Disrupting the Market

Insurance is no longer the domain of just a few choice investors: the competition is fierce, the valuations high, and the multiples, in some cases, are eye-watering. But how is disruption affecting an industry so traditionally change-resistant, and what does a fund need to know before taking the investment plunge? In the second of two exclusive articles for La Fosse, we interviewed one of the industry’s most distinguished tech heavyweights, Kevin Findlay, to find out. See the first article here.

Kevin Findlay is a product and business-focused CTO, with over 20 years of experience in technology and strategy. He spent 9 years at PwC, advising Venture Capital and Private Equity on the TMT sectors, before moving to Hosted Analysis, a data analytics focused strategy consultancy, where his clients included rightmove, Channel 4, Vodafone and Pricewaterhouse Coopers. He was engaged in the transformational arena as the Digital Transformation and E-Commerce Technology Leader at Waitrose before moving into the Insurance industry as the CTO/CIO at Complete Cover Group. He is currently engaged as the Interim CTO at Vitruvian-backed CFC Underwriting.

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Where disruption has already gained ground

Consumer-focused start-ups and small mainline businesses with good consumer technologies have historically found it easier to disrupt brokers by giving customers easier ways of interacting with insurance.

Disruptthemeerkat.com
Some of the first examples of disruption in the industry are price comparison engines like Comparethemarket and Confused.com. Such sites have become most people’s first port of call when looking for consumer-focused insurance in the UK – though less so in the US, where insurance is regulated on a state by state basis. In turn, UK price-comparison-engines themselves are being disrupted by the advent of mobile technology and mobile-focused direct insurance sales.

Insurance en masse
Some start-ups, such as ‘Bought By Many‘, have also begun formulating social-grouping or ‘bulk-buy’ insurance schemes to drive down prices. These work by identifying groups of people with specific insurance needs – like those with medical conditions wishing to buy travel insurance – then negotiating deals and discounts en masse with established insurers.

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The brakes on disruption​

In-house legacy systems
Some long-established insurance companies have extensive legacy software systems and teams, slowing down innovation and reducing agility: many therefore suffer from historic problems delivering IT.

These companies are not unaware of the competitive threats, and some are experimenting with sandbox and R&D projects. However, they do have problems with speed to market and do not necessarily have the capability to take advantage of in-house software development life cycles.

Outsourced Legacy Systems
The UK insurance market is dominated by several legacy software vendors – in some cases dating from the 1970s. These companies maintain their position due to their position connecting brokers with insurers. Brokers bind insurance policies and compare prices on these systems which provide EDI connectivity back to the insurers. It can take 3-6 months for new products to become live – CFC Underwriting is an example of a company which manages to operate these processes at speed.

These legacy systems are an obvious candidate for transferral onto the distributed ledger or ‘blockchain’ model. However, the real challenge would be registering enough brokers and insurers into the system to make it both commercially viable and useful.

Key considerations for Investors

1. Digital transformation can face both ways as a value-creation tool
Digitisation and technology transformation are one of the primary ways investors can create value in insurance. In the consumer sphere, this means opportunities to keep costs down and improve sales figures by using more efficient technology. At the back-office end of things, investors can utilise data and analytics to optimise cost-revenue streams.

2. Tread carefully in the consumer mid-market
Investors may struggle to make solid ROI in the consumer mid-market, which is dominated by mega-providers like Aviva. The breadth and scale of Aviva’s operations enable very high-quality data and analytics analysis so that any entrant in the mid-market will find it virtually impossible to compete, particularly in the volume areas like motor and home.

3. There is opportunity for disruption in commercial-line insurance
There are high-growth opportunities in the enterprise insurance market, which is not as dominated by high-volume players.

4. Insuretech startups have yet to prove their worth by Private Equity’s standards
Insuretech’s innovative ideas and interesting business models attracted £200 million of Venture Capital investment in the UK in the first half of 2017 alone. Insuretech may be poised to inspire future investment, but they have yet to sufficiently prove their worth to attract PE for now.

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Kevin Findlay | LinkedIn