What do InsurTechs really need? An open mindset
Why is insurance so complex? According to this contributor, it's because of 'the layers upon layers of archaic rules and laws.'
Editor’s note: This column was submitted in response to the recent commentary, “Hey InsurTechs: Here’s why you will likely fail,” by Karlyn Carnahan, head of the Americas in the Property Causality division at Celent.
I recently read an article that stated reasons why most InsurTechs will likely fail. The author cites ‘lack of knowledge’ of insurance by both the startups and their investors, and ‘running out of cash’ among the leading causes for failure. This article — among countless others I have read, conferences I have attended, and conversations I’ve had — makes it clear that what is really needed is a shift in our collective mindsets.
Related: Is the InsurTech movement maturing?
I transitioned from the traditional insurance landscape to InsurTech earlier this year. What’s been amazing to me is not the level of complexity it takes to build and launch a product or an MGA, but how unnecessary a lot of this complexity actually is.
Stuck in the mud
I hear over and over again that ‘these InsurTechs don’t understand insurance.’ I’m sure this is true in some instances, but can we take a moment to recognize and appreciate where the complexity in insurance comes from?
It’s because of the layers upon layers of archaic rules and laws; bureaucracy rooted in a ‘this is how we always do it’ mindset rather than looking at how we can change things to make them better. The insurance industry still abides by outdated, unnecessarily complicated rules, even for the simplest of things. For example, in some states you can email a policy, but you have to send a hard copy in the mail for policyholder notices and cancellations
…Don’t forget there are 50 states, each of which has its own set of rules. Who can remember all of that? That’s not lack of knowledge or experience. That’s complete bewilderment at how business is transacted in the insurance industry.
Some of this complexity is not an InsurTech problem, it’s an industry problem. We need a shift in mindset from all parties to ensure more success for startups, but also to change and improve this industry.
Related: To be InsurTech or not to be InsurTech – is no longer the question
The challenge at hand
The insurance arena still lags in transformation. Change and improvement will only occur if we adapt to a digital mindset.
Consumers have changed. Let’s not argue this point, let’s just acknowledge it and move on. Everyone wants fast, easy, transparent. Who hasn’t embraced the Amazon 1-click purchase?
Insurance is trying to change… and the key word is trying. There wouldn’t be so much attention on InsurTechs right now, not to mention the billions of investment dollars being spent, if we all didn’t believe that there is opportunity for disruption.
There are some truly revolutionary products out there, with insanely smart people tackling issues in areas like the gig and sharing economies, usage based insurance and so on. But there also are some good old-fashioned renters’, small commercial BOPs, and homeowners products out there.
A similar homeowner’s product offered by 1,000 odd companies is not revolutionary. Providing a highly-accurate quote for your home in 15 seconds? That is revolutionary.
With the power of the internet and the amount of data that can be mined, analyzed, and applied, the conversation shouldn’t be focused on how startups are using all of this data to more efficiently acquire customers or more accurately price risk. Instead, we should collectively be saying, ‘it’s about time we tap into these resources!’
I understand the importance of historical and loss data, and every startup will face that challenge until they have enough customers and experience to tweak rates. In the meantime, there is plenty of data out there to use as a baseline.
At least once a day, I speak with startups trying to create their own product, whether it’s cyber, homeowners, commercial auto, travel, or alien abduction (okay, kidding… but not really!). These InsurTechs are well-versed in the economics of how premium flows, are well-funded (and not with “dumb money” as I hear constantly from incumbents), have a defined customer acquisition strategy, and yet getting their ideas to market continues to be as easy and enjoyable as ramming their heads into a brick wall.
Recently, I spoke with an InsurTech startup that told me how difficult it was to implement e-signature technology with an incumbent partner — despite the obvious benefits for the customer experience and improved take up rates they were achieving with this approach. What’s remarkable to me, but unfortunately unsurprising given how common their experience is, is how much push back they have received from insurers. The only thing they were trying to do in this instance is implement rather simple technology.
Related: InsurTech to 2020 and beyond
So what’s the problem?
The insurance industry as a whole needs to shift its mindset towards technology and product innovation. A cultural bridge, if you will, is needed to allow room for all parties to discuss the benefits and the potential perils of new technology and help test these strategies live.
Not every InsurTech will succeed, but they should at least have the opportunity and the pathway to try. Right now, that is not the case. Diverging values between startups and incumbents are one reason; complicated and antiquated regulation is another; bureaucracy and inherent lack of speed is most common.
Startups want and need fast, now, and easy; incumbents want to dig in, understand the proposal, but then sit on it for far too long before making a decision. Many startups run out of money because various parties in the industry take entirely too long to make a decision. It’s not fair to say InsurTech startups are not well-funded or simply funded by dumb money. The investors backing InsurTechs are more often than not extraordinarily qualified with excellent track records, and they’re also frustrated with the lack of speed and open-mindedness in this industry.
I truly believe that InsurTechs, incumbents, investors, and regulators have a common goal in mind: to sell good products to consumers and make sure they are protected. No startup creates a product with the intent to fail; every one of the two hundred-plus companies I have spoken to in the last six months are extremely aspirational with noble intentions.
If we can encourage more dialogue between each other, create an environment that facilitates learning, questioning the status quo, and explaining different value propositions, then we can start to create the necessary shift to support good ideas. I’ve spoken with many people from all facets of the insurance industry, traditional and InsurTech, who agree with this wholeheartedly.
Companies, like ours for example, understand the cultural gap between startups and incumbents. It’s important to, as we say, “speak startup,” but also have an experienced team in place that understands how the industry works and can help with the learning curve on both sides. With an open mind and shared passion to improve our industry, we can shift the conversation away from why startups will fail and focus on how we can all help more of them succeed.
Julie Sherlock is the Head of Insurance Strategy at Boost Insurance. She is responsible for executing our insurance strategy with oversight on underwriting, product development, and claims. Additionally, Julie serves as an ongoing underwriting resource for our InsurTech partners as they develop their products and go-to-market strategy. Julie brings an extensive insurance background to Boost with over 13 years of experience underwriting complex insurance solutions in high net worth personal lines.
The opinions expressed here are the author’s own.
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