Insurance customer expectations have skyrocketed in recent years due to the simple online experiences provided by organizations in banking and retail. As a result, carriers are looking for new partners and digital technologies to meet this changing demand, and are finding a range of opportunities from an eager insurtech cohort.
Many insurers now partner with startup accelerators, which are quickly becoming a key component of the carrier-tech disruptor relationship. Insurers cite both the speed of product development in these programs, and the ease of access to dozens of startups in one location as major reasons behind the strategy. That popularity has led to dozens of such organizations popping up in major cities around the globe.
“Accelerators have shown maturity. They have their programs they understand how to run, and are not really themselves in startup mode anymore,” says Mark Breading, partner at consulting firm Strategy Meets Action. “This is a good thing because the whole insurtech movement is maturing more as well.”
How it works
Early-stage companies, without a robust business model in place, often go through incubators, while accelerators are reserved for insurtechs a bit further along in development. The ones popping up in insurance all look to bring something different to the table. While all look to make partnerships with carriers and win venture-capital investment for participants, they vary in size, target specific geographical regions and attract different levels of establishment. Ideally, companies will have some early revenue, but must also have some form of product to showcase. For example, the Des Moines, Iowa, Global Insurance Accelerator works with companies that are slightly less mature than those at Sunnyvale, Calif.’s Plug and Play, which runs several accelerator programs across industries and whose participants often eclipse $100 million in seed funding before joining.
Insurers are open to all levels, however. Many partner with multiple accelerators and local incubators to access diverse ideas, Breading says. According to a January 2018 report by CB Insights, 30% of insurers consider such programs the most valuable external resource for innovation compared to ideation consultants, industry analysts and venture capital firms.
With such an attentive audience at the ready, competition for entrance into these programs by the startups is intense. A fall 2017 market survey of 10 insurtech programs by Celent found only 2% of the more than 8,500 startup applications received in 2017 were approved by companies.
“Insurance now is one of our most successful programs in Silicon Valley. It’s also the largest in just a year and a half of existence,” says Ali Safavi, global head of insurtech at Plug and Play. “We are taking an ecosystem-building approach to it — meaning only 10% of everything we do is the actual insurtech program.”
Insurers can connect with thousands of startups at any point, Safavi says. Carriers that come calling to Plug and Play typically start by citing a general topic they want to explore, prompting the accelerator to send a list of 20 potential startup partners to the company to evaluate. In the event insurers know the exact product they are looking for, Safavi suggests “having an IT person build it.”
“Or you can come in with an open mind, not knowing anything, and learn about technologies outside of your current organization,” he says.
The purpose of Plug and Play’s accelerator program is two-fold, it says. First, it allows the organization’s venture capital arm to find startups worldwide encompassing the skill sets aligned with insurance partners’ interests. Second, insurtechs in the ecosystem benefit from more frequent contact with carriers throughout the program.
One of the biggest selling points for the accelerator is structure. With the help of its insurance partners, Plug and Play begins its selection process with roughly 2,000 applications. After two rounds of vetting, 55 are shortlisted for Selection Day, where companies pitch insurers on stage. Of this group, 33 startups are selected and split into three sub-categories: life and health, P&C and general.
Plug and Play’s insurtech vertical launched in the spring of 2016 with four industry partners: USAA, Munich Re, State Farm and Japanese insurance giant Sompo. Munich Re was the most active, Safavi recalls, due to having been a member of Plug and Play’s Internet of Things program since 2015, and having personnel already based in Silicon Valley. Philipp von der Schulenburg, leader of executive innovation strategy, Silicon Valley, at Munich Re, says he pitched the idea of the insurtech vertical to Safavi two years ago. The longstanding relationship with the reinsurer is one of the reasons Plug and Play launched a new accelerator in Munich last November, according to the company.
“I helped form the direction of where the accelerator program should go over time,” says von der Schulenburg. “Plug and Play has 14 accelerators, and many of them — including mobile and IoT — apply to insurance. The number of areas [in which] companies are looking to innovate is enormous.”
Fresh off speaking to Plug and Play’s fourth batch of startups on orientation day, Mar. 27, von der Schulenburg recalls how impressed the reinsurer was in how quickly the accelerator came to fruition. Munich Re is also an active participant in the U.K.-based accelerator Startupbootcamp and Israeli fintech/insurtech program SOSA, he adds.
The success of the Silicon Valley program has led to insurance taking a larger role in Plug and Play’s global strategy. It has launched insurtech programs in New York, Tokyo, Beijing and Singapore, in addition to Munich, over the past six months. The goal is to give startups around the world easier access to local insurers.
