Ac­cel­er­a­tors pick up speed.

Look­ing to guide in­surtech star­tups in de­vel­op­ing ef­fec­tive solutions for the in­dus­try, in­sur­ance com­pa­nies are par­tic­i­pat­ing as men­tors in, and pro­vid­ing fi­nan­cial sup­port for, a range of tech­nol­ogy ac­cel­er­a­tors world­wide.

Digital Insurance - - CONTENTS - By Danni San­tana

Or­ga­ni­za­tions that sup­port in­surtech star­tups are pop­ping up around the world and in­sur­ers are a big part of their suc­cess.

In­sur­ance cus­tomer ex­pec­ta­tions have sky­rock­eted in re­cent years due to the sim­ple on­line ex­pe­ri­ences pro­vided by or­ga­ni­za­tions in bank­ing and re­tail. As a re­sult, car­ri­ers are look­ing for new part­ners and dig­i­tal tech­nolo­gies to meet this chang­ing de­mand, and are find­ing a range of op­por­tu­ni­ties from an ea­ger in­surtech co­hort. Many in­sur­ers now part­ner with startup ac­cel­er­a­tors, which are quickly be­com­ing a key com­po­nent of the car­rier-tech dis­rup­tor re­la­tion­ship. In­sur­ers cite both the speed of prod­uct de­vel­op­ment in these pro­grams, and the ease of ac­cess to dozens of star­tups in one lo­ca­tion as ma­jor rea­sons be­hind the strat­egy. That pop­u­lar­ity has led to dozens of such or­ga­ni­za­tions pop­ping up in ma­jor cities around the globe. “Ac­cel­er­a­tors have shown ma­tu­rity. They have their pro­grams they un­der­stand how to run, and are not re­ally them­selves in startup mode any­more,” says Mark Bread­ing, part­ner at con­sult­ing firm Strat­egy Meets Ac­tion. “This is a good thing be­cause the whole in­surtech move­ment is ma­tur­ing more as well.”

How it works

Early-stage com­pa­nies, with­out a ro­bust busi­ness model in place, of­ten go through in­cu­ba­tors, while ac­cel­er­a­tors are re­served for in­surtechs a bit fur­ther along in de­vel­op­ment. The ones pop­ping up in in­sur­ance all look to bring some­thing dif­fer­ent to the ta­ble. While all look to make part­ner­ships with car­ri­ers and win ven­ture-cap­i­tal in­vest­ment for par­tic­i­pants, they vary in size, tar­get spe­cific ge­o­graph­i­cal re­gions and at­tract dif­fer­ent lev­els of es­tab­lish­ment. Ideally, com­pa­nies will have some early rev­enue, but must also have some form of prod­uct to showcase. For ex­am­ple, the Des Moines, Iowa, Global In­sur­ance Ac­cel­er­a­tor works with com­pa­nies that are slightly less ma­ture than those at Sun­ny­vale, Calif.'s Plug and Play, which runs sev­eral ac­cel­er­a­tor pro­grams across in­dus­tries and whose par­tic­i­pants of­ten eclipse $100 mil­lion in seed fund­ing be­fore join­ing. In­sur­ers are open to all lev­els, how­ever. Many part­ner with mul­ti­ple ac­cel­er­a­tors and lo­cal in­cu­ba­tors to ac­cess di­verse ideas, Bread­ing says. Ac­cord­ing to a Jan­uary 2018 re­port by CB

