Funny how things can change- one week riding the funding train, next week sitting in the startup exit car.  Skinny jeans, Vans and untucked shirts change into a wardrobe that has a descriptor- business casual.  Same idea in start-up accounting- paid in option value becomes the eagle flying twice a month and performance bonuses.  Evolving from a role that suggests you handle all tasks to the paint drying on the corner cubicle placard that reads, “Chief Marketing Officer.”  Startup to post-IPO organization, and in time-incumbency. Welcome to quarterly reports and silo culture.  All the same customers, however.

An unexpected tension exists between insurance start-up culture with the unicorn hunt, and the cash flush, ‘we are happy with a combined ratio under 100’ culture of the incumbents- the status of industry legitimacy is pursued but once gained is treated like being in the clique the other players deride.  It’s clear that much of insurance innovation is founded in the existing industry being seen as an unresponsive, callous, cash grabbing, seldom paying monolith.  A product that is sold, seldom bought, with businesses that hide behind clever spokespersons to craft a façade of ‘hip’.

And the legacy monolith?  Always comfortable riding a train of convention.  Think of it- incumbent carriers know the route they traverse, little option to change the route because the route is like a rail track.  Hook up the cars, open the throttle of written premiums, hope there aren’t unexpected steep grades that might depress the profitable results of the trip.  Not that incumbents don’t occasionally start a string of cars that take a new path, but seldom does the main string of cars slow to allow connection of the cars that tried the new path.

Consider the recent comments cited from the Financial Times attributed to UK-based insurer, Aviva’s former CEO, Mark Wilson:

“(Aviva) took space in an old garage in London’s Hoxton Square to house the digital projects that he believed would transform the insurance company. The idea was that, away from the actuaries and the bureaucrats at head office, trendy millennials with coding skills could let their creativity loose and turn Aviva into an insurer fit for the future.” 

Not waiting for that parallel-running train to catch speed, the current CEO for the firm, Maurice Tulloch, suggests the firm’s course remains upon the main track, “and (Aviva) is set to take a more hard-nosed look at the garage and the projects that are housed there.”  Seemingly not patient enough for results to take hold, and in probability a disconnect between the ‘garage’ and the existing culture.

Even the Street is discouraging alternate routs for the insurance incumbent. From the same article is found:

“Huge amounts of money were being invested (at Aviva) and it looks like it got out of control,” said Barrie Cornes, analyst at Panmure Gordon. “Reining it in is the right thing to do. They need to look at the costs and it wouldn’t surprise me if they looked to cut some of the expense,” he added.  Looks like?  Based on what?

It was controversial how much he talked about it. He said that pulling back some of the digital investments could add 5 percent a year to Aviva’s earnings per share. Few people expect the garage to close, at least in the short term. Aviva is not the only insurance company to sharpen the focus of its tech investments in recent years.  (thanks, Graham Spriggs for the share of the article)

Five percent per year additional profit by reining in the firm’s potential future.  Huh.   If “All the Insurance Players will be InsurTech”, by InsurTech influencer, Matteo Carbone voices the insurance industry’s future, a five percent savings to the bottom line might be better spent on maintaining competitive advantage by leveraging tech and process innovation.  It’s that tension between quarterly expectations and seeing down the road.

Along the same line, incumbents that take the path of innovation often stray from the InsurTech digital path when results aren’t immediate.  A key player in the US P&C market that touts itself as a data company has initiated many digital service changes; same company however reaches for the analog diagnosis methods when unexpected (read as not positive) results are experienced.  Digital/AI innovations should be addressed using the same AI if there’s to be an effective feedback loop, right?  Not if the quarterly results demon is waiting.   No naming names because all are guilty of the method- it’s too hard to change right away.

A recent announcement by Lemonade regarding the firm considering exercising an IPO, further exemplifies how a poster-child insurance start-up may migrate to insurance ‘legitimacy’, and potentially step aside from its game theory approach to serving customer needs.  The very basis of the firm’s leading principle supporting its charitable giving approach to claim handling/premiums, the Ulysses Contract, may be preempted post-IPO by the quarterly ratio chase and Daniel Schreiber’s hands will be tied no more, and will become available to take the cash or craft the next opportunity.  The firm has traveled far from the day where the first seventy renters’ policies were observed rolling in through the company website.

Not that there aren’t innovating companies/startups that have either migrated to conventional insurance forms through investment exit or by IPO- see German Family Insurance-Deutsche-Familienversicherung, the first European InsurTech IPO, or firms that have made effective partnerships with incumbent carriers, e.g., Lucep PTE that forged an effective working basis with MetLife Portugal .  Each of those firms found effective ways to bridge the perceived gap between innovation and incumbency.

It just doesn’t matter which insurance route your organization is following- incumbent or entrant, each customer is dear, all firms need to act with a sense of customer service urgency.  Today’s startup chasing seed money is next year’s IPO, and in quick time an incumbent that even newer entrants are focused on disrupting.  And there’s no reason skinny jeans can’t be worn at one’s corner cubicle while the wearer peruses the corporate 10-Q or ECOFIN dictates.

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Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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