How can insurance companies be nimbler as innovators — in the face of strict regulatory oversight, customer concerns about privacy, and decades of ingrained thinking about “the way things are done”?
At the Future of InsurTech event at MassChallenge earlier this month, a panel of insurance experts, including innovators from John Hancock and AIG, discussed these challenges and others. Eleven startups also showcased their work.
The panel featured Sandy Kreis, Director of Labs North America at John Hancock; Chris Cheatham, CEO & Founder of RiskGenius; Murli Buluswar, Chief Science Officer at AIG; and Shereen Shermak, Director at Good Growth Capital. Here are some of the highlights from the panel, along with descriptions of the 11 startups featured at the event.
Making Connections with Startups
Sandy Kreis, John Hancock: At [John Hancock’s] Lab of Forward Thinking…we go out and we look for [startups], and they also come knock on our door… We are not an accelerator, we don’t have an accelerator program, we don’t have startups sitting with us at our offices. We have teams—discovery and delivery teams— that are really focusing on building out our technological capabilities in two specific areas: blockchain, and artificial intelligence and cognitive computing. We look for startups that have gained some traction, a team that has a track record of success — they have a product that is more or less developed and ready to be adopted by a large company, and we are willing to be one of the early customers of those startups. It really depends on if it’s a good match for what we are working on in-house.
Murli Buluswar, AIG: At AIG, when we think about our connectivity to the startup world, there are two broad categories that we care about… First is around gaining efficiency. Anything that we can do from a technology standpoint that allows us to deliver a better customer experience on the back end, in terms of our underwriting processes and in terms of our claims handling processes, we care very much about. The other big piece — and we think this will be a game changer for our industry in the coming decade — is shifting the discussion from more granular measurement of risk to influencing outcomes… We think that the role of sensors in the insurance sector will explode in the next few years, because it allows us to collect data on a real-time basis and give feedback on a real-time basis to customers, whether you are insuring construction workers, vehicles, or buildings…
In terms of how we engage [with startups], we don’t have a well-defined structure yet. We do have a wonderful innovation center…in our San Francisco location, and that has typically been one of our team connection points. However, being a large company with a broad goal reach, we needed to have conversations and connections to entrepreneurs through a variety of different functions.
Drivers of Innovation: Data, Sensors & More
Buluswar, AIG: I don’t think our progress on any innovation is going to be linear. I think that we’re still at the early stages of people understanding the power of some of these capabilities, and the price of collecting the data is actually starting to move pretty rapidly towards zero. …I think that while we haven’t achieved any big scaled success in the world of sensors with respect to insurance, we think that’s coming in the near future. One of the big drivers will be…addressing the question for individual consumers or commercial entities, “What’s in it for them?” And what is in it for them is a richer and more meaningful partnership with the insurance carriers that allows them to understand what they could be doing to reduce the likelihood of accidents. That in turn should reduce their insurance premiums and there’s value in that, as much as there’s value in reducing the likelihood of getting yourself hurt if you’re a worker or getting into a car accident… To me, that narrative is still very much in the early stages. I see that developing quite substantially in the next few years.
Kreis, John Hancock: I think another one of the key drivers is going to be just the demographic shifts that we’re seeing. I’m the first year of millennials, and my generation and the generation that follows me is definitely less concerned with privacy than the generations that came before us, and I think one of the concerns historically has been, “I have a sensor on me, it’s tracking what I’m doing, I’m not comfortable with that.” I think as we see these demographic shifts occur, that concern will likely not be as prominent.
Shereen Shermak, Good Growth Capital: We think a lot about the sensor data that’s very personal… but there’s a lot of business data that’s being collected that’s not being used to the benefit of business owners, who want insurance policies or for other reasons like that. So I actually think that’s an opportunity because when you’re a business, all you’re really thinking about is “How can I bring my costs down,” or if you’re a restaurant, “I’ll give my inspection rating to an insurance provider and bring down my premium.” And so I think economics in the B2B space is really going to be the big driver.
Chris Cheatham, RiskGenius: Making sure that the carrier systems can talk to that data is really important as well, and it’s really hard. My favorite hypothetical is, you have a ship that’s going through a war zone and there’s a sensor and it says “OK, we’re in kind of rough waters.” It pings that information back to the carrier, the carrier then takes that information and tags it to the insurance policy. There’s a war exclusion that says, “We’re not going to cover you in waters that involve war or something like it.” The insurance system then pings that company and says, “Hey, you have a war exclusion, do you want some additional coverage for the next 24 hours, as your ship is in this war zone.” That to me is on-demand, but it’s not really how people talk about on-demand insurance right now, but that’s where we’re going. But that requires that the policy systems talk to that data and that the customers can talk to the carriers all in a big circle. It’s pretty tricky.
