5 Reasons Incumbents Don't See Disruption

The discussion started well, with attendees building a list of the key attributes of the successful insurance offering of the future, namely (and no surprises here): • Mobile • Data-rich • Built around consumer social groups • More self-service by customers All of which has been well documented elsewhere and which we, at Bought By Many, have believed from our outset. The debate then took a more worrying turn: The recent KPMG CEO Outlook Survey states that 80% of insurance CEOs are concerned that new entrants will disrupt their business model. I thought this percentage felt about right, my rationale being that the remaining 20% of CEOs were investing internally to disrupt their own business models before new entrants get the chance to do so (on the basis that it is always better to cannibalize yourself than it is to to be cannibalized). It turns out I was wrong. As I learned, the CEOs in question actually don't believe that there is a disruption issue and so go out of their way to stifle innovation. They focus their attention on the myriad of other issues they face that are easier to address and have faster paybacks. How do they justify their stance? I think there are five plausible explanations for this view - each of which, I believe, is flawed: 1) The insurance industry's Uber moment hasn't happened yet, despite the prophets of doom, and there is no evidence of its arriving any time soon. It is true there haven't been any new insurance companies with a valuation coming anywhere close to Uber's $62.5 billion (£44.3 billion) December 2015 valuation. However, it is the assertion that this isn't going to happen anytime soon in insurance that I take issue with. Less than five years ago, Uber was valued at a paltry $60 million. In fact, in just nine months in 2011 its valuation increased fivefold, and by tenfold in the subsequent 20 months. Could anyone have predicted this? Unlikely. Here's the question: Is that kind of phenomenon possible in other industries? In insurance, perhaps? I wouldn't be at all shocked, especially when you consider that the global taxi industry has been estimated as having fares of around $50 billion, less than the amount by which the global insurance industry grew in 2012 (Source: McKinsey). 2) We can partner with start-ups whenever we need to. It is true that many insurance start-ups have partnered with the incumbents to achieve success, but is this a necessary step to success for a start-up? It is interesting that the latest insurance start-up to have received a large amount of coverage, Lemonade, has made a big point of presenting itself as a full-stack insurer. Yes, Lemonade will be reinsuring out to existing players, but there isn't a carrier in sight. Also, in the U.S., Oscar Health's most recent fund raising valued the business at $2.7 billion. It hasn't relied on the existing industry to achieve this in just three years. There is no reason why we won't see European insurance start-ups begin to justify this kind of success on their own two feet. Oh, and for those start-ups that do want to grow through partnering, don't presume that they'll be begging for the attention of the industry - many are already spoiled for choice and are beginning to call the shots on who they partner with, and on what terms. 3) Start-ups' books are subscale and so can be ignored. I have some sympathy with this statement. It is patently true that all of the EU insurance start-ups are small. Very few have been around as long as we have, and we're only been around 3 1/2 years. We all know the adage that from small acorns large oak trees grow. (Or, my personal favorite, "Never kick a dog because he's just a pup....you'd better run for cover when the pup grows up" -- with thanks to Herbert Kretzmer). But I don't believe that size, or the lack of it, is a good enough justification for ignoring these small businesses. Instead, I'd like to suggest that the larger insurers might like to start thinking as to why the size of any one player is important. Most cite their lack of desire to be left with multiple tiny books to manage and support after an abortive partnership. 2016 has already seen the launch of multiple insurance start-ups, all of which will have sub-scale books. The incumbents might be better served by focusing on their systems' barriers to being able to profitably support ever smaller lines of business. Mainframe technical constraints need to become a cry of the past. 4) Regulatory barriers to entry are sizeable. At"A Celebration of U.K. FinTech," there was much talk about the importance of the Financial Conduct Authority's recently launched Regulatory Sandbox, created as part of Project Innovate, the FCA's development designed to foster competition and growth in financial services. Our own experience also speaks volumes as to the regulator's commitment to promoting new entrants: Through the excellent support of the FCA's Innovation Hub, Bought By Many was able to achieve full direct authorization in less than three months from submission of paperwork. Of course we were delighted -- but more importantly the speed enabled us to focus on investing in and growing our business. And this support didn't stop there -- we received approval for the acquisition we made last year in less than three weeks. We find that regulators' commitment to innovation is clear -- they reach out to us on topics they feel we understand (eg social media) and encourage us to reach out to them. 5) We can build our own innovation teams. For me, this is perhaps the least credible of the five excuses. Recruiting, motivating and retaining individuals with the right skill and mindset to build an insurance business is tough enough as a stand-alone business but would be almost impossible in a staid corporate environment. I accept the attempts to circumvent this issue through the creation of incubators/garages/innovation teams, but the bare facts are hard to escape -- as an employee of a large corporate, I spent more than 30% of my time on HR issues and almost as much again on internal presentations, briefings and coaching sessions. Now I spend almost 100% of my time dedicated to growing this business -- entrepreneurs have their personal reputations on the line all of the time and sink or swim based on their failures and successes. Nothing is more motivating than that.