In this latest Opinion piece, Paul Morgenthaler, Partner at CommerzVentures looks at how new start-ups are competing with, and challenging, the existing insurance culture, which is the route to success in an online era.
Insurance has existed for over 2000 years, emerging in a recognisable form in the 18th Century. Developing in step with society, insurance firms have evolved to reflect the needs of the times they find themselves. Today insurance represents a sizeable and firmly entrenched component of the financial and professional services industry, in 2019 the UK’s insurance industry alone was valued at $220 billion dollars by the Association of British Insurers.
However, as with many long-established legacy institutions, the ability of insurers to produce products that best serve businesses and individuals has been challenged by virtue of the rapid technological advances. This is where Neo Insurers come in, offering fully digitised products to businesses and consumers through online and mobile channels, added benefit of lower operating costs, and responsive app-led customer service in place of time-consuming broker appointments, phone calls or letters.
Although Neo Insurers are a fairly new entrant to the market, startups in this space have gained a strong foothold in the insurance scene in the last five or so years. In 2020 alone insurtech companies raised $3.8 billion from IPOs. Unicorn valuations and attention grabbing funding rounds for Neo Insurance companies such as Bought By Many (recently valued at over $2 billion), Zego, and Getsafe have demonstrated the market confidence in the core proposition of Neo Insurers. However, this success doesn’t just rely on the concept, it’s inherently built into the fabric of the business model through its culture.
A 2020 McKinsey analysis of the top 20 European insurers by measure of gross written premiums (GWPs) showed that the share of insurers with a digital business increased from 1 percent to 70 percent in just five years. It’s clear that incumbent firms are looking to cash in on and emulate the success of Neo Insurers in the digital space. However, this approach is unlikely to be successful without first understanding what makes Neo Insurers just so good at it in the first place.
Scalable, profitable businesses depend upon strong culture and values. Culture shapes every aspect of a business, defining the strategic decisions that drive growth strategies and guiding hundreds of smaller day-to-day activities.
When it comes to culture, startups hold an advantage over incumbent players because they are starting from a completely blank slate. From an investor’s perspective, this ability to curate and shape strategy with a person-centred approach is highly prized.Traditional insurers must attempt to integrate and onboard talent within existing frameworks. Neo Insurers are free to select best hires across multiple disciplines, including core insurance functions such as underwriting and claims, alongside people from the tech and creative fields.
This represents a key advantage over traditional players with single-track workforces, and allows Neo Insurers to embrace rapid organisational learning and knowledge-sharing. A strong culture is essential to bind these people together in understanding of the common goals, and with a Neo Insurer it can be baked in from the offset.
Psychological safety – the freedom to fail
In any workplace it’s vital that team members feel able to contribute and take risks in the knowledge that they won’t be ridiculed or criticised by colleagues. In the HR space this is known as ‘psychological safety’, and it’s one of the key drivers behind business success. True innovation that unlocks value and advances industries is only is possible when people feel able to ask stupid questions, challenge leaders, and bring their full selves to work, and successful Neo Insurers have implemented this as part of core company values.
This collaborative culture is also aided by emulating the relatively flat hierarchies typically found within startups and the tech space. Removing the levels between employees and elevating each employee’s responsibility within an organisation, Neo Insurers are able to foster clear communication and coordination across all areas of the business. This is especially important when developing multi-purpose products to meet a variety of needs, and in the complex insurance space helps to ensure that strategic decision makers are working in close partnership to specialist knowledge and on-ground expertise.
Investing in long-term development
One of the key differentiators for success amongst Neo Insurers is whether they continue to invest in supporting and building this culture in the long-term. As digital first businesses Neo Insurers are well placed to use metrics and analytics tools to track progress and measure success. This data can provide critical insight into employee engagement and overall satisfaction within the business, along with aiding talent retention and attraction via monitoring yield rate of job offers, employee turnover, and the number and quality of applicants.
We’re also seeing an increasing number of Neo Insurers opting to hire a Chief People Officer (CPO). CPOs work to power organisational agility through cultural change and strategic HR, and can provide significant value in terms of maintaining an inclusive workforce which fosters innovation.
Smaller scale Neo Insurers have the ability to outmanoeuvre traditional players, creating optimised employee experiences that bring about greater productivity and creativity in return. As Neo Insurance startups continue to mature and expand into incumbent’s market territory, creating and maintaining a winning culture will remain a key driver of success; offering a lesson to established players they can’t afford to ignore.