In­sights, 30% of in­sur­ers con­sider such pro­grams the most valu­able ex­ter­nal re­source for in­no­va­tion com­pared to ideation con­sul­tants, in­dus­try an­a­lysts and ven­ture cap­i­tal firms. With such an at­ten­tive au­di­ence at the ready, com­pe­ti­tion for en­trance into these pro­grams by the star­tups is in­tense. A fall 2017 mar­ket sur­vey of 10 in­surtech pro­grams by Ce­lent found only 2% of the more than 8,500 startup ap­pli­ca­tions re­ceived in 2017 were ap­proved by com­pa­nies. “In­sur­ance now is one of our most suc­cess­ful pro­grams in Sil­i­con Val­ley. It's also the largest in just a year and a half of ex­is­tence,” says Ali Safavi, global head of in­surtech at Plug and Play. “We are tak­ing an ecosys­tem-build­ing ap­proach to it — mean­ing only 10% of ev­ery­thing we do is the ac­tual in­surtech pro­gram.” In­sur­ers can con­nect with thou­sands of star­tups at any point, Safavi says. Car­ri­ers that come call­ing to Plug and Play typ­i­cally start by cit­ing a gen­eral topic they want to ex­plore, prompt­ing the ac­cel­er­a­tor to send a list of 20 po­ten­tial startup part­ners to the com­pany to eval­u­ate. In the event in­sur­ers know the ex­act prod­uct they are look­ing for, Safavi sug­gests “hav­ing an IT per­son build it.” “Or you can come in with an open mind, not know­ing any­thing, and learn about tech­nolo­gies out­side of your cur­rent or­ga­ni­za­tion,” he says. The pur­pose of Plug and Play's ac­cel­er­a­tor pro­gram is two-fold, it says. First, it al­lows the or­ga­ni­za­tion's ven­ture cap­i­tal arm to find star­tups world­wide en­com­pass­ing the skill sets aligned with in­sur­ance part­ners' in­ter­ests. Sec­ond, in­surtechs in the ecosys­tem ben­e­fit from more fre­quent con­tact with car­ri­ers through­out the pro­gram. One of the big­gest sell­ing points for the ac­cel­er­a­tor is struc­ture. With the help of its in­sur­ance part­ners, Plug and Play be­gins its se­lec­tion process with roughly 2,000 ap­pli­ca­tions. Af­ter two rounds of vet­ting, 55 are short­listed for Se­lec­tion Day, where com­pa­nies pitch in­sur­ers on stage. Of this group, 33 star­tups are se­lected and split into three sub-cat­e­gories: life and health, P&C and gen­eral.

The be­gin­ning

Plug and Play's in­surtech ver­ti­cal launched in the spring of 2016 with four in­dus­try part­ners: USAA, Mu­nich Re, State Farm and Ja­panese in­sur­ance gi­ant Sompo. Mu­nich Re was the most ac­tive, Safavi recalls, due to hav­ing been a mem­ber of Plug and Play's In­ter­net of Things pro­gram since 2015, and hav­ing per­son­nel al­ready based in Sil­i­con Val­ley. Philipp von der Schu­len­burg, leader of ex­ec­u­tive in­no­va­tion strat­egy, Sil­i­con Val­ley, at Mu­nich Re, says he pitched the idea of the in­surtech ver­ti­cal to Safavi two years ago. The long­stand­ing re­la­tion­ship with the rein­surer is one of the rea­sons Plug and Play launched a new ac­cel­er­a­tor in Mu­nich last Novem­ber, ac­cord­ing to the com­pany. “I helped form the di­rec­tion of where the ac­cel­er­a­tor pro­gram should go over time,” says von der Schu­len­burg. “Plug and Play has 14 ac­cel­er­a­tors, and many of them — in­clud­ing mo­bile and IoT — ap­ply to in­sur­ance. The number of ar­eas [in which] com­pa­nies are look­ing to in­no­vate is enor­mous.” Fresh off speak­ing to Plug and Play's fourth batch of star­tups on ori­en­ta­tion day, Mar. 27, von der Schu­len­burg recalls how im­pressed the rein­surer was in how quickly the ac­cel­er­a­tor came to fruition. Mu­nich Re is also an ac­tive par­tic­i­pant in the U.K.-based ac­cel­er­a­tor Star­tup­boot­camp and Is­raeli fin­tech/in­surtech pro­gram SOSA, he adds. The suc­cess of the Sil­i­con Val­ley pro­gram has led to in­sur­ance tak­ing a larger role in Plug and Play's global strat­egy. It has launched in­surtech pro­grams in New York, Tokyo, Beijing and Sin­ga­pore, in ad­di­tion to Mu­nich, over the past six months. The goal is to give star­tups around the world eas­ier ac­cess to lo­cal in­sur­ers.

