Dominic Maier: This comes down to culture and mindset. It is critical to have the correct stance on technology at senior levels, in any part of the insurance organisation.
"Changing that culture is the first step; it has to start with senior leadership, but
the actual process can start anywhere in the organisation."
If you start believing that any future value creation will increasingly be driven by technology then that will soon start translating into the rest of the organisation including the core insurance business. If it does start in the investment business then that is great, but it should permeate to the core business.
The other aspect is that there needs to be a conscious effort to modernise the core insurance tech stack, often ageing, into the twenty-first century. Changing that culture is the first step; it has to start with senior leadership, but the actual process can start anywhere in the organisation.
Dominic: What we have seen through the last decade in FinTech as a category is the low-hanging fruit being tackled first – lending and then payments consistently throughout time – then direct-to-consumer models where the cadence of interaction is daily, such as new banks that come up to modernise the experience for consumers.
We are now coming into a place where there is maturity amongst entrepreneurs, and you are getting technology being built with companies who are focused on not only disrupting insurance firms but also working with insurance firms to pull them into the twenty-first century. The challenge with those firms doing this is that they are generally small, young, and using a tech stack that the entire IT department of a legacy insurance firm wouldn't necessarily have a perfect understanding of.
"There are dozens of companies focused on small areas within the P&L
of an insurance firm, which could be impactful."
Again, this comes down to the culture and mindset piece - is the firm trying to be open-minded? Firms think about having pilots and doing things in a sandbox and ask if we use this tool, how much better would the customer experience be? How much faster could we underwrite? How much more data could we look at to make better decisions? Most firms fall into the trap of thinking about it from the perspective of “if we rip out our core insurance system, everything could fail.” But think of the upside if you replace one module, then the next, then the third and what benefits will be seen eventually.
It is having the willingness to try things, not being afraid of failure, which is hard in Europe in general, and an understanding that not everything will work.
But if it does, it could be impactful. There are dozens of companies focused on small areas within the P&L of an insurance firm, which could be impactful.
Dominic: It is difficult to instil innovation into any business. You either have it in your culture from day one, which is why in many other industries you see this replacement of older businesses with newer businesses, or you do not.
The challenge with insurance is that to completely disrupt the model takes a lot of time, a lot of capital, a lot of work from a regulatory perspective, and that is not fit for purpose to disrupt it from a venture capital model. There have been some high-profile insurance firms that have been funded and listed, particularly in the US, which have not done well.
I believe a stronger avenue for returns within the Venture industry is to supercharge existing insurance firms and make sure that they are using the data they have better for making better decisions and driving a modern tech stack to do all of them.
Dominic: Part of the reason Venture Capital has not taken off until recently in Europe is that there was this stigma around failing. If you graduate from university, you want to find a job in a large solid company where you can have a career for a long time. That has changed recently, but until the early 2000s, it was the case.
"You need that mentality of always second-guessing to improve."
Even since then, the culture has been about not taking the risk; whatever you are working on can disappear and individuals are refusing to accept that chance.
Contrast that to a place such as Israel where that failure risk is embedded in the culture of the country. Making organisations say that trying things and failing at them is fine, as long as we don't make the same mistake twice and making sure that if that happens it could lead to a more valuable, stronger business going forward. You need that mentality of always second-guessing to improve.
