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Insurers Must Think Digitized Engagement-First – and Stop Talking About Digital Transformation

Q&A on the biggest innovation challenges and tech trends within insurance, with “InsurTech Queen” and Sheffield Haworth special advisor Sabine VanderLinden.

By Ben Johnson, Managing Director and Global Head of Insurance Sheffield Haworth

Sabine VanderLinden is one of the most well-known and respected InsurTech thought leaders in the world today. With a career that spans 23 years, and a successful track record of working with startups and building venture partnerships, Sabine has brought her unique expertise and insight to Sheffield Haworth as a special advisor to the Insurance practice.

I recently sat down with Sabine to discuss the most urgent technology and innovation challenges facing the industry – including why the pace of innovation may be slowing, and what skills the industry will need in the years ahead.

Q: Why did you become a special advisor at Sheffield Haworth?

A: When you look at the insurance world today, the only way you can grow is by building trusted strategic partnerships. This is why I apply an ecosystem approach to growth, building relationships and venture labs to enable corporates to partner with great ventures or build their own.

I felt that working and engaging with the team at Sheffield Haworth would give my network of ventures access to experts to help them grow. Talent acquisition is a key part of the equation for successful businesses, and this is where Sheffield Haworth excels.

Q: What skills and experiences do you bring to Sheffield Haworth?

A: I guess what I bring is 23 years’ expertise of working in strategic or disruptive roles to bring new thinking into the industry and encourage corporates to think about their operating models in a more componentised way.

Seeing the industry through the lens of the venture tech world – which is what my focus has been over the last five or six years – hopefully allows me to be highly objective in my decision making. That enables me to help large organisations build the business models of tomorrow.

Q: What are the biggest priorities and challenges right now for insurance companies?

A: Insurers most often make their profits from investments rather than underwriting. I’m sure many insurers want to change that and find ways to make an operating profit.

To me, this means being able to anticipate and respond to the needs of emerging customer segments, from gen y and gen z to the elderly. This also covers how people use their digital devices to interact, to engage with, and to buy from insurers.

Firms should think customer-first and then design products to solve those customers’ challenges. Developing a platform, an ecosystem, and APIs then all become a means to serve that end. Before that, insurers need to start thinking about and reinventing their business models to enable them to anticipate and fulfil whatever customer needs emerge in the future.

Then there are the bigger problems, for instance around sustainability or ESG (environmental, social and governance).

Q: What’s driving the current focus on ESG?

A: Regulatory and customer pressure are key drivers. For instance, corporations want to be seen to be doing the right thing, and so do their retail, supply chain or commercial customers. A lot of sustainability-aware consumers will not buy products from companies that don’t have a sustainability lens. Plus, there are the global geo-political requirements from governments and supranational institutions like the European Union and the United Nations.

Q: How are insurers reacting to this challenge?

A: Since the beginning of this year there’s been a lot of talk and a lot of events focused on this topic. I think many insurers are trying to work out what their ESG commitments are and how to fulfil them. They want to know how to incorporate it into their operations or across the value chain.

We can see some forward-thinking insurers such as Swiss Re and Zurich have been working on their sustainability approach for years. Now they’re moving to the next level, looking at how they can help their customers become more ESG-aligned.

Most insurance businesses have to start looking at their ESG metrics to make sure they are aligning their business to consumer sentiment and new regulation. This is a complex challenge and it’s not going to be done in one go. It’s going to be an iterative process for a lot of those organisations, especially because of the complex implications across supply and value chains.

Q: What do you see as the most significant trends coming out of the InsurTech space right now?

A: Last year, InsurTechs received over $7.1bn of investment despite Covid. This year I think the projected total is around $10bn, with almost $6bn already invested in InsurTechs this year to date. As bigger investment rounds are made in the sector this prediction may be surpassed.

Investors are deploying capital because they don’t have a choice after last year’s low; they need to invest in the most promising ventures for their limited partners. High returns are the priority, and so they are betting on the most recognised ventures which they see as safer.

Examples include Bought By Many and Wefox. Bought By Many are now valued at $2bn after their latest $350m investment round from EQT, FTV Capital, Munich Re, and Octopus Ventures to allow the team to launch across 50 states in the USA. Wefox is now valued at $3bn following its latest $650m funding round.