Mak­ing the case

Sign­ing on with an in­sur­ance ac­cel­er­a­tor is not al­ways an easy sell to car­ri­ers for a va­ri­ety of rea­sons. Some com­pa­nies have yet to for­mal­ize in­no­va­tion strate­gies. Oth­ers would rather in­no­vate in­ter­nally than join a con­sor­tium. Those com­pa­nies that do of­ten cre­ate ded­i­cated roles to find­ing ex­ter­nal part­ner­ships. The Global In­sur­ance Ac­cel­er­a­tor asks for a sub­stan­tial amount of com­mit­ment from car­ri­ers opt­ing to join its group. And men­tor­ship is a big part of the agree­ment, says Brian Heme­sath, man­ag­ing di­rec­tor of the GIA. For in­stance, the ac­cel­er­a­tor ex­pects com­pa­nies out­side of the state of Iowa to fly in three times a year to get in­volved in the 100-day pro­gram. But un­like Plug and Play, the in­sur­ance car­ri­ers par­tic­i­pat­ing in the GIA own the ac­cel­er­a­tor. “We don't ask them to write a check to check a box that says `OK, we are in­no­vat­ing,'” Heme­sath ex­plains. “In­surtech ac­cel­er­a­tors, com­pared to a gen­eral ac­cel­er­a­tor, are less about the me­chan­ics of a startup and more about mak­ing car­rier con­nec­tions and pro­vid­ing a level of in­sur­ance in­dus­try ed­u­ca­tion when nec­es­sary.” The GIA's big­gest sell­ing point to in­surtechs join­ing its ac­cel­er­a­tor is the 60 to 80 in­sur­ance car­ri­ers based in Iowa, in­clud­ing Grin­nell Mu­tual, Amer­i­can Eq­uity and Iowa Farm Bureau. The or­ga­ni­za­tion also pro­vides free hous­ing, and

in­vests $40,000 in pro­gram par­tic­i­pants in re­turn for a 6% stake in the com­pany. “We are not, and do not try to be, Sil­i­con Val­ley nor New York. But once star­tups re­al­ize just how many in­sur­ance com­pa­nies are head­quar­tered in Cen­tral Iowa, our pro­gram be­comes an ob­vi­ous choice,” Heme­sath says. Dur­ing its three-week-long se­lec­tion process, the GIA and its mem­ber part­ners first vet interested star­tups dur­ing in-per­son group meet­ings, and later se­lect 30 com­pa­nies to par­tic­i­pate in video in­ter­views. From this bunch, a co­hort of eight to 10 star­tups is se­lected each year. Re­sults vary, but many find in­sur­ance part­ners. “Com­mu­ni­ca­tion is not limited to the 100 days,” says Heme­sath. “One of our star­tups from the 2017 pro­gram is just start­ing to se­cure pi­lots. Oth­ers se­cure them within the 100 days.” The GIA cur­rently has 14 in­sur­ance car­rier part­ners, and has in­ten­tion­ally taken a slow path to growth on that front for fear of en­dan­ger­ing the value it can pro­vide its mem­bers, the com­pany says. Heme­sath an­tic­i­pates adding up to six more part­ners over the next year. Each will be re­spon­si­ble for ap­point­ing any­where from four to 12 men­tors. Mem­ber or­ga­ni­za­tions that are not di­rect in­vestors in the GIA, such as con­sult­ing firms, are limited to one or two. “What started in 2015 as a 40-per­son men­tor pool has now grown to over 160 hand-rais­ers who con­trib­ute var­i­ous lev­els of time and ex­per­tise each year,” he says, adding that in­vestors are get­ting bet­ter in en­gag­ing with star­tups in re­gards to proofs of con­cepts and di­rect feed­back. This re­sults from ac­cel­er­a­tors' ef­forts in ed­u­cat­ing in­sur­ance com­pa­nies on how star­tups think and work, Heme­sath says. In­surtechs are small, and make de­ci­sions quickly in their fight for sur­vival. At times those de­ci­sions are ir­ra­tional, as they don't have ac­count ex­ec­u­tives or vice pres­i­dents of sales on staff. “Star­tups are also not afraid of fail­ure. They have nine lives, prob­a­bly more, and can pivot more af­ford­ably than global in­sur­ance car­ri­ers,” he says. “The typical cor­po­rate en­vi­ron­ment does not en­cour­age that.”

