“If you can’t admit a failure, you’re not an entrepreneur. You are not a good business person. There’s nothing brilliant about what you are doing.” –Mark Cuban
Insurtechs are great for the industry because it needs to change to be competitive, but insurtechs are only going to be able to help change the industry if they themselves make money.
“At the end of the day this is about capitalism. They’re starting a new venture; this is not a hobby,” according to one insurtech cheerleader.
That advocate, Brian Hemesath, former managing director of the Global Insurance Accelerator in Des Moines, Iowa, a platform for financing, support and mentoring of insurtechs, moderated a panel of insurtech entrepreneurs at the Super Regional Conference, sponsored by Wells Media Group and Demotech Inc.
The financial success of many insurtechs obviously hinges in part on getting insurers to sign up for pilots so startups can test how their technologies work and demonstrate the benefits they offer end customers, agents and carriers.
There are internal issues within some carriers that impede working with insurtechs, according to Joe Schneider, managing director of KPMG Corporate Finance.
“What I have found is sometimes carriers underestimate the relevance of the startup in the sense of it’s maybe earlier stage and doesn’t have a balance sheet, but the reality is you could have a substantial ROI working on this niche of claims,” he told Super Regional conference attendees.
Sometimes early impressions can leave a “bad taste in the mouth” for one or both parties.
Success stories are helping insiders look like heroes for recommending that a company bring in outsiders. “Insurers can’t be great at everything,” Schneider said. “In many ways, you’re saying, ‘We weren’t really great here. Do we look bad now because of that, because someone else is doing it way better than we ever could have?'”
Lessons have been learned. “I am seeing more carriers being open to the flow of traffic as well as the partnership in a much more serious, earnest approach than, for example, two or three years ago, which is great,” he said.
An outside perspective is particularly helpful when it comes to customer experience. “Having the insurtechs come and challenge us and our mindset, and how we approach that, really makes a big difference,” said Bobbie Collies, leader for sales and marketing at Integrity Insurance, a division of Grange Mutual.
A different mindset is helpful even when it carries consumer expectations that seem unfair. Consumers are often interacting with their insurer because something bad happened to them, yet this consumer experience is being compared to Google, Amazon and other online services. “Those are totally, totally different businesses being compared to you, but consumers don’t know the difference. That’s tough; that’s not an easy spot today,” Schneider said.
The level of acceptance can vary within individual carriers, where there may be “big pockets” that are closed to innovation, according Dan Reed, managing director of American Family Ventures, the early-stage venture capital arm of American Family Insurance.
Reed recalls resistance to one proposal out of fear it would mean laying off adjusters, even though that was not a likely effect.
“Over time, those pockets have become fewer and fewer. I think people see some of the successes that are happening with other people within the company or maybe even within the industry,” he said. “They’re more receptive. Now, it just becomes a matter of how you get faster.”
The “speed of insurance” is an issue whenever startups and insurance carriers meet.
“There’s something to be said for moving with urgency and moving like you’re trying to get results out of something,” Reed said.
He said that some insurtech pilots do not cost a lot and can be cancelled if they don’t work out.
“That’s the type of decision that you should be able to make pretty quickly, and you should be able to do something lightweight, something that maybe doesn’t touch the core systems, just to see if there’s something here,” he told the insurer executives.
Collies said that there are opportunities for carriers with legacy systems to experiment, citing her own company’s work with insurtech Ask Kodiak, which Integrity was able to pilot completely outside of its legacy systems, with the ability to integrate later. “It was very easy to play with that and show the value to the management team and senior leaders as well as all associates within the company,” she said.
KPMG’s Schneider believes insurtech pilots can also inject flexibility. “The future is to-be-determined,” he said. “The more flexibility you have in your legacy systems as well as the fact that you can pull out cost, that means you’ve got extra capital to pull in other ways. I think that’s huge.”