We’re seeing more established ventures become unicorns and fewer new startups entering the sector so far. We may see some consolidation as the younger businesses may find it harder to get funded – at least in the short term. They require more time to prove their business models as the market continues to evolve how it determines winning growth concepts.

That’s why we can see a reduction in the number of new InsurTechs, from around 600 in 2016 to just 20 or so this year. I don’t know how many new businesses we will see emerge in the years ahead. Concepts will still need to be more disruptive in terms of thinking. Investor appetite will remain as long as growth ventures focus on big crazy breakthrough concepts with unpredictable growth paths, even though this is not a very comfortable notion within our risk averse insurance market.

When we assess opportunities from a technology viewpoint, investors are attracted by the smart combination of artificial intelligence, blockchain, cloud and big data to simplify engagement and drive more control and transparency for the customer. Number one on the map will probably be cloud computing because a lot of businesses realised that they would not be able to operate and compete digitally, remotely and globally without a well-structured cloud infrastructure.

Q: There is talk in the industry that the pace of innovation may be starting to slow down. Why is that?

A: A lot of businesses who hadn’t digitised before Covid realised they didn’t have a choice and needed to do it. But I think a lot of people are now very tired because they’ve been working so hard with little to no time off, so there’s a bit of a slowdown in activity. Everyone needs a holiday at some point!

Prior to Covid, insurers went through a lot of what I call ‘innovation theatre’. This includes investing in projects that didn’t have proper metrics – tactical innovation projects that did not deliver the required return. A lot of executives are not prepared to do that anymore.

Some companies have brought innovation back inhouse to see whether they can do it themselves. But the whole point is that innovation needs to be outside-in or open to succeed and motivated by the right incentives. You need to involve others as part of that process because you cannot learn from within. You need that diversity of thought and entrepreneurial mindset the whole way through.

A lot of companies have realised that maybe their strategy was not right, so they are re-evaluating and reshaping their approach. And then a lot of young ventures are not really solution-ready when they meet with corporates. There’s still too large a gap between vision and reality. That creates both innovation fatigue and startup fatigue among corporate players.

Looking at the issue from an InsurTech viewpoint, the current slowdown is likely to be temporary. We are moving to phase three re-evaluation and reinvention of business model strategies, and many startups have also looked at new paths to market.

Q: What advice do you have for InsurTechs who want to work with incumbents?

A: Lots of young ventures are targeting the London Insurance Square Mile because it’s so rich in connections and potential projects. They forget there are other markets with smaller ecosystems that are less competitive where they might be able to gain more traction – Cologne, Dublin, or Zurich, for instance.

Often, startups love to show the full functionality of their technology without considering that maybe the whole thing is not what the buyer wants. That is essentially throwing jellyfish at the wall to see what sticks. You’re never going to win any business or build any relationships that way.

Then it is also about focus and patience. I often say to startups that they should not walk into a meeting without having done their homework. Read articles about your potential partner. Read their annual report. Be clear about what their issues are. In fact, before your first meeting, try to get 20 or 30 minutes with them to talk and understand the issues they’re trying to solve. Then customise your solution to solve those issues.

Also, people buy from teams – highly effective and highly aligned teams. One of the things I tend to remind founding teams is to be balanced in their approach, to be equal in mindset and trust, and have mutually exclusive roles. Have whoever is Head of Product lead the proposition. The CTO should answer any technology questions, and so on. The client sees when there are clashes and teams are not well aligned. And often they will move on to the most aligned players.

Q: How important is it for InsurTech startups to have diversity or sustainability strategies when seeking to work with corporates?

A: It’s a tough question to ask a young and emerging business to develop a sustainability mindset at its earliest stages. But it does need one. If one is building a business from scratch, one also needs to think about Diversity, Equity & Inclusion and make sure to hire highly diverse team members to allow for diversity of thought, particularly when dealing with rapidly changing and diverse consumer markets. If your customer is a consumer, diversity of thought is important because your products must meet the needs of the elderly, millennials, gen z or gen y.

