With over 200 speakers across 2 days there’s no shortage of ideas at the world’s largest gathering of entrepreneurs, insurers, and investors. We’re sending out teams of colleagues to cover the rich discussions taking place across the conference. Here are some of the high points from DAY 1 of ITC 2018.
Oliver Wyman’s own Rick Chavez kicked off the day with a keynote on “Turning the Risk Lens Inward: Coming to Terms with Disruption Risk.” He drew on his own experience working with companies at all stages of growth, from startup through >$80BN enterprises, explaining a framework for understanding disruption risk that emerged from the tech sector. What bets should we place? With what urgency? How do we change the way we deal with disruptive change?
Then it was off to the day’s sessions. Here are three that caught our eye.
Positive Selection: Using Underwriting as a Competitive Advantage. Historically, the underwriting of consumer credit was primarily based on FICO scores. Over the last decade, however, the proliferation of alternative sources of data has led to the emergence of a large number of consumer lending startups, many of which today have become multi-billion dollar businesses.
Today, insurance is going through a similar moment.
The panel discussion focused on how new and innovative sources of data are allowing InsurTechs to more accurately evaluate and price risk. Traditional carriers primarily only have data after the insurance policy is sold -what happens in the pre-sale process is typically a black box for them. But newer InsurTechs are collecting data from sources as varied as connected toothbrushes, wireless wristbands, and smart home sensors, allowing them to better understand the risk profile of their consumers. This data is not just abundant in volume, but also extremely detailed and rich in its quality. A consumer could potentially lie if asked to answer a survey question about how much of a workout she completes, but if the same information is tracked in real time, the veracity is easier to tease out.
What does this mean for incumbents? While they certainly have the financial motivation for using such data to their advantage, what might come in the way is their size, legacy processes, and aging infrastructure. Collaboration between such incumbents and the new owners and analyzers of such data might be the best way forward.
The capital conversation. On this panel, investors spoke about what they were looking for as they actively look for investments. Across the board, the investors indicated a strong desire to invest across the value chain, as they looked for founder teams that had unique capabilities and were open to strategic partnership. However, they noted that valuations are becoming somewhat inflated, with Kathleen Utecht of Core Innovation Capital noting that “Valuations are frothy and we see a bifurcation of things that are either reasonably expensive or outrageously expensive.” This has resulted in a few key elements that the investors indicated they look for when evaluating an investment. First, talent: the team is everything. Second, regulation: regulation is like a moat; once you create it, it keeps everyone out. Third, revenue: growth is important, but the investors expressed the need to see a path to profitability.
InsurTech and core providers delivering on the promise of innovation. InsurTechs are eager to work with incumbents, but face tough challenges. Many traditional insurers have the view that because they have been in business for hundreds of years without the help of InsurTech, they do not need to fundamentally change their business model now. When considering change, many incumbents note that their legacy systems are still working, often at low cost, and there is not a burning platform requiring them to spend budget on InsurTech, which is often not fully proven in the market. However, the carriers noted that InsurTechs can make their proposition more appealing in two ways. First, communicate a very clear value proposition. Traditional insurers often have a hard time understanding what InsurTechs do, and the concrete value that they can provide (InsurTechs with existing partnerships with incumbents have the advantage of credibility here). And second, offer to perform low commitment pilots. It is difficult for traditional incumbents to justify budget for altering a legacy process that works. InsurTechs need to be able to quickly and seamlessly integrate into the legacy environment at minimal cost to the carrier.
We’ll provide a similar wrap up tomorrow from the intersection of risk and technology.
To learn more of what’s going on go to insurtech.oliverwyman.com for ongoing coverage, including results from our Oliver Wyman ITC 2018 Survey, video interviews with insurtech innovators, and deep dives into the issues driving the discussion.
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