PwC & SBC InsurTech: A Force for Good | Report

InsurTech A FORCE FOR GOOD How InsurTech can reconnect insurers with their customers while simultaneously boosting the bottom line in association with

Contents 03 06 09 27 Top trends Start-up Executive The InsurTech shaping & corporate summary landscape InsurTech collaboration 31 34 35 36 A closing The road note from ahead Conclusion Sabine Contact

Executive summary Insurance technology (InsurTech) is a burgeoning phenomenon They do so in a number of ways: by designing new products that has the potential to help the insurance industry reconnect that meet changing customer needs, by establishing greater lev- with its customers following a period of increasing alienation els of transparency, by helping to tackle some of society’s biggest and disengagement. Not only does InsurTech offer the insur- problems, and by enabling customers to head off problems, as ance industry huge commercial potential, it can also help insur- well as being there to fall back on when disaster strikes. ers reaffirm their purpose in society - to protect and support Looking beyond the front office, InsurTech start-ups also de- policyholders. liver new forms of data and risk insight to improve underwrit- That is imperative. Trust is, or should be, the cornerstone of ing accuracy and loss prediction. They offer established insur- insurance. Yet the industry is facing a crisis of consumer con- ers products that generate greater operational efficiencies, not fidence, with PwC research suggesting just 27% of consumers only lowering costs, but also enabling insurers to better and trust their insurance providers whilst less than half would turn more profitably serve their customers. to them for advice. Whilst some insurers are fearful of rising competition, PwC InsurTech start-ups have the potential to help insurance and Startupbootcamp consider InsurTech start-ups to be im- improve its relevancy to customers and rebuild trust. Whilst portant players in a broader ecosystem that includes corpo- consumers have a need for insurance, most don’t recognise rates, venture capital investors, accelerators, consultants and this need as a reason to buy. New entrants can not only pro- others. Some new players pose a threat to established insur- vide insurers with a profitable way to turn this customer need ers, but the majority are enablers, rather than disruptors – that into demand, but can also serve to re-engage customers and is, they will complement incumbents’ offerings rather than re- demonstrate that insurance serves a valuable purpose. place them. 03

04 The opportunity exists to improve insurance for the greater rather than to steal their business. This is not to say insurers good while innovating for commercial gain, but this will require can afford to dismiss InsurTechs who are increasingly taking effective collaboration amongst all players across the InsurTech margins from elements of the value chain. ecosystem. From our positions at the heart of the InsurTech ecosystem, in this paper we look at how that ecosystem has The majority of InsurTech start-ups are innovating in custom- developed so far, the key trends now shaping the InsurTech er-facing areas. New entrants providing customer-facing tools environment, and how existing insurers and start-ups can work and technologies which improve customer experience and together, overcoming key challenges and grasping emerging engagement represent the biggest share of start-up activity. opportunities. There are currently fewer start-ups focused on delivering back office efficiency and core insurance processes. Our key findings include: Many insurers see InsurTech’s huge potential for transform- Whilst InsurTech is rapidly growing, it has not yet reached ing the back office. Two-thirds of insurers point to the poten- the large scale of the FinTech industry. InsurTech activity, in- tial impact of InsurTechs’ innovations in data and analytics. cluding investment, has spiked rapidly upwards over the past More than half point to new approaches to underwriting risk year, though the FinTech phenomenon continues to attract and predicting loss. greater attention. Leveraging emerging technologies is one way in which In- InsurTechs are more likely to operate as enablers than dis- surTechs innovate, but not the only way. Whilst many start- ruptors. The majority of InsurTech start-ups are focused on ups are using an emerging technology to have an impact in the activities that will help incumbent insurers to do a better job, market, for the majority, their power and potential for disrup-

tion come from their innovative business models and compel- ling value propositions. Collaboration is the biggest opportunity of all. Given the en- abling role InsurTech firms can now play, as well as the chal- lenges facing the established insurance sector and the barriers to entry for new businesses seeking to act alone, collaboration for mutual benefit – and the benefit of the customer – must be the goal of insurers and InsurTechs alike. Contrasting cultures present both a hurdle and a learning op- portunity. Insurers and start-ups can learn from the way each operate, but preventing culture clashes is crucial in the collab- oration process. 5

06 I. The InsurTech landscape If the idea of the ‘FinTech’ sector is well-established, the con- 45 deals raising $650m. Notable funding rounds over the past cept of ‘InsurTech’ which it is often compared with, is less year have included Zhong An (which picked up $931m), Zenefits widely-recognised. But that is changing very rapidly as start- ($500m) and Oscar ($400m). ups, investors and the established insurance industry increas- Increasingly, these investments are coming from estab- ingly focus on the potential of InsurTech innovation. This is a lished insurers, who recognise the threat and opportunity that landscape that is evolving at pace. InsurTech businesses represent - almost three-quarters (74%) of insurers said they saw disruption by start-ups as a challenge InsurTech in the spotlight for their industry in PwC’s most recent Global FinTech Survey. Notable investors include Allianz, Aviva and XL Catlin – and “The most exciting development this year has been the massive 2016 is set to be a record year for deals featuring such units. increase in the number of innovative companies focusing their Insurers completed almost 20 investment transactions during efforts on insurance-related topics,” says Ori Hanani of Admi- the first quarter according to CB Insights, more than twice as ral. “This is the year in which InsurTech reached a tipping point many as in the same period of 2015. into mainstream awareness.” In response to the increased investment and interest, this That instinct is widely shared – Michael Juhler-Nøttrup of year saw the launch of Startupbootcamp InsurTech, the first Tryg says: “the InsurTech scene has exploded over the past global InsurTech accelerator, which is working with 14 corpo- year” – and reflects the global scale of activity in the sector. rate sponsors. The first quarter of 2016 saw more money invested than ever However, inevitably insurers are not alone in investing in before in InsurTech businesses, according to CB Insights, with InsurTech. Funding for this sector from traditional venture