When and How to Pilot
Ideally, pilots should be undertaken as a way to solve a known problem, according to Chris Cheatham, CEO of RiskGenius, which uses artificial intelligence to review and organize policy language.
“A lot of times we see companies or innovation people get excited about our technology or other technologies and they want to figure out how to pilot it,” he said. “The problem is if you approach a pilot to figure out if you have a problem to solve within your organization, you’re probably going to fail; whereas, if you know you have a problem and you’re seeing if the technology can solve that problem, that’s the better recipe for success.”
Ben Clarke is co-founder and chief technology officer of Bold Penguin, which offers real time commercial risk analysis and rating on behalf of brokers and carriers. Clarke takes a high-level approach to pilots, utilizing a concept in chemistry called “activation energy,” which he defines as the minimum amount of energy that it takes for a reaction to occur.
Clarke elaborates: “You put two chemicals together and you think something’s going to happen and when it doesn’t, you misinterpret why those chemicals can’t react. But really what’s happened is you haven’t added enough energy yet. Activation energy specifically is tricky because nothing happens often until you get to that activation potential. So you think, ‘We’ll dip our toe into this’ — I hear this all the time — ‘We’ll dip our toe in, and as we start to see results, we’ll grow it.’ Well, activation energy would suggest that’s not actually how it’s going to work. Until you reach a critical mass from everyone of your resources, time, energy, you should not expect anything to happen.”
Clarke advised insurers and insurtechs to proceed with pilots with this concept in mind. “How much energy do we think this is going to take? How much time do we think this is going to take to see any appreciable outcome whatsoever? And would we be willing to accept the reality, the possibility, that nothing will happen in the interim?”
This approach can test the commitment of all parties to a pilot.
“So, it won’t be that we sort of dip our toe in and then we start to see some linear results and we can say, ‘Oh OK, it’s starting to work and let’s do more of it.’ But what if it took a year, what if it took two years, what if it took $5 million or 50 people? Do you know that at the beginning, and are you willing to make those investments and put those resources in place in order to get the reaction? Or should you consider a different path altogether?”
The back-and-forth with carriers that comes with working on pilots is valuable for both sides, believes Jim Gardner, founder and CEO of ViewSpection, which digitizes loss control with self-service property inspections. Eventually the engagement builds trust.
“Technically, we can deliver an inspection, but the most important part is it becomes a connection,” said Gardner, who has 33 years of experience as a loss control specialist and still runs a traditional claims service in addition to ViewSpection.
“By the time we get through, we’re able to start looking into that customer journey and do some of the uncomfortable things. That is, for them to let us talk to a policyholder and ask, ‘What stopped you from completing this app?’ At the beginning, there’s a reluctance. ‘No, you can’t touch the policyholder; we don’t want to upset them.’ What they learn is that they are currently upsetting their customers, but they don’t know why.”
Brad Weisberg has a lot of piloting experience as the founder and CEO of Snapsheet, a tech-enabled outsourced claims service. Snapsheet has raised more than $50 million in funding and today has 70 carrier partners and more than 500 employees.
“Some [pilots have been] more successful than others. I think one of the key learnings that we’ve gone through is just early on finding someone internally who is innovative, who thinks more like an insurtech, who has the autonomy to go through the organization and make introductions and bring people together,” he said.
It’s also important to set expectations early on. “Get those KPIs [key performance indicators], even put them in a contract, so that way we all know what we’re marching towards because inevitably something will go wrong,” Weisberg said.
ViewSpection’s Gardner said no pilot is ever perfect and often the parties will run into what he calls “the concrete layer” where a carrier is protecting its “kingdoms” and doesn’t want to change. This is why it is important to find “the person internally that understands that if there is a hiccup along the way, it’s okay.”
Hemesath urged carrier executives to seize the opportunity themselves or find someone in their company to be the champion for insurtech partnerships.
Hemesath kidded that a surefire way for a carrier to get rid of insurtechs is to introduce them to the procurement office, or the company’s lawyers. He was only half-kidding.
