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Georgie Simister and Hayley Budd uncover what it really takes to launch products that last, what defines real innovation versus passing trends, and offer practical advice for those navigating innovation in insurance.
Creators and Guests
What is Insurance Technology: Fact or Fiction??
Host Georgie Simister speaks with key insurance industry figures to separate fact from fiction in a world of insurance, debunk industry myths and explore the game-changing innovations shaping its future.
Get in touch to suggest our next guest: https://artificial.io/contact/
Did you know around 20% of insurtechs fail within their first year? Insurtech funding has halved quarter over quarter falling to the lowest since 2018 according to the Gallagher e report. With investments slowing down, many are questioning the future of insurance innovation. Welcome to Fact or Fiction with Artificial hosted by me, Georgie Simister. This is the podcast that separates fact from fiction in a world of insurance to help debunk industry myths, exploring game changing innovation that's helped shaping the future of insurance.
Georgie:Who better to talk to about this than Hayley Budd, innovation class lead Apollo iBot. Hayley works with a variety of insurtechs and MGAs. And in this episode, we will discuss building sustainable partnerships, truly obsessing over the customer's wants to solve the problem and that it's hard work, but it's here to stay. So Hayley, thank you so much for joining us today. And for those of you who haven't met Hayley before or bumped into her at conferences, she's always dressed in fantastic colors.
Georgie:And today she has outdone herself in a fantastic cobalt blue co ord. So thank you for coming and being so colourful as always.
Hayley:Thank you. Thank you for having me in this super swanky studio.
Georgie:We don't do anything in halves, at Artificial.
Hayley:No, no, certainly not.
Georgie:So Hayley, why do you think twenty percent of insurtechs fail within the first year?
Hayley:Okay, so my starting point is I don't think that twenty percent is a high failure rate. That's pretty low. That means that eighty percent are going to succeed in their first year which is pretty good. That said, and I'm not sure on the data behind this, the figures are a bit shaky, but I think the failure rate increases to around sixty percent to eighty percent within three years, which is obviously a lot higher. Now, I assume failure in the context of that question means that the insurtech, the company just isn't around anymore, they don't exist, they went out of business, they went bust or whatever.
Hayley:And there are several challenges here with insurtech, new companies generally, but with product innovation in insurance, you can't just launch a product and then scale it like a SaaS product. Pesky regulation is going to get in the way of that, Just the way insurance works makes it a lot more difficult. Customer acquisition costs are very high in insurance. Not many are going to crack distribution even if they have great tech and sometimes, a lot of times actually, people have a really great idea but it's basically a great idea looking for a problem rather than actually solving a problem for someone. I do want to touch on the word failure though.
Hayley:When you enter an exploratory phase of developing a product, there shouldn't be a narrative on failure, it's about growth and learnings. Wrong timing isn't necessarily failure either. If your metric is, are you going to launch or not launch? Then I think you've set your goals wrong from the outset. If you say, let's explore something and you don't launch because the exploration led you to deciding it wasn't worth it, it's not the right product, it's not the right time.
Hayley:You haven't failed because launching wasn't your aim, your aim was to learn enough to be able to make a decision so I think people maybe need to change their KPIs on failure. There are endless opportunities for new products in insurance that you could just launch, like you could be quite slapdash and just get them out there, whether it be AI, IP, carbon credits, get them out there, lovely, job done. What's really hard is launching a product that is going to be successful but the measure of success in insurance is writing something that is sustainable and that is really the key to what we're doing here. So for me, if an InsurTech shuts down because the market isn't right, that's not necessarily a bad thing. That's smart business.
Hayley:If they didn't shut down and they carried on burning through cash, burning through capacity, does that make them successful? Why is income always the measure of success? It should be sustainable, profitable business. Growing at all costs is not success in this industry, I don't believe. Insurance, it's not a volume play, it's a quality play.
Hayley:Now I am sure that I am probably diminishing my pipeline with every minute of this podcast and we have literally only got started on the first question but I hope there's at least one startup out there who's going to listen to this and think like yes, I want to grow a sustainable business and I want to do it with Hailiapollo rather than I want to make a load of money in one year at all costs and basically run off into the sunset and then go and find another industry to make some more money off of. Why do people think it's destined to fail? I feel like people love gossip and they love failure, like when something doesn't succeed, it's something juicy to talk about but then I think it's also used as a very easy reason as to why companies aren't doing innovation themselves and why they're not launching new products. It's quite hard to be successful here, like no doubt about that. There are legitimate hurdles to innovation, however, I think just pointing out the reasons of why previous things have failed as to why you don't do it, is like way easier than having a go yourself.
