The first 18months of my InsurTech incubator experience has been a slog, I won’t lie. The only small comfort is that others were finding it difficult too.
Over this period we noticed that other investors were taking new approaches. They were either investing into later stage and more proven businesses, or they had decided to sit back and watch for a bit; attending demo days in the hope that lighting might strike.
Before we took either route, we captured our own sense of the problem to solve…
1 ) As an Incubator we weren’t learning fast enough about the customer
In the wider, less regulated world, start-ups learn how to deliver against the needs of their customer by doing. A rapid evolution of make, test and iterate….the survival of the fittest idea driven by teams who’s agenda is to crack the product/market fit.
In early stage InsurTechs few teams have actually had the chance to prove out their assumptions in a live market. And you learn so much more when you are live. It transforms analytical grey business theses into full technicolour.
2 ) There’s an insurance model and a business model to consider
The value chain of risk capital is opaque to the tech innovator and not without its own baggage too. e.g…
3 ) Scale can be a scary word
In InsurTechs there are two metrics for scale. Revenue/Margin and Risk/Exposure.
You really want a high number for the first to keep your shareholders happy, and a low one for the second to keep your insurers happy. And it’s really hard to predict risk; ask any insurer why they employ hundreds of actuaries an only tens of analysts.
4 ) You need the combination of 3 exceptional brains to crack the above, and that’s a really tall order
As an incubator we needed to attract people from all sides and, crucially, to get them all to invest time to play well together. It’s easy to get fatigued from feedback in something of this complexity; just when you think you’ve solved it a new realm of challenges opens up. This requires classic creative problem solving across tech, insurance and customer psychology — and impossible to do in series.
5 ) We needed to refine our own sense of the emerging market space for independent entrepreneurs
We’d read all of the major consulting reports on the subject of InsurTech, but so much was focussed on technology that would modernise or optimise the industry value chain. Great fodder if you are leading the R&D in a big insurer or reinsurer, but none of them identified the spaces that would emerge from outside of the industry.
We identified 2 spaces, each with a series of tech platforms that could have the ability to break and claim new markets from the outside. The first set are ‘new insurance business models’ and the second ‘new industries powered by insurance’.
I’ll expand on our learnings in follow-up post...