Re­vi­tal­iz­ing clas­sic hubs

Past ex­pe­ri­ences with main­stay ac­cel­er­a­tors led the likes of The Hart­ford, USAA, Trav­el­ers and health in­surer Cigna to become found­ing mem­bers of a new in­surtech ac­cel­er­a­tor, The Hart­ford In­surtech Hub. Launched in Septem­ber, the pro­gram ad­min­is­tered by U.K.-based Star­tup­boot­camp aims to at­tract and re­tain en­tre­pre­neur­ial tal­ent in the city, with easy ac­cess to larger mar­kets like New York and Bos­ton. Its lo­ca­tion-based sell­ing point is sim­i­lar to GIA's: “[Hart­ford] is the in­sur­ance cap­i­tal of the world,” says Beth Maerz, VP of cus­tomer ex­pe­ri­ence and in­no­va­tion at Trav­el­ers. “Star­tups have a great op­por­tu­nity to gain ac­cess to a broad range of com­pa­nies based here in P&C, health and life. You name it.” The Hart­ford In­surtech Hub's first batch of 11 star­tups un­der­went a demo day on April 18. The co­hort was orig­i­nally in­tro­duced to car­rier part­ners by Star­tup­boot­camp, en­com­pass­ing tech ex­per­tise in ar­eas such as ar­ti­fi­cial in­tel­li­gence, big data, cy­ber­se­cu­rity, the smart home and health. In or­der to be ad­mit­ted into the pro­gram, star­tups must have se­cured seed fund­ing in the area of $150,000 to half a mil­lion dol­lars prior to ap­ply­ing. Each com­pany also re­ceives a $25,000 cash grant upon en­ter­ing the ac­cel­er­a­tor. “One of the ma­jor ben­e­fits of the pro­gram was that it wasn't just peo­ple with in­no­va­tion in their ti­tle that would go to Up­ward Hart­ford [the in­cu­ba­tor's base lo­ca­tion]. We brought peo­ple over from all lines of busi­ness, and also brought the star­tups in on reg­u­lar ba­sis to drive con­ver­sa­tion and en­gage­ment,” says Jill Fran­kle, AVP of strate­gic ven­tures at The Hart­ford. The Hart­ford, along with Trav­el­ers, is an ac­tive par­tic­i­pant in Plug and Play, but also meets star­tups at con­fer­ences and through ven­ture cap­i­tal firms; a world Fran­kle came from be­fore join­ing The Hart­ford in 2017. She now con­sid­ers ac­cel­er­a­tors a key com­po­nent of in­no­va­tion, and an ef­fi­cient way to lis­ten to as many as 30 rapid-fire pitches from com­pa­nies at once. “It makes sense to be in­volved in an ac­cel­er­a­tor based in Sil­i­con Val­ley and on the east coast,” Fran­kle adds. “We feel we have good cov­er­age on star­tups com­ing through.” More than half of the work in­sur­ers face in fos­ter­ing re­la­tion­ships with in­surtechs dur­ing ac­cel­er­a­tor pro­grams is on the ed­u­ca­tional front. Lessons span top­ics such as reg­u­la­tion, the need for star­tups to pivot on busi­ness mod­els to bet­ter