Georgie:Well, let's hope Hayley's pipeline survives. So what are the common challenges you see or you have experienced in finding the right InsureTech partner?
Hayley:It's a bit like dating. There is someone for everyone eventually but you're generally going to have to go on a lot of bad dates before you find someone you like and they like you back basically. Many insurtechs, I think when they come into this space looking for an insurance partner or maybe the other way around, they're still on a bit of a journey in terms of developing their product, their team, their expertise. What's the thing that people say? They're driving on the road while they're building it, what's happening here.
Hayley:They've got the bones of something good. So you may get a misalignment of expectations on things like how advanced their tech is, like you may have got like a super swishy demo and it looks great, but they're still building it so it's not actually ready to go. They may not have ever worked in insurance before, if they have, they've only ever worked in The US and the Lloyd's market is completely alien to them. There is a very steep learning curve there, so you need to find someone who's going to be aligned to you and your aims and kind of willing to go on that journey with you. I think you also need to have the right cultural fit as well when you're looking for a partner.
Hayley:Do you match up in terms of company values or what you're trying to achieve? Are you aligned or how open are you going to be? How much are you going to share with each other? Do they want to grow a sustainable business over the long term or are they just looking for someone like anyone to launch their product or get cover holder sponsorship through Lloyd's with? Finding new, new, genuinely new products, as I have found, is really hard.
Hayley:It's a tough gig, it sounds quite pessimistic but you can't beat that feeling when you find the one and you're able to launch that into the market with the right partner.
Georgie:So do you think that insurtech is just a fad?
Hayley:If we break down the word insurtech, I feel like this is quite a nerdy, boring answer but insurtech means insurance technology, then the definition of a fad is an intense and widely shared enthusiasm for something, especially one that is short lived, a craze. So do I think insurance technology is a fad? No, of course not. We have been using technology and insurance for decades. I know people don't think we have but we have.
Georgie:It's a slow process.
Hayley:Yeah, it takes us a while. Then the word InsureTech and everything that has come out of that has been around for more than ten years. I think ITC Vegas, this is going to be the tenth year this year, so it's been around for longer than that. So I think a fad would be over quite a lot quicker.
Hayley:I don't think it's going anywhere and I think it's going to be crucial to the future of our industry. A different question, do I think there is hype in Insurtech? Absolutely. Now, we have been through blockchain hype, we have been through IoT hype and you better believe that I've been involved in all of these along the way and thought that they were all the best thing and we should all be doing all of those things at once. And we are now very much in the AI hype, probably top of the hype cycle with that one.
Hayley:And all of these things promise to completely revolutionise insurance with mixed results. Undoubtedly, these things have or will have an impact, but you can definitely see where trends emerge and everyone piles in on that. And I mean, Georgie, you see it as much as I do at Insurtech conferences. A few years ago, well maybe seven, eight years ago now, everyone was blockchain enabled and now they're all AI enabled and I'm saying that to a company called Artificial but you do get a bit of fatigue from that but that doesn't mean that there is an underlying value to be found in those things because there certainly is.
Georgie:And what's been your favourite era then in short tech?
Hayley:What's your favorite Britney era? My favorite era of insurtech, I really love parametric and I think it's going to be the answer to everything. Mine's AI. Obviously.
Georgie:Shameless plug, but yeah. And I saw on your LinkedIn your twenty twenty five predictions that more carriers and underwriters will pick up the innovation business. So I wanted to dig a bit more into your prediction.
Hayley:So I think the prediction came from the fact that insurance works in cycles, right? You have hard markets, you have soft markets, we're coming out of a hard market going into softer market where it's more difficult to pick up rate, there's more capacity around basically, so it's harder to come onto new business or to protect the business that you write. For innovation products that have maybe already launched, like somebody's done the hard yards in getting them out there, it could be seen as like an easy way of being able to grow your top line income by starting to where you would have previously said no to innovation business, they want to have a piece of that basically. And Insurtechs are going to say, yes please, thank you very much, because trying to find capacity, getting enough capacity is difficult. So that is where that came from.