Further, say that you are building a product for an internal user – an underwriter or claims officer. Those people are becoming more and more diverse because corporates are recruiting much more diverse teams too. So, emulating the people you are going to work with by having underwriting experts or claims experts on your team who are potentially also ethnically or gender diverse is more likely to lead to a successful engagement, learning experiences and outcomes.

I can see more and more of the bigger InsurTechs realising that they need to have diverse teams if they want to accelerate their ability to build products and services that resonate with all the users and customer segments they target.

You see it from most of the Big Tech unicorns. Look at Airbnb or Uber. They learned from their mistakes of recruiting team members that lacked balance. When they adjusted to more diverse teams and engagement behaviours, the outcome was much richer and consumers welcomed it.

Q: What advice would you offer insurance incumbents for working with InsurTechs?

A: If they truly want to work with InsurTechs, they need to work with some level of strategy, and define goals, objectives, and an engagement charter to avoid wasting time for anyone. I would recommend they develop a roadmap, then set some key evaluation metrics or KPIs, and then get the right balance between internal and external players to facilitate the execution of the roadmap.

You can’t just start a project and say after two years it’s not working and pull out of it. You need to make a commitment if you are going to yield results from it. As shared in one of my recent highly downloaded presentations, unicorns are built over a 7-to-10-year timeframe… Not two!

If you are truly vested to build a highly successful venture, you must think in terms of a five-year timeframe as a minimum with evaluation milestones set on a 6 monthly and 12 monthly basis.

Q: What do you see as the biggest challenges for insurers around digital transformation?

A: How long have we been talking about digital transformation in insurance? It feels like forever. The main challenge is changing the perspective from focusing on the operations, to starting with a focus on the customer.

When I talk to other influencers within my sphere of influence, they also notice that insurers are still talking about digital transformation when other fast-moving sectors now don’t even talk about it. They talk about mobile or digital-first engagements instead. That’s much more customer-centric because it starts always with customer expectations and value drivers.  

Q: What kinds of skills or talent do you think the insurance industry will need more of in the next few years?

A: I don’t think the roles of tomorrow exist today. The business of insurance is changing so much that new roles are being invented all the time. We’re likely to see more engineering roles and new tech job titles emerging, roles which didn’t exist just ten years ago.

Insurers and HR departments need to be spending some time evaluating their business as well as where it’s going, so that they become more appealing to a future talent pool. From that shift, they should then work with universities to see the best ways to influence and adapt curricula to ensure that incoming professionals have the right skills – and ambition – needed.

For instance, I am seeing a lot more creative roles emerging. If we are going to use AI to do a lot of repetitive activities we have been doing for years, we will need people who are highly creative and strong problem solvers and lateral thinkers to do what the technology cannot do.

This might not be people who are highly mathematical. It might be people with history or social economy and behavioural degrees, or architects, who are great problem solvers. Certainly, creativity and lateral thinking are likely to be the bigger requirements for the industry going forward.

One problem emerging from the pandemic is that a lot of gen z who have had to work from home want to be in offices because they need to interact with their mentors to learn. What we are also seeing right now is that many gen z employees lack emotional intelligence (EI) because they tend to be very comfortable with their mobile devices. This means that HR departments have to identify ways to bring that EI and empathy to younger workers through targeted training and engagement.

Q: What was the most important experience in your career that you learned the most from?

A: When you make the choice to be in the business of building businesses with and for others, you’re able to deal with uncertainty much better, so you create some level of resilience. For me, Covid was a mild annoyance rather than a major disruption, because I had already gradually built up that emotional resilience over years because of the choices I made. I think today everyone needs to build that resilience, that ability to live with uncertainty – because we are never going to see certainty ever again.

About Sabine VanderLinden

An InsurTech Top 50 Influencer with 23 years’ experience in the industry, Sabine is the co-founder and Managing Partner of Alchemy Crew. She is a co-creation lab expert who specialises in venture partnerships and ecosystem building. Sabine is the co-editor and author of The INSURTECH Book and has received four UK awards for her work. In 2015 she launched Startupbootcamp InsurTech and grew it to Europe’s largest InsurTech accelerator, later launching InsurTech Hub in Hartford, Connecticut. She is now working with a rich group of insurers and InsurTechs to bridge the venturing execution gaps in insurance.

Sabine VanderLinden