Investment ($ billion) in InsurTech & FinTech 40 capital has accelerated at the same pace – corporate ventures account 35 for 13% of venture capital funding in the insurance sector today according to LeoTech, the same proportion as 30 five years ago. Playing catch-up 25 Despite the rapid growth InsurTech is now experiencing, it still attracts rela- 20 tively little attention compared to the FinTech sector. As the charts show, while interest and investment in In- 15 surTech have both spiked sharply upwards, the focus on FinTech, which has seen similar spikes, has been 10 much more intense. 5 FinTech 0 InsurTech 2009 2010 2011 2012 2013 2014 2015 2016 07

8 Still, while a complex regulatory landscape, relatively high barriers to entry and some complacency within the insurance sector have so far shielded insurers somewhat from new entrants, it would be wrong to expect this to continue. The 258% increase in investment in InsurTech last year, according to CB Insights, underlines how this is a sector that is gaining momentum. Insurers themselves must recognise the need to respond. Currently, there is a disconnect between their perceptions of the disruption to come and their willingness to invest accordingly. While PwC’s Global FinTech Survey found 43% of industry players believed they had put FinTech at the heart of their corporate strategies, less than a third of insurers are exploring partnerships with start-ups and less than 14% said they were actively participating in InsurTech ventures or incubator programmes. “We have seen incumbent insurers adopt a “we can do this in-house” attitude to development. However, increasingly they recognise the value that partnering with the InsurTech community can bring, particularly in terms of accessing technology, skills and innovative ideas” says Jonathan Howe, UK Insurance Leader at PwC. As more insurers begin to engage – whether defensively or offensively – we will see investment in InsurTech grow even more dramatically. This is not to suggest the insurance industry will experience some sort of sudden ‘Uber’ moment – rather than any single tipping point, the InsurTech sector is likely to develop over the medium to long-term. “ This is the year in which InsurTech reached a tipping point into mainstream awareness. “Ori Hanani, Admiral

II. Top trends shaping InsurTech The key trends highlighted in this report were identified following an analysis of two different datasets picked in order to give us a perspective from both entrepre- neurs and the established insurers. We wanted to understand the views of both incumbents and challengers. • To gauge challengers’ views, we looked at data from applications to the Startupbootcamp programme and fast-track events. These applications came from businesses in 37 different countries all around the world, under- lining the role of London as a global hub for the insurance industry; • Our incumbents’ data is drawn from the 2016 PwC Global FinTech Sur- vey, which captured the views of 544 C-suite and digital officers in 46 coun- tries – in this report, we considered the responses of 79 senior executives at insurance companies around the globe. Startupbootcamp has had conversations with more than 1,300 start-up busi- nesses. It is striking that many of these ventures do not identify as insurance start- ups – they may not even have considered their use case in the sector. Partly, that reflects the complexity of the insurance industry, which is sometimes poorly under- stood by non-insurance players (particularly in the life and business-to-business sec- tors). Addressing this issue will be important in encouraging more start-ups to explore new propositions. 9

10 The start-ups were each categorised against one of our six key trends, whilst insurers were asked about the potential impact of each trend on their businesses. We are therefore able to compare the number of start-ups active in each trend against the ex- pected importance of the trend to established insurers. The trends were categorised into external-facing (focusing on customers) and more internalised themes (focused on the back office and process), as follows: External view: 1. Enhancing interactions and building trusted relationships (Highest number of applications to Startupbootcamp vs 4th most impactful trend for corporates) 2. Meeting changing customer needs with new offerings (Third biggest category of start-up applications vs number one most impactful trend for corporates) 3. Leveraging broader ecosystems (Fifth biggest category of start-up applications vs sixth most impactful trend for corporates) Internal view: 4. Enabling the business with operational capabilities (Second highest number of start-up applications vs fifth most impactful trend for insurers) 5. Leveraging data and analytics to generate risk insights (Fourth highest number of start-up applications vs second most impactful trend for corporates) 6. New approaches to underwriting risk and predicting loss (Lowest number of start-up applications vs third most impactful trend for corporates)

Insurers’ view Start-up applications Enhance interactions and build trusted relationships Meeting changing customer needs with new offerings Leveraging broader ecosystems Enable the business with sophisticated operational capabilities Leverage existing data and analytics to generate deep risk insights New approaches to underwrite risk and predict loss 1st 2nd 3rd 4th 5th 6th 6th 5th 4th 3rd 2nd 1st Most impactful trend Least impactful trend Ranked lowest no Ranked highest no of applications of applications Insurers were asked in which areas they saw the most Each start-up that applied to Startupbootcamp important impact to their business from FinTech. InsurTech was categorised into one of the six trends. 11 11

12 1. Enhancing interactions and building trusted relationships This theme represented 35% of applications to Startupboot- Engine, the service design consultancy, ranked insurance as the camp, more than any other theme. Around 45% of corporates worst of all industries for customer experience. considered this theme impactful, ranking it as the 4th most im- Start-ups recognise this issue and are well-placed to exploit pactful of our six themes. it – customer service represents an obvious starting place for The largest volume of applications to Startupbootcamp founders in the sector. Unburdened by complicated legacy pro- came from start-ups aiming to enhance the quality and fre- cesses and technologies, they find it easier to offer seamless quency of insurers’ interactions with customers and, as a result, customer experiences and to bypass the traditionally negative to build more trusted relationships with them. connotations of insurance purchases, which are often one-off That reflects the evolution of the broader digital economy, and resented by customers. Using a variety of approaches – on- where customer expectations are constantly increasing. Having line aggregation and comparison, self-service, new distribution dealt with customer-centric organisations in industries such as channels, education and engagement of customers and om- retail and leisure - consider Google, Amazon, Uber, John Lewis ni-channel offers – these start-ups can enable ongoing engage- and so on - customers want the same levels of service and en- ment that leads to trusted relationships. gagement from other businesses, including insurers. “Traditionally, the insurance industry has been overwhelm- This is tough for the insurance industry, which has tradition- ingly frustrating for the average individual consumer and ranks ally focused on distribution through brokers, financial advisors among the lowest of overall customer satisfaction across in- (and more recently comparison sites) and typically lags behind dustries,” says Ben Britt of Route 66. “By focusing on relieving other industries in its ability to provide seamless, multi-channel major customer pain-points, savvy InsurTech start-ups can fill customer experiences. The latest annual survey conducted by a gap.”