Georgie:Okay, fine, that makes sense. And then so how do you know when an innovative new venture is going to last?
Hayley:So you don't really, definitely not at the start, not until something really starts scaling and that's part of the fun with innovation, right? You don't really know. There are times that I've got it right and there are equally times that I've got it wrong. I wish I had a crystal ball that I could just gaze into immediately, look at something and know whether it's going to be successful or not alas, that is not the case. But you do start to get a feel for things with time and experience.
Hayley:There is a commonality with things that do succeed which you can reflect on and then try and take those learnings into choosing the next one. Things like product market fit, do they have it? Experience of the founders or the team, is the tech there, is it fit for purpose, have they built a good foundation of things like operations and processes and reporting? Sometimes it's just timing, I've seen plenty of things and there is a hill that I will die on, on a product that I absolutely love that didn't sell and I'm convinced it was just timing and it will have its time. And I have seen that with other examples as well, plenty of great ideas that haven't succeeded but a few years later they have come back around and then they have taken off, just because maybe the problem has got bigger, macroeconomic events, things happen, budgets change, that all of a sudden something that wasn't successful can become successful.
Georgie:Okay, and then so what is the level of technology sophistication that you're seeing with the new products that are entering the market? Is it that the ones that you're seeing are fully tech enabled or are you seeing that there's more of a lean towards a new product? Where's the balance?
Hayley:I would say it is a real blend and we see both. We see start ups who have really great technology that they would bring to us and then they're kind of like it's like presented on a platter and they're like and how will you use it? So they don't necessarily have a product but they know that they want to be an MGA, for example, so they've got tech and they've got ambitions but the product isn't there. And then you have others that come to us who have got a great product idea or a product but they don't have tech. I would say or I wouldn't say, sorry, that everybody has a technology edge necessarily, I would say that technology is table stakes in this game.
Hayley:You know, we're talking about Insurtech so if you don't have the tech, you just got insurance. There is a lot of tech that is probably much of a muchness but it is then how it is customised and how it is applied to the product that you are then supporting, that it becomes important and that's what's interesting to me. I have particular interest in parametric risk, as I have alluded to, but also usage based insurance and embedded solutions. Those three things in particular, those ways of structuring risk need really great tech for them to run smoothly to provide the real benefit to the customer, because if you have clunky tech that doesn't sit well behind those products, you're just not delivering the full benefit of what could be available to you.
Georgie:Okay, and then so you've helped launch some fantastic products in the market, so how do you decide who to work with? Is it based on metrics or is it based on instinct?
Hayley:I would say like most things, it's definitely a blend of art and science, I would say. We would gather all of the data points that we can, like are they solving for a true client need? Do they have a distribution strategy? Do they have technology?
Hayley:Do they have data? Are they well funded? Do they align with our values? There's kind of like all these kind of not just tick boxes, but there are things that we will use to evaluate every opportunity that we come in. But at some point, there is definitely an element of gut feel or intuition, whatever you want to call it, that you are going to need to lean into.
Hayley:That again probably comes with experience and just having done this stuff before and I think that's just where you can't quite put your finger on it as to why you feel something will or will not work out, like you can have all of the data but at the end of the day, we work in a people industry, we are humans working with humans so that is definitely going to play a role in decision making and I do not believe anybody who says that it doesn't. I would caveat and say this isn't about just backing people you like, like coming out of this and being like, Hayley just gives capacity to people she likes, it's not that. I'm saying you can gather your information, can gather all of the data points, you can do all of the work, but at some point you have to make a decision and you're going to have to take a leap, it's innovation. There isn't a certainty, you're never going to be 100% certain on whether something is going work out or not, But sometimes your intuition, that gut feel, will tell you whether something is a good idea or a bad idea.
Hayley:So it's definitely both instinct and metrics.
Georgie:I mean, you've got the experience to back up your answer, so I think you're absolutely right.
Georgie:What do you think are the barriers for innovative new products entering the market then?
Hayley:Quite a few and some legitimate and some I would say not.
Hayley:So you have to find carriers who are willing to back innovation for starters and also brokers, it's brokers that play into this as well. It's quite hard launching a new product that is going to be successful, it's a lot of work. I would say it's definitely an endurance sport, it's been said before innovation isn't all fun and glory, like I know people think, you know, we're all just sat around in jeans playing ping pong and having a wonderful time.
