Insurtech 2.0

It has been said that fintech is about five years ahead of insurtech. What lessons should insurtechs take from the successes and failures of fintech startups?

Maybe it’s five years, maybe it’s 10 years, somewhere in between the two, probably, but the things I’ve seen that are most parallel are probably the first-order thinking of the insurtech community to specifically look to disintermediate insurance agents and reinsurance brokers—effectively anyone who sits between the risk itself and the actual capital behind it. The parallel there is obviously robo-advisors and fintech, whether that be Betterment or Wealthfront. Both definitely made headline news and, I think even back in 2014, reached a billion-dollar valuation. When you look at what the transactions have been as of late, they’re worth about a billion dollars. So, that’s the most obvious example.

A lot of the early energy in insurtech went to improve the retail client experience, disrupting auto, home and life. The technology seems to be getting deeper than that. What are the trends you’re seeing now?

Not to just check the box and say that we’ve sorted through the entire problem on the front-end side, but where I’m seeing more innovation today is on the back end. It’s maybe not as sexy, not as glamorous or lacks a splashy logo, but people are more concerned now with how you price risk, how you communicate risk, and, philosophically, how you make sure you’re putting people and companies in the right markets for their actual needs.

How are technology trends being reflected in the startups themselves?

I tend to see entrepreneurship and startups in general as being things that must be personally experienced first for entrepreneurs to actually want to solve them. That’s why, if you zoom out 20 years ago, what were we really focused on? It was social media. Why? Because a lot of the developers of the day were in their teens and early 20s and they got access to that. Fast-forward 10 years, and those same developers are now in their late 20s. And they start thinking about, well, how do I save money in my personal finances. Then you fast-forward another 10 years, and all of a sudden, those same entrepreneurs and developers are realizing, oh, there’s this thing called insurance and family planning and healthcare. So you see those investments.

What typically happens, if you zoom in on any one sector, there are the first order of entrepreneurs who see low-hanging fruit; they fix the UI [user interface] and the UX [user experience] and make it more friendly to engage with. That typically results in another cohort of entrepreneurs who have gone past the first-order exposure problem. Then you start to find the deeper-value opportunities, what people would refer to now as infrastructure. When you look at the fintech revolution, what happened first? Betterment was what people call personal financial management tools. But in order to do that, you realize, ‘Wow, it’s really a pain in the butt to get data from banks.’ That results in the likes of Plaid and Stripe that today aren’t the $1 billion robo-advisors; they’re the $13 billion data aggregation company and the $70 billion payment processor.

What I’m seeing now inside of insurtech is very similar. People who have worked inside of insurtech have started to realize there’s a big green field here that is wide open, not for disruption but for improvement. There are areas that may be unsexy, but they’re absolutely some of the most impactful parts of the ecosystem to actually invest in from a technology standpoint.

That’s what gets me excited, to see people who are now looking at this, not from the quick approach, which is, ‘I can optimize the user experience,’ but from the perspective of ‘I’m going to deliver either a real underwriting value or expense value.’ At the end of the day, this industry is comprised of a combined ratio that is your losses and your expenses, and you need to target one of those as an insurtech to differentiate yourself in the market.

What’s behind the shift in focus away from disintermediation toward enhancing intermediation?

The simple answer is because brokers add value. As a technologist, your knee-jerk reaction is always just, let’s simplify things, let’s reduce the number of counterparties. But the reality is, until you’re in the market, you don’t really understand the value-add that independent insurance agents and reinsurance brokers are bringing. It’s not just relationships; it’s understanding history, it’s understanding where the rubber meets the road, and…it’s the human element as well.

How has the evolution of insurtech guided your development of Noldor?

I had a great opportunity to work for what I think is the best insurtech 1.0 out there in Swyfft. Seeing the way the existing delegated authority market is communicating with their counterparties made me realize that that’s actually an enormous opportunity for improvement, where maybe 10-20 years ago delegated authority was a little bit slower moving. I think the way in which delegated authority communicates what they’re doing—to their capacity sources, to the reinsurance brokers—is actually enormously important, because if we continue to see this sort of transformation of the admitted markets into more and more E&S, it’s really table stakes. You need to give your capacity the comfort of knowing what’s being done with that delegated authority—and the old framework of monthly bordereau, there are even some that have struggled to clear that hurdle. I think in two to three years’ time, we’re going to see an even deeper need for data collaboration.

What you do with that data is the real differentiator in this market. I mean, insurtechs 1.0 did a fair amount of value creation through the automation of data aggregation—I don’t need to ask you 50 questions, because I know I can pull that from another source. But for insurtech 2.0 the alpha won’t be in ‘did you fill out my form faster.’ The alpha will be, once that form is filled, what did you do with it; how did you think about that data; and how did you make sure that market discovery is being done in an optimal fashion. That’s the alpha. So that’s what we do at Noldor. We try to treat data aggregation as a commodity, to bring down expenses for everyone in this industry: MGAs, carriers and reinsurance brokers.

What’s Insurtech 3.0?

I think the future looks like a lot more independent agents and independent MGAs. Because if insurtech 2.0 is effectively the infrastructure to enable people to do their jobs better, then all of a sudden you don’t necessarily need to be at a captive insurance agency to do that. You can be an independent agent, and market access becomes democratized. The way you actually service the life cycle of your retail customers becomes democratized. And even maybe inside the world of reinsurance brokerage, the ability for you to start launching really specialized areas and begin to carve out a niche for yourself is actually what that 3.0 looks like. It’s leveraging the infrastructure that’s being built today in order to enable more entrepreneurship in the industry and increase specialization, both on the retail side and on the reinsurance brokerage side.

I hear you’re also a sci fi fan. What lessons would you draw for the industry from science fiction?

I believe deeply in privacy and security. It’s a differentiator for us. The lesson I would draw from sci fi is such that you need to be careful with how far we go in underwriting the individual. Risks and exposures are fair game, but you don’t want to live in a dystopian world where people are paralyzed with fear to be themselves. I think that, when insurance is at its best, you see things like the adoption of the seatbelt. You see lives saved, and you see safety resulting from market forces. If I were to draw a lesson, it would be a cautionary one, which is that data and transparency are important but making sure there isn’t abuse is every bit as important, because if we just sit in this world that is now hyper-measured and hyper-transparent, you kill the human spirit.