One of the most valuable trends over the next year could be robo- “ advice for wealth management that helps people to manage their “assets with life insurance. Federica Strobino, Intesa Sanpaolo The most powerful innovators do more than simply digitise Spixii also connects to existing messaging platforms with its an existing interaction. Rather, they combine digital with the founders aiming to deliver a fully digital insurance distribution human touch, often using technologies such as artificial intelli- model. gence (AI), machine learning and robotics. Indeed, while AI has Insurify is an AI-powered agent that enables customers to start previously been seen as most useful to underwriting, its appli- a car insurance quote by texting a photo of their number plate. cation in distribution is helping insurers increase conversion It uses natural language processing to respond to users in an results. AI and robotics help insert a human characteristic into accurate and engaging way. what might otherwise be an impersonal digital experience. MyFutureNow helps people consolidate old pension plans into one low-cost online pension account helping them make bet- Examples include: ter financial decisions. They are developing their proposition Spixii is an automated insurance agent. Its AI-powered, mo- to include machine learning, artificial intelligence and a smart bile-first chatbot helps individuals purchase insurance much comparison engine to aggregate the data and find customers in the same way a human telephone agent would have done. one better value plan. 13

14 Robo-advice, including applications of AI, is now starting to gain tion that they are being supported to achieve their outcomes. traction in insurance. Robo-advisers provide customers with From an insurers’ perspective, this should boost loyalty and 24-hour access to information that empowers them to take fi- retention. nancial decisions at a much lower cost. “This new generation of Quantifyle is a start-up that does just this. Its unique ‘Momen- robo-advisors will help to provide a quality user experience on tum Score’ captures intent and behavioural data from employ- mobile devices at any time,” says Ross Walker of Swiss Re. Tech- ees who receive income protection from insurers, helping to nology is now evolving to glean better intelligence on customer motivate individuals and improve the efficacy of rehabilitation needs and to enable goal-based risk and financial planning. services. Individuals are encouraged to meet their wellbeing Knip, for example, are focused on providing easier ways to ex- goals and outcomes, while insurers may be able to reduce their perience and interact with insurance policies. The Knip app ag- long-term income protection costs and employers benefit too. gregates a user’s policies in one place (including price, service PwC’s recent survey indicated that 65% of workers want their and expiry), and automatically analyses coverage to identify employer to take an active role in their health and wellbeing over- and or under-insurance. This example underlines the po- and feel that technology should be used to help them do this. tential for crossover between wealth management and the in- For the challenger firms, this theme primarily sees them surance sector, “One of the most valuable trends over the next disrupt the brokerage model, rather than the entire insurance year could be robo-advice for wealth management that helps stack. For insurers, they may represent enablers rather than people to manage their assets with life Insurance,” says Federi- disruptors. Incumbents will often want to partner with these ca Strobino of Intesa Sanpaolo. start-ups (many offer white label solutions) in order to improve More broadly, the developments in this area are good news their relationships with customers. For this reason, it is surpris- for customers, who will not only appreciate easier and more ing that insurers see this area as only the fourth most impactful convenient interactions with insurers, but also reap the bene- InsurTech trend, despite being the biggest source of challenger fits of a stronger relationship with their insurer and a percep- applications. These rankings may change as InsurTech matures.

2. Meeting changing customer needs with new offerings This theme represented 20% of applications to Startupboot- No wonder insurers see this as the trend most likely to have camp, the third largest category. Some 75% of corporates con- an impact on their business. They recognise new entrants have sidered this theme impactful, ranking it as the most impactful the potential to disrupt their business model and to acquire of our six themes. and quickly build customer loyalty. This is prompting insurers As insurers struggle to adapt quickly enough to meet the to rethink their relevancy and to evolve in order to remain com- changing needs of customers, nimble new entrants offering petitive. flexible and personalised solutions are emerging to address gaps in the market. Often, these start-ups cater to customers i. Microinsurance who have been overlooked by traditional insurers. Others are Some 9% of applications to Startupbootcamp came from mi- focusing on the sharing economy or peer-to-peer principles cro-insurance businesses offering protection to low income that challenge the sector’s existing business model. groups. The majority of these ventures focus on the developing 9% of applications to Startupbootcamp were micro-insurance businesses offering protection to low income groups 15

16 world where, according to their 360 Risk Insight report, Lloyd’s of London estimates there to be a potential market of between 1.5 and 3 billion policies. The trend now is typically for traditional glob- al insurers to be largely replaced by new competitors in emerging markets; these new players bring local underwriting expertise, rela- tionships and capital. Benny Marty / Shutterstock.com For example, bimaAFYA offers a mobile micro-health insurance product in Tanzania where 75% of the population do not have health insurance. No private insurer has previously tried to build a solution for this marketplace, with the high administration cost of traditional insurance meaning cover is unaffordable to low-income customers. Recognising the high mobile penetration across Tanza- nia, bimaAFYA has reduced administration costs by 99% by allow- ing customers to use their phones for policy registration, selection, premium payment, benefit management and hospital claims. For insurers, providing microinsurance offers a new profit stream, a more diversified risk profile and market intelligence. It gives them a route into developing countries where future busi- ness opportunities may be a powerful engine of growth. It also rep- resents an opportunity to reconnect with the original purpose of insurance – to protect and help people to prosper.