Georgie:I'm wearing jeans.
Hayley:There's no ping pong table here though, I have noticed.
Hayley:There is a grind to it and there's boring stuff that happens in the background. I mean there's no guarantees in life but there are certainly no guarantees with innovation, so carriers and brokers are both running the risk that they're going to put a lot of work into shaping a product, getting all the regulatory stuff done, the pricing, all of that and launch it and it may never make any money, even say the product may not launch so you could work on something for nine months and it doesn't launch or you could launch it and then it doesn't sell anything. So I think a lot of people get stuck there in saying that they want some form of guarantee, they want a return on their investment and they want it to be guaranteed, but you're not going to get that guarantee. So that is on the carrier side and on the broker side as to the reasons that they wouldn't jump into it.
Hayley:And I think next, the level of regulation can be underestimated and it takes people who have not worked in this industry or have worked elsewhere but not at Lloyd's, it can take them by surprise just how many things that they need to consider, especially if you're selling to consumers or you're selling to smaller businesses. The other challenge, I would say, for start ups is not fully grasping the economics of insurance and the sometimes thin margins that we can be working with. Like I've seen pricing where they kind of allow a 10% profit for underwriters at the end of everything and that's just not how it works. We do require margin on top of expected losses and we have expenses too, and we have to take the cost of capital into consideration and provide a good return. Now, the VC model has been good at getting things off the ground and has given funding to a lot of MGAs, but there is often a lack of alignment of interest between a VC who wants to grow really quickly to get their investment back versus insurers who want to tread a lot more carefully because they have a lot more to lose than just an initial outlay of cost.
Georgie:I think that is one of the common challenges that you see, it's, you know, you've got to have that top line growth from the VCs and then it puts the pressure on writing a profitable book. And that is literally, I think, the the the balance between a successful Insurtech is getting that right. Yeah. And it's how do you do you toy the line to start with to get your investment going, get that return, and then what's the cost by not doing it, you know, do you lose your capacity on the end of it? Yeah, I always find that very interesting point.
Hayley:Yeah, and I mean, because the alternative is like others would choose to bootstrap but the problem is there to the earlier chat around like how long it can sometimes take to launch these things because there's things that crop up that you don't envision. I think people are like, oh yeah, I can launch an insurance product in a month, I can bootstrap this and I'll start getting commissions and then they're nine months down the line and they're like, oh, I've run out of cash. So yeah, it's tricky.
Georgie:So what are the practical strategies that you would recommend for new InsureTex that are aiming to get capacity and launch a new product?
Hayley:I will keep saying this but you really, really need to be solving for a problem and you need to be solving for it in a way that an insurer maybe can't just do themselves. One of the barriers is a worry that something isn't going to scale, so is it worth the effort for the insurers? Insurtechs and technology companies are really good at this, so I would expect that insure techs could kind of like take that technology bit and do the same, but they need to obsess about their customer, obsess about them and really build something that they want and they're going to set budget aside for and then they're actually going to buy it. Like, you know, it sounds obvious, but so many people miss that. You then need to come up with a proper distribution strategy to be able to sell the thing.
Hayley:Be really thoughtful here. Who are you selling to? What channels are it through? How are you going to do it? How are going to access them?
Hayley:What brokers are you going to use? Who have you spoken to? Who can you speak to? How have you validated the need? And if you haven't, how are you going to?
Hayley:I would say please, please do not just rinse and repeat the total addressable market slide that I see in more or less every deck that comes across my desk. It feels like they've just gone through and been like, okay, what are the things I need to put in a deck? Distribution. Okay, I'll put this slide in there. Tick.
Hayley:Don't treat it as a tick box. Really, really think about it because your distribution is going to be key and more and more insurers are going to be drilling down into exactly how you are going to access those customers and the problem that you are solving. With that run over, the next thing is bring us something we don't have. We're looking for this holy trinity of product tech data and it doesn't need to be lost experience data but new sources of data that are going to help us look at risk differently. It can be data that hasn't been used for insurance purposes before and we have seen a lot of success with those kinds of data sources previously.