ad­here to com­pany needs and the culture shock they will un­doubt­edly face when work­ing with in­cum­bents for the first time. “The pace of change won't be as fast as you want, due to our reg­u­la­tory en­vi­ron­ment not be­ing as quick,” says Jon-Michael Kowall, leader of property prod­uct de­vel­op­ment & in­no­va­tion at USAA. “Star­tups pump prod­ucts out in weeks, while in­cum­bents can take years. Some­where in the mid­dle is the ideal sweet spot.” For young en­trepreneurs at­tempt­ing to se­cure pi­lots with car­ri­ers, com­mu­ni­ca­tion is also a key skill to hone. USAA has de­ployed dozens of in­ter­nal pi­lots with in­surtechs, and Kowall notes the most suc­cess­ful star­tups find a niche in the mar­ket. Ini­tial con­ver­sa­tions also de­pict what prob­lems in the in­sur­ance value chain the startup will help in­sur­ers solve, with­out get­ting too bogged down in the tech­ni­cal de­tails. “Have a clear mes­sage and find the right com­mu­ni­ca­tion rhythm. There's a fine line be­tween hus­tling and be­ing an­noy­ing,” Kowall sug­gests. In many ways, in­surtech ac­cel­er­a­tors to date have best evolved in their abil­ity to aid star­tups in piv­ot­ing quickly, Maerz says. How­ever, there are a few that “love their own so­lu­tion too much,” and won't adapt – which forces Trav­el­ers and other com­pa­nies to move away. “I tell the team to be mind­ful. The startup so­lu­tion may not be right to­day, but six to eight months from now they may be do­ing some­thing dif­fer­ent,” she adds. Trav­el­ers' over­all strat­egy around startup part­ner­ships is to avoid mak­ing ex­pen­sive two year, $2 mil­lion com­mit­ments to in­surtechs as of­ten as pos­si­ble. In­stead, the car­rier opts for low price point, six week en­gage­ment to proof of con­cept op­por­tu­ni­ties. In ad­di­tion to pi­lots, in­surtechs also stand to re­ceive fund­ing from in­sur­ance ven­ture cap­i­tal arms and the in­vest­ment teams of ac­cel­er­a­tor pro­grams, like Plug and Play Ven­tures. Ac­cord­ing to CB In­sights, $2.3 bil­lion were in­vested in in­surtech star­tups in 2017, span­ning 52 deals. The fig­ure is a 36% in­crease from the $1.7 bil­lion recorded in 2016 by the re­searcher. No­tably, 65% of in­dus­try in­vest­ments in in­surtech where made in com­pa­nies en­abling the in­sur­ance value chain. Less than 10% of to­tal fund­ing flowed into star­tups tar­get­ing full dis­rup­tion of the in­sur­ance sta­tus quo. Gone are the days of star­tups hell-bent on kick­ing out in­cum­bents, with the ex­cep­tion of a few. Due to the in­flux of in­sur­ance dol­lars pumped into in­surtech, and the rate ac­cel­er­a­tors con­tinue to ma­ture, it puts the onus on com­pa­nies to jump on board now be­fore it is too late, says Sabine VanderLinden, CEO of the in­surtech busi­ness at Star­tup­boot­camp. “Com­pa­nies can­not af­ford to rely en­tirely on their own re­search, but should in­stead buy in­ven­tions and in­no­va­tion pro­cesses from oth­ers [star­tups],” she said. “So it is best for the cor­po­rate world, in par­tic­u­lar those in­sur­ers that do not yet have an in­no­va­tion strat­egy in place that in­clude ex­ter­nal play­ers, to start work­ing on these.”

