Through the Eyes of an Insurance Incumbent
By John Kim, Founder and Managing Partner, Brewer Lane Ventures
Despite the nearly $5 billion invested into new insurtech companies in 2020, incumbents will not be dislodged anytime soon. The insurance industry, unlike many others, allows incumbents to enjoy staying power afforded by regulation, capital requirements, and cost of capital advantages. Because of this, we at Brewer Lane Ventures consistently think about the relationship and proximity an insurtech upstart has with the incumbent industry in evaluating investment opportunities and in aiding our portfolio companies.
While carriers desire to modernize, the complexity and risk tolerance of most mature organizations impede their abilities to do so, following a classical “Innovator’s Dilemma.” From our years of leading and operating within institutions, including New York Life, Prudential, Cigna, and Aetna, we understand that no matter the intent and resources put towards digital innovation, incumbents often suffer from decision making paralysis, cultural and technical debt, and a “snowflake” sense of uniqueness. These challenges lead to incumbents setting up many, often insurmountable, gates for startups to navigate.
To best navigate these gates, we believe a deep understanding of an incumbent is key. The following three major themes are core to how an incumbent thinks:
- It’s all about data
- Friend or foe?
- Know your customer
1. It’s all about data
While incumbents may get excited about shiny, new technologies, such as NLP or computer vision, the reality is that many need to learn how to walk with data before they can run. Insurance is one of the earliest data businesses around, yet the evolution and scale of carriers have often left them with antiquated, monolithic systems. The lack of investment in technology and buildup of technical debt, especially from acquisitions that were never integrated, have led to Frankenstein amalgamations of legacy IT systems. Data assets can be represented in five different ways across 20 different systems. Historical documentation is largely absent, creating significant obstacles in reconciling old systems. And data analytics are often executed in Excel spreadsheets that are emailed between dozens of different stakeholders. It is important to understand an incumbent’s data maturity when considering partnering or competing. At Brewer Lane, we think about three distinct phases of data sophistication:
Phase 1: Faster. The organization has invested resources into a data lake to enable accurate, efficient, and quicker movement of data that is somewhat standardized and accessible via APIs.
Phase 2: Smarter. The organization is utilizing modern data analytics to empower human-centric processes across different functions, often underwriting or claims.
Phase 3: Predictive & Automated. The organization uses sophisticated data analytics to proactively predict outcomes, such as losses to inform pricing or reserves, and to automate manual and tedious processes, allowing employees to focus on what they do best.
From our vantage point, most insurance incumbents are stuck in Phase 1. Some institutions have built data lakes and seem to be past this phase; however, in reality, only a fraction of the data truly resides in the lakes and the data strategy and reconciliation work remains nascent. As potential partners to incumbents, startups must understand each organization’s unique abilities with data and will often need to help manage organizations through some of the phases.
2. Friend or Foe?
“You’re either with us or against us.” While the sentiment may not be so extreme within an incumbent, the early waves of insurtech have been dominated by challengers, such as Lemonade, Oscar, Root, Hippo, and Ladder Life, who look to take share from incumbents. These companies aim to reinvent across the value chain, from distribution and servicing to underwriting and fraud to back-end infrastructure. Their core focus is on delivering a delightful user experience and a refreshing brand promise. Whether it’s Lemonade’s “Give Back” program or Ladder’s “Adjust your policy by Laddering,” these initiatives are focused on delivering a fresh, modern value proposition counter to the “necessary evil” of insurance incumbents — their words, not ours!
Opposite to challengers are enabling startups who are focused on helping incumbents modernize with pointed solutions across the value chain. These include companies such as Codoxo, which helps health insurers identify fraud, waste, and abuse, or Hi Marley, which enables carriers to provide a more modern, delightful way to communicate with policyholders.
While we make a clear distinction between challenger and enabler, the line is blurring. Challengers are often relying on incumbents’ established agents and brokers while incumbents see value in distributing challengers’ more modern, tech-enabled insurance products. Additionally, incumbents may still view challengers as potential enablers down the road via acquisition. Keeping relationships with incumbents warm and all doors open are important whether you identify yourself as a challenger or an enabler.
3. Know your customer
For challengers, most go-to-market efforts and product decisions revolve around one focus: the end customer. While seemingly obvious, this has not been the case within the incumbent industry. Legacy systems of record have been product-centric, not consumer-centric. Moreover, the focus of incumbents has been on those controlling distribution, the agents and brokers, as insurance is a product that is sold, not bought. While design thinking and the opportunity to directly access the end customer have begun to shift this orientation, these are still novel concepts within many incumbents.
The realities of enablers are significantly different — their go-to-market focus has to be on understanding the motivations of senior business leaders within incumbent organizations. As a startup engaging with an incumbent, preparation and a strategic approach are critical. As noted, every insurer is unique, so gaining clarity on the decision maker(s) and the decision process is crucial. While the best route into a firm will differ depending on the solution and the prospect, we believe getting the attention of relevant senior business leaders early will create the mandate and sponsorship within the organization. This paired with the ability to quickly demonstrate a clear business case via a PoC will help reduce the long sales cycles. Without a senior champion, insurtech startups can often get stuck in PoC purgatory as incumbents test drive without an intent to buy.
Insurtech is still in its early innings — there are many tremendous opportunities across the value chain to modernize the $8.6 trillion global insurance industry. Whether you’re a challenger or an enabler, we at Brewer Lane would love to hear from you.