from big tech. Large tech companies have started to make investments in insurance and are circling for a way to enter the market.  For startups this means they will find more-than-willing partners if their product is right. This is a significant shift from five years ago and represents a novel opportunity

Big insurers are looking for profitable risk. They always have been. The difference now is they are looking in new places.

For entrepreneurs, the message is clear: innovate, and the industry will help you.

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If you are an innovator at heart the Insurtech Gateway could take your idea to the next level. To drop in for an informal chat, please get in touch.