Making the case
Signing on with an insurance accelerator is not always an easy sell to carriers for a variety of reasons. Some companies have yet to formalize innovation strategies. Others would rather innovate internally than join a consortium. Those companies that do often create dedicated roles to finding external partnerships.
The Global Insurance Accelerator asks for a substantial amount of commitment from carriers opting to join its group. And mentorship is a big part of the agreement, says Brian Hemesath, managing director of the GIA. For instance, the accelerator expects companies outside of the state of Iowa to fly in three times a year to get involved in the 100-day program. But unlike Plug and Play, the insurance carriers participating in the GIA own the accelerator.
“We don’t ask them to write a check to check a box that says ‘OK, we are innovating,’” Hemesath explains. “Insurtech accelerators, compared to a general accelerator, are less about the mechanics of a startup and more about making carrier connections and providing a level of insurance industry education when necessary.”
The GIA’s biggest selling point to insurtechs joining its accelerator is the 60 to 80 insurance carriers based in Iowa, including Grinnell Mutual, American Equity and Iowa Farm Bureau. The organization also provides free housing, and invests $40,000 in program participants in return for a 6% stake in the company.
“We are not, and do not try to be, Silicon Valley nor New York. But once startups realize just how many insurance companies are headquartered in Central Iowa, our program becomes an obvious choice,” Hemesath says.
During its three-week-long selection process, the GIA and its member partners first vet interested startups during in-person group meetings, and later select 30 companies to participate in video interviews. From this bunch, a cohort of eight to 10 startups is selected each year. Results vary, but many find insurance partners.
“Communication is not limited to the 100 days,” says Hemesath. “One of our startups from the 2017 program is just starting to secure pilots. Others secure them within the 100 days.”
The GIA currently has 14 insurance carrier partners, and has intentionally taken a slow path to growth on that front for fear of endangering the value it can provide its members, the company says. Hemesath anticipates adding up to six more partners over the next year. Each will be responsible for appointing anywhere from four to 12 mentors. Member organizations that are not direct investors in the GIA, such as consulting firms, are limited to one or two.
“What started in 2015 as a 40-person mentor pool has now grown to over 160 hand-raisers who contribute various levels of time and expertise each year,” he says, adding that investors are getting better in engaging with startups in regards to proofs of concepts and direct feedback.
This results from accelerators’ efforts in educating insurance companies on how startups think and work, Hemesath says. Insurtechs are small, and make decisions quickly in their fight for survival. At times those decisions are irrational, as they don’t have account executives or vice presidents of sales on staff.
“Startups are also not afraid of failure. They have nine lives, probably more, and can pivot more affordably than global insurance carriers,” he says. “The typical corporate environment does not encourage that.”
Revitalizing classic hubs
Past experiences with mainstay accelerators led the likes of The Hartford, USAA, Travelers and health insurer Cigna to become founding members of a new insurtech accelerator, The Hartford Insurtech Hub. Launched in September, the program administered by U.K.-based Startupbootcamp aims to attract and retain entrepreneurial talent in the city, with easy access to larger markets like New York and Boston.
Its location-based selling point is similar to GIA’s: “[Hartford] is the insurance capital of the world,” says Beth Maerz, VP of customer experience and innovation at Travelers. “Startups have a great opportunity to gain access to a broad range of companies based here in P&C, health and life. You name it.”
The Hartford Insurtech Hub’s first batch of 10 startups underwent a demo day on April 18. The cohort was originally introduced to carrier partners by Startupbootcamp, encompassing tech expertise in areas such as artificial intelligence, big data, cybersecurity, the smart home and health.
In order to be admitted into the program, startups must have secured seed funding in the area of $150,000 to half a million dollars prior to applying. Each company also receives a $25,000 cash grant upon entering the accelerator.
“One of the major benefits of the program was that it wasn’t just people with innovation in their title that would go to Upward Hartford [the incubator’s base location]. We brought people over from all lines of business, and also brought the startups in on regular basis to drive conversation and engagement,” says Jill Frankle, AVP of strategic ventures at The Hartford.
The Hartford, along with Travelers, is an active participant in Plug and Play, but also meets startups at conferences and through venture capital firms; a world Frankle came from before joining The Hartford in 2017. She now considers accelerators a key component of innovation, and an efficient way to listen to as many as 30 rapid-fire pitches from companies at once.
“It makes sense to be involved in an accelerator based in Silicon Valley and on the east coast,” Frankle adds. “We feel we have good coverage on startups coming through.”
More than half of the work insurers face in fostering relationships with insurtechs during accelerator programs is on the educational front. Lessons span topics such as regulation, the need for startups to pivot on business models to better adhere to company needs and the culture shock they will undoubtedly face when working with incumbents for the first time.