However, microinsurance isn’t only for low income groups. MMI Holdings. “The extent to which these business models can Based on the principle of improved operational efficiency that march up-market and satisfy the mainstream insurance cus- is largely made possible through technology, microinsurance tomer segment needs will in large part determine the extent of ideas are also now being deployed in the developed world. the disruption of current incumbents.” For example, massUp is a business-to-business player offering specialty and short term insurance. massUp offers 150 insur- ii. Peer-to-peer ance products for goods with such low profit margins that in- Some 7% of applications to Startupbootcamp came from peer- cumbents aren’t usually prepared to offer cover, even though to-peer insurance start-ups. These ventures have the potential the market for gadgets and speciality consumer items (for ex- to both disrupt the status quo and improve the image of in- ample, mobiles, musical instruments and sports equipment) is surance. Built to deliver trust and transparency, they address growing so fast. The company’s SaaS solution can be quickly these key concerns of many customers today. plugged into every digital sales channel, increasing ecommerce Peer-to-peer insurance businesses are now beginning to volumes and providing a cross-selling opportunity while re- take off. Examples include Lemonade, which recently raised a moving the operational and distribution inefficiencies that $13 million seed round, Guevara and Friendsurance, which is make protecting such low value items unprofitable for insurers. growing at 20% a month and has plans to expand globally. “Powerful new technologies and the innovative and hy- The model is tough, however, as it is much more capital in- per-scalable business models that they make possible hold out tensive than other types of InsurTech start-up. It may take time the prospect of addressing the low end of the insurance mar- for customers to get to grips with the concept of peer-to-peer ket, profitably serving customer segments that were previously in insurance, and for start-ups to prosper. neglected by the incumbent business model owing to their be- ing unprofitable to acquire and serve,” says Jonathan Stewart of 17

18 3. Leveraging broader ecosystems This theme represented 6% of applications to Startupbootcamp, the fifth largest category. Some 27% of corporates considered this theme impactful, ranking it as the least impactful of our six themes. A number of start-ups see partnerships across the insurance sector, as well as with different industries, as the key to their success. Such partnerships are effective ways to augment capabilities, develop mutually beneficial relationships and access new customers via different routes. The relatively low number of applications to Startupbootcamp from ventures of this type is not surprising, since the partner- ship model often relies on a business having demonstrated its value proposition in practice – Startupbootcamp applicants are not generally at this level of maturity. Equally, insurers are not accustomed to working with other sectors, which may be why they see this theme as less impactful. Nevertheless, we expect this to be a long-term growth area. “We guess that the potential for real disruption is more in business models that are not restricted to the InsurTech area,” argues Martin Pluschke of ERGO. The potential is demonstrated by a start-up such as Domotz, which provides diagnostics and remote-support software ap- plications for the digital home and office. It has successfully partnered with Best Buy, the multinational consumer electronics retailer, and is currently exploring opportunities to work with utility companies, telecoms companies, hardware manufacturers and insurers in order to increase the penetration of its products. In return, these organisations are able to offer their customers additional value added services.

4. Enabling the business with operational capabilities This theme represented 21% of applications to Startupbootcamp, the second largest category. Some 38% of corporates consid- ered this theme impactful, ranking it as the fifth most impactful of our six themes. A significant number of the applicants to Startupbootcamp offer solutions that could improve the way insurers operate. By increasing the efficiency of insurers' back office processes and systems, these start-ups have the potential to enable insurers to operate more profitably at greater scale. There are barriers to entry here. For example, the cost of developing and implementing new systems has often been consid- ered prohibitive. Also, start-ups that lack insurance sector expertise may struggle to develop solutions that reflect the complexity and technicality of the back office of an insurance business. However, these problems can be overcome. Cloud computing and open-source frameworks have dramatically reduced the cost of developing scalable and flexible solutions, as well as ongoing infrastructure spending. The as-a-service model is an in- creasingly effective way to deliver back office insurance tools, with examples including: RightIndem offers insurers a white-label software-as-a-service tool that streamlines the claims process, making it more transpar- ent for the customer and reducing costs and customer churn for the insurer. CoVi Analytics offers compliance-as-a-service to insurers. Its software simplifies regulation and automates ongoing compliance activities, reducing cost and enabling insurers to accelerate business decisions. OutsideIQ offers an as-as-service solution which leverages artificial intelligence and big data to assess and address complex risk related problems. 19

20 As for insurance sector knowledge, a number of start-ups have founders with a background in the industry. Both RightIndem and Covi, for example, have founders who have been able to capitalise on deep industry expertise in order to offer their particular solutions. Incumbent insurers are less likely to expect start-ups offering new operational capabilities to have a significant impact on their businesses. However, assuming that insurers want more help solving the inefficiencies in their back offices and core processes, they need to encourage innovation – not least by setting out exactly which problems they regard as most in need of solving. The potential is clear – and the strides that back office-focused FinTech start-ups are already making in the banking sector of fi- nancial services is likely to see InsurTechs follow suit. “Over time, as the InsurTech ecosystem evolves and matures, we’ll see more solutions aimed at optimising the back office, with increasing focus on start-ups looking to disrupt the claims, underwriting and pricing processes,” says Dan Smith of MMI Holdings. “I certainly expect next year’s applications to Startupbootcamp InsurTech to include more start-ups focusing on process improvement and efficiency – utilising blockchain technology for example” adds Jonathan Howe of PwC. Over time, as the InsurTech ecosystem evolves and matures, “ we’ll see more solutions aimed at optimising the back office, with increasing focus on start-ups looking to disrupt the claims, “underwriting and pricing processes. Dan Smith, MMI Holdings

