INSURTECH 2020: intervista a Roger Peverelli
||Yuri Poletto | Insurance open innovation consultant, Partner IIA
|| Roger Peverelli | Co-founder Digital Insurance Agenda
Y.P.: 2020 will be remembered as the year of Covid-19. Every company in every industry had to review their plans and priorities, and almost all companies passed through three phases in 2020: phase 1 ‘survive’, phase 2 ‘protect our assets’, phase 3 ‘adapt to the new normal’. What year has been 2020 for insurance?
R. P.: “I think 2020 will be forever remembered as the year of Biblical plagues. It started with the immense bushfires in Australia, the grasshopper plagues in Africa, Pakistan, and India, and on top of that covid. With a lot of uncertainty, especially at the beginning of the pandemic, in February and March.
Obviously, a significant increase in health and life claims. In claims in business interruption and worker’s compensation for instance. But also way less claims in automotive because everyone had to stay at home. It was also a wake-up call. It made many insurers aware that they need to become much more connected and agile, that being digital is really paramount. More and more insurance executives are realizing this. They now see the strategic importance and there is a clear sense of urgency. Becoming more connected and agile are essential to grow, and for many also essential to survive. It is no longer an option to press the snooze button once again.
Our knowledge partner McKinsey researched that we actually made a five-year leap into the digital age in only eight months. What we’ve seen is that human adaptability turned out to be astonishing. Very quickly everyone tried to make the best of it. Where we could not follow our old routines anymore, like going shopping, people immediately went online. And when we could not work at the office anymore, we almost seamlessly continued at home. Even while combining this with home-schooling for kids.
Forced but still; the scale of changes in consumer behaviour, in such a short period of time, is gigantic and unprecedented. We’re convinced that a significant part of this new customer behaviour will stick. You mentioned thee phases in your question: ‘survive’, ‘protect our assets’ and ‘adapt to the new normal’. I think we should add a fourth phase for insurers: ‘innovate to make sure we stay relevant in the new post-covid era’.
Let me explain: If one thing became clear during the last couple of months, it is that at the end of the day, there is nothing of greater importance than your life and health. And almost everyone agrees to that. Insurers already experience a growing interest in life and health plans. That market is going to grow significantly in the coming years.
But not just your regular life and health plans. People want to be assisted in improving their lifestyle.
Helping them to exercise more, to eat healthier. So, there is a lot of room to go beyond offering covers, and add all sorts of preventive and pro-active services on top of that.
Think of data driven platforms, that are combining self-tracking, data and all sorts of incentives.
Quite a few insurers are already exploring this of course. Irish Life is doing this with dacadoo; Generali uses the Vitality platform. Just to mention a few.
Another change that will last is the shift in mobility patterns and the way we live and work. Of course, it isn’t always pleasant to work strictly from home, but people also experienced big benefits. No more traffic jams for instance. It looks increasingly as if the situation will not go back to how it was. At least not entirely.
Also, many people have invested a lot in their homes in the past year to make their homes more connected and smarter. We therefore think that the scope of home insurance needs to be broadened already in the short term; new propositions combining home insurance, IoT, cyber security and services.”
Y.P.: Despite the pandemic, 2020 is set to be a record year for Insurtech funding, with $2,5billion in Q3 alone, and the first two insurtech IPOs (Lemonade and Root). Will this insurtech investment trend continue also in 2021, and will we see more insurtech IPOs in 2021?
R. P.: “I think this is a very interesting question. It also perfectly taps into a research that we just concluded together with our knowledge partner McKinsey. It’s called ‘The Pulse of Insurtech’. For this research we spoke to more than 100 leading insurtechs and investors to get their perspective on this, and we combined this with our own industry insights. You can find our report at www.digitalinsuranceagenda.com.
First, let me say that we believe we can be optimistic about the future of insurtech in terms of more demand, stronger growth and increasing impact. The market environment is definitely favourable for digital business models, which is something most insurtechs are already focused on. So, more demand for online, digital and remote services.
88% Of the insurtechs we spoke to expect a stronger demand for their products and services once the crisis is over. And 71% of insurtechs are already optimistic about their sales pipeline in the coming month. Having said that, we should also expect lower valuations and less funding to be available, but especially for smaller companies. We agree with what you just mentioned: we still see big funding rounds around the globe and several IPOs also in the past few months. So, there are no dramatic signs of a shortage in capital yet.
Probably this is because venture capital is a very long-term asset class. The insurance industry is so big, and the challenges to digitize the industry are almost even bigger. So, everyone sees that the market is there.
Interest rates are still very low or zero and new large VC funds are now closed, investors are still very active, and they are looking beyond their current portfolio to find new firms.
Corporate venture capital however, seems more cyclical and driven by economic factors. So, there might be less capital available from that source if the crisis continues for some time.
Especially growth investments are showing a strong increase currently, thanks to the interest of private equity funds and new corporate investors who are reluctant to invest in too early stage companies.
Root, Lemonade and others are still showing remarkably high valuations, ranging from 5 times to up to 26 times their sales or premiums. In parallel with the continuing strong availability of capital, the current valuation levels might continue as well.
What is interesting is that there is a huge bifurcation. Companies that are growing 100 percent or above, have valuations that are double or triple the valuation of companies with growth rates of 50 percent or less.”
Y.P.: If you were an Insurtech CEO, what’s the main lesson you would have learned in 2020, and what would be your priority #1 for 2021?
R. P.: With recent developments around covid-vaccines being available, hopes for a fast recovery have risen. But going back to normal maybe taking somewhat longer than expected.
The majority of investors expect most of their insurtech portfolio to be “back to normal” at some point in 2021, but several investors expect this will take longer – until 2022. Of course, this could lead to a “make or break” moment for insurtechs.
So, getting back to your question, suppose I was a CEO of an insurtech, what should I do?
FIRST: prolong your runway (of course). Look at the capital efficiency of your business model and your company. Obviously, this is even more important than it was in the past. Perhaps also reconsider a ‘fast growth with high losses’ strategy, if you would have that. Rather think of ‘more moderate growth and more moderate losses’ or even better, consider focussing on short term profitability, focussing on EBITDA.
SECOND: have a clear vision on how you add value. How exactly do you help incumbents to speed up their digital transformation. There is a big opportunity to surf on that wave that is visible to everyone. This may seem a no-brainer, but it maybe a bit more difficult. In spite of all the investments in digital, insurance hasn’t fundamentally transformed by it. Let’s be frank, for the most part incumbents have just interfaced themselves with the digital economy. Let me use an example. We still see many efforts of incumbents to replace wet signatures by digital signatures. That’s interfacing. Transforming is about thinking of solutions that aim to establishing identities digitally.
THIRD: scale; and perhaps this makes it necessary to refocus. Most value creation is realised during the scale-up period of the company. According to McKinsey research 34% of value creation is linked to the build-up phase of startups, versus 66% linked to the scale-up phase. Yet, many companies still struggle to reach this stage and scale up their business. Of every 100 startups that have successfully built product, only 22 are able to rapidly scale up, independently. A small group (5%) fail or become inactive. A far bigger group (46%) ends up in an unscaled, self-sustaining phase.
This starts with rethinking ‘what is your real addressable market’ and perhaps refocussing. And if you really want to build a very valuable company, you need to address a big market and a big problem in that market. This may be a good time to rethink that.”