Buluswar, AIG: If I were to put a timeline to this, I see something analogous to that coming in the next 5-7 years, and I think if you go back 20 years ago… the idea of going directly to customer was a strange concept. Now, that is continuously the fastest growing sector of…the insurance marketplace. I think what you really need is… that first carrier that makes the leap and then is able to demonstrate some scaled success… We, in our DNA, are an industry that is risk-averse, that’s what we’re predicated upon, so I imagine that if you can get that first carrier to make that leap, then maybe others, seeing the proof point of success, will jump as well. Part of it is breaking through one’s own paradigm of how things should be, and realizing that just because things are a certain way doesn’t mean that’s how they should be in the future. It’s making that pivot to recognizing that the world is changing around us, and having much more of a learning mindset. And that takes time, because we’re human beings.
Changing Culture & Mindset
Kreis, John Hancock: At John Hancock, at the Lab of Forward Thinking, I have a colleague…who is our director of innovation, practice, and enablement. He is tasked with bringing agile methodologies, design thinking methodologies, the way startups do business, to 33,000 of my colleagues. It is a big task, but that’s one of the ways we are working at changing the culture from within. Within the lab, we are experimenting every day. We try to break things and break them often… I think it’s taking those incremental steps, letting people understand that this is a place where it’s okay to fail, and I know that that sounds cliché, but it’s true. It’s okay if a project doesn’t work out. Let’s just kill it quickly, move on to the next one and make sure we realize and understand what we learned from that process.
Cheatham, RiskGenius: We’ve been doing a proof-of-concept with AIG, and they do something really interesting internally that I frankly had never seen before: innovation bootcamps. They bring together teams of young underwriters and other insurance professionals who can then [explore] an idea, whether it’s a new product or a new technology. It was really a breath of fresh air compared to some of the other conversations we had been having — to have this whole team trying to support us and figure out how to make this work. If you can create [similar programs] internally, they’re great because you have to have user adoption. It’s not enough to have an innovation group that wants to do something. You have to bring it to the users and make sure it’s going to work for them, otherwise it’s going to fall flat…
Buluswar, AIG: Having started the Science function [at AIG] a few years ago, we’ve certainly gone through our growing pains at AIG around human behavior and how to drive change. One of the first things we learned was that if we could help solve for problems…that people in any large firm have already identified, then you’re starting to win hearts and minds. Then you earn the right to get to that next layer, which is to solve for problems that people have tangentially thought about, but maybe haven’t really flushed out quite in-depth. And as you do that, you then earn the right to work on things that are just a bit more far out, that are much more open-ended… And recognize that oftentimes what you’re proposing means that you’re challenging people to fundamentally rethink their roles, and if they’ve done that [job] for a decade or two decades or more, that can be pretty scary. So, you’ve got to have the ability to meet people where they are, understand their issues and challenges and bring them along with you, but yet have that humility to be able to learn from them, not just assume that you’re the teacher… So if you come at it with that collaborative mindset, you give yourself a real shot to earn the trust and prove out your theses to drive fundamental change.
Finding Areas for Disruption
Kreis, John Hancock: With regards to John Hancock, I mentioned before that we’re interested in two specific areas: blockchain, and artificial intelligence and cognitive computing. That’s where we’re building out our internal capabilities. That being said, we’re definitely tracking the industry every day. I read today that 10 percent of Fortune 500 companies are insurance companies, and the average age of them is 95 years old, so our companies are old… We need to figure out what is going to be disrupting those systems — if you could start from scratch, what would it look like? And start thinking about our world from that perspective, not from the perspective of the retirement home.
Buluswar, AIG: If I were to analyze the insurance sector through the lens of a venture capitalist, one of the questions I’d ask is, “Which part of the value chain has uneven economic rent?” For example, if you think about the insurance sector as a whole, the risk-bearing entities have returns and equity that tend to be in the 9-12 percent range, where there’s other parts of that ecosystem that have returns in equity that are well into their high teens and into their 20s. So that is one area that is ripe for disruption. A second dimension to it that I’d think about is, “What part of this value chain or the processes have not actually been reinvented in a fundamental way in the last 20 years?” The third piece is, “What are the pain points?” There are many pain points in this industry for customers, regardless of whether they are institutions or whether they are consumers. Take life insurance. You have intermediaries that make in the neighborhood of 115 percent of the first year premium as their commission. You’ve got a fairly homogenous underwriting process that is expensive, invasive, and ridiculously standardized. Everybody goes through that same process, and as a result, more than half the people who say they want to buy it, drop out of the process.
Shermak, Good Growth Capital: It’s been interesting being in fintech for so long…seeing business plans that I saw in 1997 come around in 2007, and starting to come around again. I’ve seen a lot of the same ideas, and it’s a question of the idea matching when the technology is ready for it. A lot of ideas…that rely on advanced analytics are starting to hit their prime time, and I wonder about ideas in the space that are compressing the value chain… I think insurance companies in-house are going to have to take a role in that.