5. Leveraging data and analytics to generate risk insights This theme represented 15% of applications to Startupbootcamp, world events such as floods, fires or political unrest, either in real the third largest category. Some 65% of corporates considered this time for risk prevention or historically to provide enhanced under- theme impactful, ranking it as the second most impactful of our six writing and assessment. themes. Established insurers should have a natural competitive advan- i. The Internet of Things tage over new entrants to the sector: their ability to leverage many Gartner predicts there will be 20.8 billion connected devices in use years of detailed risk data. The fact that two-thirds of insurers see worldwide by 2020. Large companies, both from within insurance the potential impact of new entrants’ data and analytics tools re- and beyond, are already investing in Internet of Things technologies flects recognition of this advantage. Insurers know they need ca- – they include Generali, Aviva and Allianz, as well as Google. pabilities that will enable them to extract more meaningful insights “We’ve seen applications of the Internet of Things that may sig- from their existing data or new data - for more accurate underwrit- nificantly improve underwriting, and others that provide a robust, ing, say, to underpin the launch of more personalised products, or scalable method to better understand customer behaviours and for a whole range of other applications. needs,” says Ben Britt of Route 66. “Start-ups leveraging the Inter- Technologies such as the Internet of Things, sensors and wear- net of Things have the powerful potential to provide improved, tai- ables will substantially increase the data insurers have at their dis- lored, and more transparent insurance products for the individual posal, helping them to move from relatively reactive protection customer.” models to a more sophisticated approach based on prediction and The earliest applications in this area focused on vehicle telemat- prevention. A good example is Cytora, an InsurTech firm that uses ics, but use cases are becoming increasingly broad and span both machine learning and analysis to collate information from news the connected home and connected health. feeds, social media and other sources. It is able to identify real 21

22 ii. Connected health Sensor technology and wearables enable individuals to monitor their wellbeing, detect early signs of illness and to make smarter and healthier lifestyle choices. The knock-on effect of improved health will be reduced liabilities for insurers. A number of connected health start-ups are tapping into new data sources and developing end-to-end propositions that are compelling to life insurers. The granular risk insights these firms can generate enable insurers to offer more relevant and compel- ling offerings to existing customer segments, or even to define new value propositions for underserved segments. For example, FitSense offers a platform-as-a-service model that provides companies in the health and life insurance sectors with superior customer insight based on data from mobiles and wearables. However, there is a stumbling block. Insurers have not yet fully understood how best to use the insights becoming available to them. Their underwriting processes are robust but largely inflexible so their ability to adapt to and use this data will take time. And in some cases, insurers will feel new segments aren’t commercially viable. Start-ups therefore need to be prepared to find the use cases and be able to clearly articulate the value they can deliver. Jan- Philipp Kruip, co-founder of FitSense adds: “Reinsurers play a critical role here: in our experience, reinsurers have the expertise and resources to help us evaluate and de-risk the solution so that it’s valuable and viable to their direct insurance clients.” Start-ups leveraging the Internet of Things have the powerful poten- “ tial to provide improved, tailored, and more transparent insurance . “products for the individual customer Ben Britt, Route 66

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NOTES 24 iii. The connected home There is a clear appetite from consumers for connected home when a customer moves, Buzzmove has tapped into a new devices. In one recent Consumer Intelligence survey, 93% of and valuable data set – customers can track the value of their consumers said they would welcome a device that would mon- household contents and assets in real-time and find person- itor and keep their home safe. alised cover that accurately reflects the ongoing value of their Connected homes offer insurers a unique opportunity to goods. develop an ongoing relationship with customers with a service In the future, the number of start-ups who are leveraging data that adds value to their lives. Insurers can move from being the and analytics, particularly via the Internet of Things, is set to rise responder that steps in when disaster strikes, to the facilitator – these businesses will identify an increasingly broad range of that prevents disaster happening in the first place. The insurer applications in different industries. “The Internet of Things and therefore becomes a trusted and relied-on service provider in big data afford opportunities to turn insurance upside down,” its customers’ everyday lives. says Jehangir Byramji, Senior FinTech Lead at Lloyds Banking In practice, the use cases in this theme are Group. “Disruption comes from being unusually smart about diverse. For example, Buzzmove also fo- combining layers of information - proprietary or public - in order cuses on the home space, but not by to make better decisions to automatically underwrite and price leveraging the Internet of Things. By policies tailored precisely to individual circumstances.” digitising the home survey process Two-thirds of insurers see the potential impact of new entrants’ data and analytics

6. New approaches to underwriting risk and predicting loss This theme represented 3% of applications to Startupbootcamp, the We have already begun to see more start-ups that are captur- smallest category. Some 54% of corporates considered this theme ing and analysing data (see theme five) that insurers can leverage impactful, ranking it as the third most impactful of our six themes. in order to refine or re-engineer their underwriting processes. Fur- Traditionally, insurance has operated on a protection model ther growth will come if start-ups are able to access deep industry where it supports policyholders following a loss. However, we are knowledge and combine this with improved data capture and anal- now seeing a move towards more advanced, preventative models ysis and machine learning. A partner-led model where insurers and that enable insurers to mitigate such losses. Real-time data capture new entrants work together will be the key to success. “Alone, start- from sensors and advanced analytics enable insurers to predict an ups still lack a number of essential competencies that incumbents impending liability and underwrite in more precise and sophisticat- have built up over the years,” says Martin Pluschke of ERGO, while ed ways. Rod Willmott of LV= adds: “The start-ups lack historical data without The small number of Startupbootcamp applications in this area partnerships and in some cases there is no history for what they reflects the very technical nature of underwriting, the extensive are trying to do.” data required, and the need for actuarial expertise. For these rea- Discovery provides a good example of the potential for partner- sons, insurance incumbents have a competitive advantage. That is ships. It is a health-focused insurer that has partnered with Human not to rule out the start-ups. “Many of the incumbents’ data models Longevity, which is able to provide whole genome and cancer ge- are somewhat outdated,” says Dan Smith of MMI Holdings. “What nome sequencing to clients. Customers benefit from personalised start-ups introduce is alternative data types, sources and time se- health and medical treatment strategies and will be able to better ries that can enrich the existing incumbent underwriting process as manage or avoid serious health problems. opposed to competing with them.” 25