“The pace of change won’t be as fast as you want, due to our regulatory environment not being as quick,” says Jon-Michael Kowall, leader of property product development & innovation at USAA. “Startups pump products out in weeks, while incumbents can take years. Somewhere in the middle is the ideal sweet spot.”
For young entrepreneurs attempting to secure pilots with carriers, communication is also a key skill to hone. USAA has deployed dozens of internal pilots with insurtechs, and Kowall notes the most successful startups find a niche in the market. Initial conversations also depict what problems in the insurance value chain the startup will help insurers solve, without getting too bogged down in the technical details.
“Have a clear message and find the right communication rhythm. There’s a fine line between hustling and being annoying,” Kowall suggests.
In many ways, insurtech accelerators to date have best evolved in their ability to aid startups in pivoting quickly, Maerz says. However, there are a few that “love their own solution too much,” and won’t adapt – which forces Travelers and other companies to move away.
“I tell the team to be mindful. The startup solution may not be right today, but six to eight months from now they may be doing something different,” she adds.
Travelers’ overall strategy around startup partnerships is to avoid making expensive two year, $2 million commitments to insurtechs as often as possible. Instead, the carrier opts for low price point, six week engagement to proof of concept opportunities.
In addition to pilots, insurtechs also stand to receive funding from insurance venture capital arms and the investment teams of accelerator programs, like Plug and Play Ventures. According to CB Insights, $2.3 billion were invested in insurtech startups in 2017, spanning 52 deals. The figure is a 36% increase from the $1.7 billion recorded in 2016 by the researcher.
Notably, 65% of industry investments in insurtech where made in companies enabling the insurance value chain. Less than 10% of total funding flowed into startups targeting full disruption of the insurance status quo. Gone are the days of startups hell-bent on kicking out incumbents, with the exception of a few.
Due to the influx of insurance dollars pumped into insurtech, and the rate accelerators continue to mature, it puts the onus on companies to jump on board now before it is too late, says Sabine VanderLinden, CEO of the insurtech business at Startupbootcamp.
“Companies cannot afford to rely entirely on their own research, but should instead buy inventions and innovation processes from others [startups],” she said. “So it is best for the corporate world, in particular those insurers that do not yet have an innovation strategy in place that include external players, to start working on these.”
The integration challenge
With insurers building up internal innovation labs and practices to drive transformation of their companies, carriers have to look for the right way to strike the balance between internal development and adopting the solutions of the startup insurtechs they are meeting at incubators and accelerators.
Sun Life Financial houses a mobile testing unit within its digital health solutions lab in Toronto. Startups with which the life carrier wants to collaborate are brought in to test their capabilities with as many as 800 policyholders, according to Kevin Dougherty, Sun Life’s EVP of innovation and partnerships.
“We run them through a test period and gauge the response from plan members. If it’s positive, they will find themselves in our mobile offerings,” he says.
Dougherty took over his newly created role on Jan. 15. He was previously president of the carrier’s Canadian business. Based in Toronto, Sun Life heavily relies on local accelerators like MaRS to leverage emerging technologies. Insurtechs such as EQ Care, Akira, Maple and Lift Session are among the large number of startups the company has worked with in recent months to bolster its mobile offering.
“We have the highest rated app by plan members [on Google Play Store and App Store],” Dougherty says. “All of our products are available there.”
But carriers tend to be agnostic as to the source of innovation, as partnerships with insurtech startups, internal innovation labs and venture capital funds are proven mainstays throughout the industry, says Kim Garland, SVP of commercial auto at State Auto and managing director of State Auto Labs.
The Columbus, Ohio-based company launched its own innovation lab in 2016 before creating a $25 million investment fund in the fall of 2017, in partnership with Rev1 Ventures.
“Venture capital funding is forcing changes to the status quo,” says Garland. “Money flowing in to make insurance processes cheaper, faster and better has insurers thinking ‘we should act this year, instead of three years from now.’”
At State Auto Labs, Garland’s role is to capture all disruptions and innovations that will impact the industry. And while the lab covers many of the hot-button topics permeating insurance, especially with respect to telematics and connected sensors, finding the right balance between internal and external innovation is a tricky concept, he says.
“We recognize that innovation will happen inside and outside of insurance companies, Garland notes. “And if we ignore the innovation going on outside of the four walls of State Auto that would be a big miss.”
State Auto felt it was best to have two roles within one person to get identified technologies into the core business faster, Garland added. State Auto Labs itself is a skinny organization, but has connection points to all areas of the core business.
“We decided there will be more change and disruption in the next five to 10 years than in the last 50 years combined,” he says. “Insurance companies that deal with it best will be winners. Those who don’t will likely be losers.”