Innovation in a Regulated Industry
Shermak: I’ve always operated in highly-regulated environments, and that absolutely suppresses innovation. There’s always this “move fast” and “break stuff” mindset in the startup world, but you can’t break stuff in financial services in reality. You’re really looking at prison and fines, so it’s not the world of Uber and DraftKings… It’s a different world…It adds such a degree of difficulty that I actually think we have seen a lot of suppression of innovation over the last 20 years, because people don’t know how to fight their way out of that box. You see a few things coming up in payment services and things like that where people are breaking a few rules and not really being punished for it, but I can’t imagine it in the insurance framework. I think that even adds more weight to engaging the insurance companies and having internal sandboxes that are inside your data boundaries, where people can actually leverage de-personalized data to experiment and really figure out how they can pull interesting insights. I think that’s where the burden’s going to end up lying.
Cheatham, RiskGenius: If you’re out there trying to acquire customers, if you’re trying to be a broker or a carrier, or something similar, you’re regulated by every state. The better opportunity for startups… is actually helping with the operations, the systems, the processes, and the workflow, because they’re not really regulated the same way. There’s not 50 different states trying to regulate you. You’re more regulated by that carrier internally, their workflows, their processes, their rules. So it’s less risky. It’s harder too, but there’s tremendous opportunity to try and help streamline these processes that exist right now inside insurance companies.
Buluswar, AIG: I think that the regulatory environment does actually limit to some extent, but on the other hand what it does is it channels the dollars and the energies to areas where there is potential. It is such a massive industry, and it is such an industry that is ripe for opportunity for great efficiency that you might not be able to do real-time pricing and testing around customer behavior and things of that nature, but there is so much you can do that would fundamentally reshape the economics of our industry.
Human Condition Safety
How can workers and managers prevent injuries on job sites before they happen? Human Condition Safety works to answer this question with a suite of tools, including wearable devices, artificial intelligence, building information modeling and cloud computing. This startup aims to help workers in the manufacturing, energy, warehousing, distribution, and construction industries, providing them with insight into possible hazards. The startup is already conducting pilot projects at locations such as New York’s Jacob K. Javits Convention Center and Citi Field ballpark.
This startup provides predictive scoring to insurance and P&C companies, enabling them to accelerate and improve underwriting, spend less on external data, streamline claims, and reduce fraud. Carpe Data utilizes the social web, online content, wearables, and connected devices to aggregate data and help companies innovate more effectively to meet the needs of their customers. For example, Carpe Data’s Life Events product provides carriers with real-time updates on significant life events for their customers, allowing insurance companies to connect quickly with their customers to update policies.
Claimkit’s main goal is to assist claim professionals, providing these professionals with a web-based platform and tools to better organize, search, and collaboratively discuss claim documents. The startup also collects and digitizes emails, project records, accounting information, and other files to make sure all pertinent documents are in order and easy to access.
Hive Maritime deploys predictive analytics to reduce boat congestion in shipping lanes and ports around the world by providing ship owners and operators with route optimization tools. The startup predicts the future location of ships and provides accurate arrival time for cargo. These tools aim to save ship operators and owners billions of dollars in inefficiencies.
InsuranceMenu aims to simplify the process of providing benefits to employees of small businesses. The startup provides services for both agents and employers, such as help with administrative tasks for agents, and a streamlined platform with fast quoting, online enrollments, and consolidated benefits management for employers. The servicers can also be used to provide benefits to part-time employees and individuals.
This startup aims to help consumers easily and quickly obtain auto-insurance by providing them with an online platform that streamlines the searching, quoting and purchasing process. Insurify analyzes customer data and provides accurate quotes from trusted insurance companies and personal agents. They even provide a quick price and coverage calculator to help consumers better understand what others like them pay for insurance.
SybilSecurity enables companies to share data in a more effective and secure way by utilizing an algorithm that “turns data security on its head.” The startup works to enable the partial sharing of data in a safe way, that allows companies to gain insight into their clients without jeopardizing the privacy of those clients. SybilSecurity has also automated auditing, allowing privacy compliance to be achieved without anyone having to see the original data.
Noex is a wearable device that tracks the activity of patients recovering from surgery or injury and provides them and their clinicians with valuable data and feedback to improve recovery. This data includes statistics on range of motion and general activity, which provides the patient with better awareness and motivation, and allows doctors to provide specialized care.
Taplink is all about protecting customer data and passwords. Their solution, called “blind hashing,” eliminates password theft and protects both companies and their customers from data breaches. They even protect passwords at companies, large and small, that have had their password databases stolen.
This startup utilizes satellite imagery to observe the planet, providing real-time insight into farms, forests, and water. Telluslabs aims to use this knowledge to help individuals make better decisions. For example, their beta product, Kernel, provides a daily outlook on the forecast of US corn and soy.
Water Hero aims to prevent plumbing issues and mishaps by providing real-time insight and control of pipes and water in individual homes. The startup’s device, which pairs with a smartphone app, can predict pipe bursts, turn off water flow in the event of a leak, and provides feedback on water conservation.