26 Technology isn’t always the key to success While considering all of these themes, it is important to not get Emerging technologies overly fixated on new technologies. Developments such as the Internet of Things, AI and blockchain get people excited and Established technologies generate media interest, but only 40% of applications to Start- upbootcamp came from firms leveraging an emerging technol- ogy. The remainder work with more established technologies such as mobile or cloud in ways that make operations faster, better and cheaper. This underlines the driving force of these start-ups: their pow- er and potential for disruption comes from their innovative busi- ness models, their compelling customer value propositions, their use of multi channels and their ability to identify and exploit a gap in the value chain. In other words, it’s not about the kit. We see this in other industries too. Uber, for example, has been hugely disruptive to the taxi sector because of its business model and the end-to-end customer experience it offers, not because of its ability to leverage an emerging technology. “It’s not about technology, it is all about the people,” says Martin Pluschke of ERGO of InsurTech start-ups. “The commit- ment and the way these bright young entrepreneurs work on their vision is absolutely amazing.”

III. Start-ups and corporate collaboration Incumbent insurers recognise InsurTech start-ups are bringing change to their industry. PwC research shows 90% of executives at established companies believe at least part of their business is at risk from the challengers. However, fewer than half the insurers in our research are taking action to counter the threat, or to exploit InsurTech opportunities. Just 43% say they have put FinTech at the heart of their corporate strategies; only 28% are exploring partnerships with start-ups; and only 14% are investing in or supporting incubators. This is to risk missing an opportunity – and countering a threat - and those incumbents not engaging with InsurTechs may come to regret it. “The biggest risk we can take at the moment is not taking any risk,” argues Martin Pluschke of ERGO. Moreover, as those insurers that have chosen to collaborate with start-ups are discovering, there are a multitude of options. The approach (or approaches) that an insurer takes to co-operate with InsurTech players will depend on its strategy, ambitions and appetite for risk, but the options include: Partnerships There is much to be said for insurance companies partnering with InsurTech start-ups that align to their corporate strategy. This will require proactivity, suggests Graham Jackson of PwC. “Insurers have to engage with the InsurTech ecosystem, but if an industry player is waiting for an interesting start-up to approach them, it will be disappointed,” he warns. “Those insurers that proactively engage with start-ups are best placed to spot the winning ideas, the winning teams and forge the winning alliances and relationships.” Partnerships are mutually beneficial, but work best when each side plays to its strengths: large corporates bring attributes such as their data, their underwriting expertise, their credibility and their global capabilities – as well as the ability to help In- surTech start-ups to scale. 27

28 The start-ups provide new ways of thinking, entrepreneur- launching new pilots and tests that make our advancement ial drive and ambition, a more customer centric approach, even faster.” and often very detailed understanding of a complex issue in Not that incumbents should assume that their size and the value chain; they provide solutions and offers that will scale means they will automatically have the upper hand help insurers achieve their broader strategy. And, if insurers when partnering with a smaller business – or that they can are right in predicting that digital and software development pick and choose their partners at will. Many InsurTech start- skills will become increasingly hard to find over the next year ups offer such a compelling proposition that they hold the – data from PwC and CBI research suggests exactly that - In- balance of power in who they choose to partner with. In- surTechs will also provide a means by which insurers can be- surers will need to think hard about how they can persuade gin to fill their burgeoning skills gaps in these areas. such organisations to team up with them, rather than a rival. Startupbootcamp’s corporate partners recognise this as The start-ups in the Startupbootcamp cohort cite a num- a good approach – 80% are already actively engaged in part- ber of attributes that make a larger player appealing as a nerships with start-ups. In some cases, they are exploring partner. Many cite culture and attitude as the most import- relationships with the 10 start-ups of the 2016 Startupboot- ant factors – the corporate should be open to new ideas and camp InsurTech cohort as well as a number of other busi- treat the start-up as their equal, demonstrating a desire to nesses. collaborate and achieve a shared outcome. Start-ups want These partnerships are proving invaluable. “We are con- agile partners prepared to commit sufficient resources and tinually learning from the start-ups we work with and are al- energy to the initiative to give it the best possible chance of ways happily surprised by their creativity in solving complex, success. deep-rooted problems,” says Ben Britt of Route66. “Working There will inevitably be false starts. InsurTech business- with innovative companies, we've introduced new ways of es may be frustrated by the slow pace of decision making at working and improvements to some of our new ideas” adds larger firms; incumbents may struggle to adjust to the cul- Claire-Anne Coriat of Admiral. “We've also become better at ture of their new partners. “We need to change the way we