Hayley:And then the last thing I will say is be super focused, don't try and be all things to everyone. It's really tempting when you're early stage, when you get lots of people, you're talking to lots of people and everybody gives you loads of suggestions, but pick one idea, focus on it, execute it, move on to the next, don't try and do a 100 things at once or over commit. Be really clear on your value proposition. You need to be flexible, but not to the point where you're flip flopping all over the place and spreading yourself too thin. So is again, there's kind of like a fine line to tread there on being really purposeful in what you're doing, but not so rigid that you've been told that you're not solving a customer problem but you're just going to doggedly go and do it anyway.
Georgie:Do you find that there is a lot of iterations on the products?
Hayley:Yes, yes, there is. So you'll get something to market and that's kind of like the easy thing. And you should be iterating because no one is going to get it just right the first time.
Georgie:And how do they get feedback on how to iterate?
Hayley:So they will get feedback from clients in terms of how they sell, what the policy form looks like. You can get feedback just from brokers by people not buying it. When you're trying to sell it, people may say it's too expensive, the coverage is this, that, whatever. And you'll also get feedback from insurers as well. If you start seeing adverse losses coming through early days, then you've obviously got that pick wrong as well.
Hayley:So the feedback will be coming from all directions.
Georgie:Right, okay.
Georgie:So it's just being quick enough to respond that you can keep going.
Hayley:Yes.
Georgie:We kind of touched on this actually in your first or second answer, but through your experience, how do both parties make an innovation partnership successful? It sounds quite obvious, but you need to treat it like a partnership. This is Hayley's checklist, by the way.
Hayley:The clue's in the word. Make it a partnership, don't make it transactional. Both parties need to come to the table with an open and transparent mindset where they want to learn from each other and they want to grow something that is going to be a sustainable business together over the long term. I've said it twice. You need to understand that you're both bringing value to the table and you both should.
Hayley:It's not going to be one-sided. Now for insurers, that means you're going to need to play things back. Rather than being this black box for data where people send things in and you churn out a yes or a no, you need to take the time to explain what you are seeing, why you are making certain decisions in a certain way so that everybody is learning. And for insurers not hiding behind this veil of needing developed loss data, we need to be flexible and dynamic here in the partnership. And then for InsurTechs, they need to be willing to share too.
Hayley:Now both parties are going to be sharing IP in the partnership, it's not going to be one-sided and I know that sometimes that is a concern there that they don't want to share because they're worried that the big bad insurer will just run off with it. Not the case, certainly not what we do at Apollo. We're looking to work with Insurtechs for a reason and it's because of what they're bringing and we want to work with them over the long term. You touched on it in the previous question, but a lot of new products are going to have teething problems, so when you bring it to the market, that's quite hard, it's like year one, but the next year is even harder. I was quite naive coming into this, I just thought I'd be launching products left, right and centre and then putting my feet up.
Hayley:But actually the hard work really starts when something goes to market, so you really need to take the time to iron out the wrinkles and with InsureTechs, you don't want to be losing your capacity partner after year one before you've even really got to the good stuff of launching something that's truly scalable because of an unwillingness to be open and honest about what's going on. We expect problems, we expect teething problems and that's okay. You just need to be open about what they are so that you can work through those issues together. Generally, partnerships, they share things and in innovation that is no different. So we've reached the part of the podcast which I like to call artificial insights.
Georgie:So this is where I'm going to ask Hayley a question. And so the question I've got for Hayley today is about her thought process. So it's clear that you feel innovation and InsurTechs aren't going away. So what do you think will go away instead?
Hayley:I was going to make a jokey answer and be like, I'm hoping the cold that I've had for the last week and a half. I won't know, well I just did, but I think I'm going to bring it back to product again, specifically motor or auto if you're in The US. I think flat rate premiums for all drivers will be going away. So instead we're going to have usage based insurance, so pay per mile type products, or we're going have behaviour based insurance where insurance is going to be based on how safely you drive using telematics and AI. Now, that isn't necessarily going to make insurance cheaper for people, it could make it more expensive.
Hayley:So if you're a heavy user of a vehicle, or you're not a brilliant driver, insurance could get more expensive, whether that's personal use or commercial. So that's what I think is going away flat rate premiums.
Georgie:I think that's a fantastic answer. And that was also my first job in insurance.
Hayley:What, a bad driver?
Georgie:I was a bad driver.
Georgie:Hayley, thank you so much for joining us. You have been a fantastic first guest. So to those listening, please get in touch via the link in the show notes or drop us a message about what practical guides you would like to hear from the podcast. And thank you again for listening.