“Please don’t do that. These are small companies with limited budgets. Some of them are not profitable yet,” the incubator leader said. “But in all seriousness, if you see something you like in the industry — whether it’s these folks or someone else — don’t take them through procurement; they will not survive. A lot of these will die on the vine waiting for that process to get approval.”
Pivoting to Profit
Some startups do die on the vine. While most start out to solve a specific problem, some soon hit a roadblock, find out that the problem doesn’t exist or learn there is no market for what they are doing.
“What you’ll see is the startup shuts down, or they’ll go through a pivot,” Hemesath explains.
Pivot is the term in the insurtech world for changing direction after a wrong turn or failure.
Snapsheet has been built on the lessons of Weisberg’s first launch, which was called Body Shop Bids. “I started the company in 2012 when I got in a car wreck and just went through a really painful claims experience, and I thought to myself there’s got to be a better way to go through this process and to actually inject technology throughout the process,” he said.
After his car wreck, he took his car to three body shops and got three different estimates for the same dent. “It made absolutely no sense to me,” he recalls.
Body Shop Bids was a business-to-consumer (B2C) product that allowed people to take photos of their damaged cars and submit them to body shops for quotes. Weisberg walked the streets of Chicago to get body shops to sign up, and he put flyers on cars with dents. The idea made some sense, and he raised a few million dollars in venture capital. But he came to realize the “cost to acquire a customer was more than the lifetime value.” Customers get into a car wreck once every seven to 10 years. “There’s no repeat business,” he said.
From going to insurance and body shop conferences, he learned carriers with legacy systems were struggling to create a better claims experience. “I was looking in the mirror, and I’m like, ‘I can keep going down this path of Body Shop Bids and go on and essentially spend all my money and go out of business, or I could take this platform that I’d built for consumers and turn it into something for insurers to use.'”
In 2012, he transformed his company from a B2C to a business-to-business (B2B) entity and changed the name to Snapsheet. “There’s a lot more to it, but you have to be nimble in an early stage business and you have to, what we say, ‘fail fast.’ It’s okay to not always be right as long as you learn from it and make that pivot.”
“Fail fast — it’s not something the industry typically embraces,” Hemesath said. “It’s not something any enterprise level businesses embraces.” But it is something insurtechs have to embrace and carriers might want to as well.
“It’s about learning, it’s about adjusting, pivoting,” Hemesath said, crediting Weisberg for not shutting down but embracing failure and learning from it.
RiskGenius CEO Cheatham started out on a different path also. He used to be a surety claim attorney determined to clean up messy claim documents. He started a business scanning documents at construction sites and copying and uploading electronic data. “Horrible business model,” he admits. “I realized that when I had contractors about to go bankrupt and ripping laptops out of our hands as we’re sitting there scanning their document because they’re mad at the surety.”
While he was working the Panama Canal $800 million performance bond claim, underwriters started paying attention and soon began asking if they could use his software for policy review. “I said, ‘Sure, what’s policy review?’ It’s kind of a reflex of mine as to say, ‘Yeah we can do that’ and then try to figure it out.”
He said he came to realize thousands of people in India, China and Manila are manually checking insurance policies. “As we were exploring the industry, we figured out that not a lot of people knew what is in their insurance policies,” Cheatham said. “That’s just not the buyers of insurance; that’s actually the underwriters and the brokers as well.”
A carrier called seeking help in reviewing 100,000 commercial general liability forms to see how many times they contained the word environment. His company helped another carrier go through hundreds of thousands of policies to find silent cyber exposures. It is currently working with a large broker to automatically check 35,000 policies, comparing limits, deductibles and premiums.
Like Weisberg, Cheatham had to sway his investors to switch gears. “I had convinced a bunch of people to pay for a scanning company. Then I came back around a few years later, and I was like, ‘Hey, we’re going to do artificial intelligence on insurance policies. How’s that sound?’ It was painful. It’s part of the journey. You just do it, and you hope your gut is right.”
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