The in­te­gra­tion chal­lenge

With in­sur­ers build­ing up in­ter­nal in­no­va­tion labs and prac­tices to drive trans­for­ma­tion of their com­pa­nies, car­ri­ers have to look for the right way to strike the balance be­tween in­ter­nal de­vel­op­ment and adopt­ing the solutions of the startup in­surtechs they are meet­ing at in­cu­ba­tors and ac­cel­er­a­tors. Sun Life Fi­nan­cial houses a mo­bile test­ing unit within its dig­i­tal health solutions lab in Toronto. Star­tups with which the life car­rier wants to col­lab­o­rate are brought in to test their ca­pa­bil­i­ties with as many as 800 pol­i­cy­hold­ers, ac­cord­ing to Kevin Dougherty, Sun Life's EVP of in­no­va­tion and part­ner­ships. “We run them through a test pe­riod and gauge the re­sponse from plan mem­bers. If it's pos­i­tive, they will find them­selves in our mo­bile of­fer­ings,” he says. Dougherty took over his newly cre­ated role on Jan. 15. He was pre­vi­ously pres­i­dent of the car­rier's Cana­dian busi­ness. Based in Toronto, Sun Life heav­ily re­lies on lo­cal ac­cel­er­a­tors like MaRS to lever­age emerg­ing tech­nolo­gies. In­surtechs such as EQ Care, Akira, Maple and Lift Ses­sion are among the large number of star­tups the com­pany has worked with in re­cent months to bol­ster its mo­bile of­fer­ing. “We have the high­est rated app by plan mem­bers [on Google Play Store and App Store],” Dougherty says. “All of our prod­ucts are avail­able there.” But car­ri­ers tend to be ag­nos­tic as to the source of in­no­va­tion, as part­ner­ships with in­surtech star­tups, in­ter­nal in­no­va­tion labs and ven­ture cap­i­tal funds are proven main­stays through­out the in­dus­try, says Kim Gar­land, SVP of com­mer­cial auto at State Auto and man­ag­ing di­rec­tor of State Auto Labs. The Columbus, Ohio-based com­pany launched its own in­no­va­tion lab in 2016 be­fore cre­at­ing a $25 mil­lion in­vest­ment fund in the fall of 2017, in part­ner­ship with Rev1 Ven­tures. “Ven­ture cap­i­tal fund­ing is forc­ing changes to the sta­tus quo,” says Gar­land. “Money flow­ing in to make in­sur­ance pro­cesses cheaper, faster and bet­ter has in­sur­ers think­ing `we should act this year, in­stead of three years from now.'” At State Auto Labs, Gar­land's role is to cap­ture all dis­rup­tions and in­no­va­tions that will im­pact the in­dus­try. And while the lab cov­ers many of the hot-but­ton top­ics per­me­at­ing in­sur­ance, espe­cially with re­spect to telem­at­ics and con­nected sen­sors, find­ing the right balance be­tween in­ter­nal and ex­ter­nal in­no­va­tion is a tricky con­cept, he says. “We rec­og­nize that in­no­va­tion will hap­pen in­side and out­side of in­sur­ance com­pa­nies, Gar­land notes. “And if we ig­nore the in­no­va­tion go­ing on out­side of the four walls of State Auto that would be a big miss.” State Auto felt it was best to have two roles within one per­son to get iden­ti­fied tech­nolo­gies into the core busi­ness faster, Gar­land added. State Auto Labs it­self is a skinny or­ga­ni­za­tion, but has con­nec­tion points to all ar­eas of the core busi­ness. “We de­cided there will be more change and dis­rup­tion in the next five to 10 years than in the last 50 years com­bined,” he says. “In­sur­ance com­pa­nies that deal with it best will be win­ners. Those who don't will likely be losers.”

In­sur­ers and star­tups min­gle at Plug and Play's in­surtech expo. The in­sur­ance-spe­cific pro­gram is one of the ac­cel­er­a­tor's largest.

Ali Safavi of Plug and Play with Shobana Sankaran, VP of in­sur­ance for Nauto, a telem­at­ics startup from the first in­sur­ance pro­gram.

Brian Heme­sath, man­ag­ing di­rec­tor of the Global In­sur­ance Ac­cel­er­a­tor

Kevin Dougherty, EVP of in­no­va­tion and part­ner­ships at Sun Life Fi­nan­cial

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