work, so that we make decisions faster and accept the possibil- Corporate venture arms ity of failure,” says Mikael Toke Hvolgaard of Tryg. “You can’t Many large insurers looking to take an active role in InsurTech approach start-ups with a traditional corporate mindset.” are choosing to set up corporate venture arms through which Accelerators such as Startupbootcamp provide a vehicle they invest in start-ups at arms-length from the established for bringing together these very different organisations, in an business. This reflects an increasing realisation that the dif- environment that helps to align their different expectations ficulty of integrating a start-up into the culture and working and ways of working. This may be the ideal way for partner- practices of a large corporate organisation has often lead to ships to begin, as partners and programme participants work a loss of the value the acquirer hoped to gain. together on new ideas and use cases. Large insurers have already committed over $1 billion of investment into InsurTech start-ups with the list of insurers Acquisitions setting up their own venture capital arms, which already in- Some incumbents’ strategy is to identify what they expect to cludes Allianz, Axa, Aviva, XL Catlin and AIG, growing each be the winning challengers, or the start-ups offering the best- year. fit solutions for their own businesses, and then to acquire them. This has been a more popular approach in the past Digital innovation labs and internal innovation initiatives than today, though several Startupbootcamp partners contin- Some insurers are seeking to bring innovation within their ue to work this way. Acquisition may mean outright purchase businesses by setting up their own internal innovation labs, or taking an equity stake in the business. providing them with in-house digital and design capabilities. Examples include IAG’s Digital Labs, Axa Lab, Allianz’s Digi- tal accelerator and ManuLife’s LOFT (Lab of Forward Think- ing). Some 80% of Startupbootcamp’s corporate partners are forming internal innovation initiatives as part of their strate- gy for engaging with InsurTech. 29

30 Rethinking organisational structure Regardless of which collaboration approach they choose, insur- from the traditional business will make it easier for us to rapidly ers are now restructuring their organisations in order to ensure and boldly implement new ideas.” their innovation activities can flourish. One common strategy is to carve the innovation arm out of the business, so that it op- MMI Holdings has created an entirely new disruptive innova- erates separately from the insurer’s other activities – the aim is tion capability it has christened Exponential. The unit is autono- to give such ventures greater freedom, unfettered from legacy mous in its decision making and falls outside the governance and processes or conservative and risk-averse attitudes. Examples management processes of the parent company. “We are setting include: up venture investment partnerships in the market to avoid the common pitfalls of corporate venture funds, such as selection ERGO Group has set up ERGO Digital Ventures to take respon- bias and political dynamics,” says Dan Smith of MMI. “We abso- sibility for all of the group’s digital and direct business activities. lutely realise the need to drive cultural change and a big element “We thereby created the cultural environment for innovation as of that is to be vocal in celebrating progress, to be inclusive with well as – for the first time – a strong separate digital pillar within senior leaders and to ensure that objectives, KPIs and compen- ERGO Group,” says Martin Pluschke of ERGO. “Its detachment sation are structured to drive engagement with start-ups.” Those insurers that proactively engage with start-ups are best placed to spot the winning ideas, the winning teams and forge the winning “ . “alliances and relationships Graham Jackson, PwC

IV. The road ahead As InsurTech start-ups evolve and their collaborations with incumbents develop, they will be confronted by new challenges and uncover new opportunities. But while established insurers and start-ups will be affected in different ways as the future unfolds, their ability to embrace opportunities will be enhanced if the ecosystem is able to work together. Moving forward, here are four areas to look out for; 31

32 i. Emerging blockchain use cases Blockchain technology, a decentralized ledger of all transac- on blockchain technology emerge,” predicts Michael Juhler-Nøt- tions across a peer-to-peer network which is increasingly being trup of Tryg. “The interesting question is whether the winners considered across financial services as a secure storage and in this game will be InsurTech start-ups, technology businesses distribution solution, has undoubted potential to disrupt insur- from other sectors moving into insurance, or incumbent insur- ance and financial services, but almost a third of insurers in ers transforming their own business model.” PwC’s research said that they are not familiar with blockchain at all. The InsurTechs, by contrast, are eyeing this opportunity. While it remains very early days for blockchain in insurance, 6% ii. Robotics of the applications to Startupbootcamp came from start-ups PwC and Startupbootcamp expect to see a massive ramp-up in looking to leverage blockchain technology. the possibilities of robotics automation technologies that ag- Early use cases include claims auto-settlement, shared and gregate AI, data analytics and rapid software development. We on-demand economies, streamlined reinsurance and capital are already seeing robotics successfully executing manual and flows across the ecosystem. More broadly, the opportunity ex- repetitive back-office tasks with insurers experiencing drasti- ists for insurers to leverage their deep industry knowledge to cally improved processing times and accuracy. Not only will this not only assess the viability of these emerging use cases but have a significant impact on their bottom line, but it releases also to identify other opportunities where it may be possible to valuable resources which can be redirected towards high value, measurably improve efficiency and transparency, particularly customer related activities to boost top line growth. in back office operations. However, in the longer term, the revolutionary power of ro- “Over the next five years, we will see a more fundamental botic technology won’t come from simply improving and au- transformation within the insurance industry, as decentralized, tomating existing functions or processes, rather from the new autonomous and self-organised ‘insurance companies’ based roles and innovative business models that robotics may create.

iii. The rise of the sharing economy iv. Colonising the entire value chain In recent years, the sharing economy has evolved from a As we have seen, most of the InsurTech start-ups emerging to means through which family and friends transact to a move- date have been enablers rather than disruptors. But while start- ment of global businesses that include household names with ups may currently focus on single elements of the value chain, valuations in the billions. And given the familiarity of consum- namely distribution, over time the new entrants will collectively ers with the likes of Uber and Airbnb, other start-ups in this cover the waterfront. Insurers risk being reduced to risk carriers area will find it easier to gain momentum. PwC estimates that forced to survive on ever-shrinking margins, a threat that they are global revenues from five key sharing sectors (P2P finance, on- acutely aware of: 73% of insurers stated that the increased pres- line staffing, P2P travel, car sharing and music streaming) could sure on margins was the greatest threat posed by InsurTechs. increase to approximately $335 billion globally by 2025. “Vertical software-as-a-service integration models can be high- The sharing economy has the potential to not only change ly disruptive - think of Opentable’s approach to restaurants, but how insurers manage risk in the future (flexible insurance pol- for insurance,” says Ben Britt of Route66. “A great deal of the in- icies which cover both private and occasional commercial use) surance value chain revenue is under threat of being compressed but also bring about new insurance models where like-minded into part of a vertical-centric software solution; these solutions consumers come together to pool their risk solve a multitude of their customers’ unique pain points, and en- This may not happen overnight. There will be regulatory bar- able them to provide a full-scale experience that insurance play- riers to overcome and as companies scale up, they will have to ers will struggle to match.” find ways of maintaining their authenticity and uniqueness. Still The transparency and choice that InsurTech offers to consum- this isn’t a phenomenon that incumbents can afford to ignore. ers threatens the same result, as the balance of power shifts. In- surers unable to respond to consumers who are empowered and engaged risk further erosion of margins. Exploiting data more suc- cessfully may be one such response. 33

34 Conclusion The InsurTech sector can be transformational for the wider insurance industry and we are only just beginning to see the potential applications of new ideas, technologies and processes. Some of the examples detailed in this paper give a flavour of where the future lies, but there are many more to come. Incumbent insurers should welcome these new entrants with open arms. For one thing, as we have seen, they represent an opportunity for all insurance businesses to reconnect with customers who have become disengaged, either directly, or via others in the sector. New entrants can help insurers serve existing customers better and reach new customers for the first time. Nor does the promise of the start-ups end there: they will also enable insurers to operate more effectively and efficiently throughout the back office. Indeed, so much of what start-ups currently offer is enabling rather than disruptive. As InsurTech develops and matures there will no doubt be more start-ups that aspire to take market share from insurers, and incumbents will need to respond to these. But for now, the bigger challenge will be to respond to the opportunity start-ups offer. There will be roadblocks along the way. Not least, the regulatory landscape is complex and while some regulators are doing their best not to impede innovation – the sandbox initiative of the UK’s Financial Conduct Authority is a good example – others are less encouraging. New rules such as the General Data Protection Regulation will only add to the complexity. Nevertheless, insurers must look beyond these hurdles to the promise of improved commercial performance and greater customer engagement. To secure this potential, they will need to embrace the collaborative ecosystem that is now developing, working alongside InsurTechs and other stakeholders for the good of all – new entrants, incumbents and customers alike.

A closing note from Sabine VanderLinden “It won’t happen in my lifetime.” This was still the common re- In the few short months since that first InsurTech pro- sponse only 18 months ago to my conviction that startup-led in- gramme the landscape has continued to evolve at breakneck novation could transform the insurance industry. I remember in speed. And much of the scepticism of 18 months ago has gone. early 2015 talking about the subject to practitioners from Lloyd’s, Now there are thousands of start-ups dedicated to transform- leading London insurers and the wider market. They seemed ing an insurance market that yearns for change. And while we overwhelmed by what I was saying – that InsurTech could prove often hear about the innovative potential of the technology to be as influential as what was happening in FinTech. involved – Artificial Intelligence, Internet of Thing, Robotics, Indeed, it seemed as though the success of FinTech was not Blockchain, Drones, Augmented and Virtual Reality – it’s their enough to convince these executives that the same was pos- dedication to solving compelling insurance problems in uncon- sible in InsurTech. Or that they could harness this innovative ventional ways that distinguish many of these businesses from energy for their own huge long-term benefit. “What will it take what went before. The best of them are asking why large corpo- for them to see the opportunity I see?” I wondered. rate processes are so complex and convoluted – and this drive Since then, Startupbootcamp InsurTech has delivered its to find pertinent answers to impertinent questions is what will first programme with the support of 14 amazing leading insur- truly transform the industry. ers and insurance experts, 100 mentors and over 200 inves- Those incumbents that take the time now to listen to this tors. The start-ups we selected were largely – though not exclu- impertinence are the ones who will likely reap the biggest re- sively – early stage. This was the first truly global programme wards. Those who close their ears to it may well lose out. So dedicated to them, so there was a need for some catching up, I urge you to embrace the InsurTech evolution sooner rather as it were. than later. The transformation has already begun. 35

36 PwC Startupbootcamp InsurTech PwC works with insurance companies to implement Startupbootcamp InsurTech is the leading accelerator InsurTech innovation, from strategy through execution, focused on financial innovation. We provide funding, and helps InsurTech start-ups accelerate and scale their mentorship, office space in the heart of London and businesses to reach their full potential. access to a global network of investors and VCs, for up to 10 selected FinTech start-ups across the globe. Jonathan Howe Nektarios Liolios UK Insurance Leader, PwC Co-Founder and Global CEO [email protected] Startupbootcamp FinTech & InsurTech [email protected] Graham Jackson UK Insurance Technology Leader, PwC Sabine VanderLinden [email protected] Managing Director Startupbootcamp InsurTech London Steven Gough [email protected] UK Insurance Customer & Tech Leader, PwC [email protected] Katerina Stergianopoulou Designer Kasia Kirkland Startupbootcamp FinTech & InsurTech InsurTech Consultant (report author), PwC [email protected] [email protected]

For further information please contact: Kristin Bell Head of Marketing, Startupbootcamp InsurTech +44 7490 453697 [email protected] visit www.startupbootcamp.org/accelerator/insurtech-london For more information about InsurTech at PwC please contact: Jon Acquarone Marketing Executive Financial Services, PwC UK +44 207 8046951 [email protected] visit www.pwc.co.uk/insurance In this document “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. © 2016 Startupbootcamp InsurTech. All rights reserved. 37

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