Christian Gnam
Christian Gnam
Managing Director
InsurTech Hub Munich

Data Ownership and Customer Interaction Are Key to Be Relevant in the Ecosystem

~ 10 minutes

InsurTech Hub Munich (ITHM) is a non-profit innovation platform uniting international insurance and cross-industry partners, startups, investors, academia, and governmental entities in their quest to make the industry future-proof. It is ITHM´s mission to foster the advancement of innovation and create value for our partners. Christian Gnam, as Managing Director of the Hub, has the leading role to orchestrate this important mission.

“In terms of impact, startups are pushing the incumbents to do more and more in the industry, to be more advanced, open, and integrate more technologies, which is a positive impact."

In regard to post-IPO results and the exponential growth of these startups, do you consider there’s much hype in Insurtechs, rather than real impact in the market?

I believe there is certainly a strong impact coming from Insurtechs. They do things differently. Technology-wise they are quite advanced, work with innovative cloud-based solutions right away, and are highly automated. Also looking at their combined ratios, many of them are doing quite well. In terms of impact, they are pushing the incumbents to be more advanced, open, and integrate innovative and digital technologies.

The insurance business is a long-term business. It takes quite some time, effort, and investment to acquire and retain customers. On this point, Insurtechs did not always meet the expectations. They use cutting-edge technologies; however, they do not have a massive number of clients yet, compared to established players.

FinTechs - such as neobanks- managed to gain a significant amount of customers in a fairly short time. This has mainly to do with the type of product or solution that they are offering. In general, when you look at Fintech solutions, there is often a clear immediate financial benefit or value for the customer. In other words, customers have an incentive to get the products, for instance, to open a digital bank or brokerage account. When it comes to insurance it´s another story, people normally do not shop for insurance. They consider insurance as a rather reactive product.

Do you think Europe will reduce the gap with the US market in the following years?

We have to consider two aspects here. First, related to technology, the quality of European startups is very high. They can easily compete with US startups. In this aspect, the gap will probably get closer.

Second, when it comes to market size, the EU is a very scattered market. Most startups must first reach a significant size in their home country before they can expand to other European markets. For instance, wefox decided to grow first in Germany for several years and has now decided to enter other countries. Alan, a French insurance unicorn, is so far only active in the French market. Therefore, contrary in the US, startups in Europe are facing more different regulatory and political environment and language barriers.

“Insurance companies should also invest in earlier stage startups and be more open for disruptive new ideas, to think more possibilities out -of- the- box."

How do you see the evolution of the volumes of insurers’ investments in startups (both in and out of the Insurance industry) in comparison to the last 5 years and how do you foresee it will be from here to the next 5 years?

So far, the majority of insurers have only been investing in late-stage startups, which is mainly because most of those insurers have a broader investment focus. They do not invest in those companies just for the financial return, but because they want strategic partnerships with the startups so that they can learn from them.

Insurance companies are looking for startups that can complement their business and that are already established in the market - thus incremental innovation. From my perspective, they should also invest in earlier-stage startups and be more open to new and more disruptive/out-of-the-box ideas.
There is also an interest from insurers to look for synergies with startups coming from other industries such as the banking industry or mobility. The motive behind that is to complement their offerings and to get a foot into this industry. Most important, this is also a way to ensure that they can still have access to the customer, instead of another industry taking it away.

Does your company consider itself an active player when it comes to investment and partnerships with startups?

For the time being, our main focus is to enable collaboration between our members and partner companies, especially between the insurers and all startups.

Tech Giants and Big Corporations are very much into Distribution and Commercial this year too. Why do you think insurance companies and new entrants such as these companies move in the same direction? Are they competing for leading these markets or do you feel it is more of a collaboration scenario?

Insurance products don’t sell themselves, so the distribution channels and the access to the customer are key for both the incumbents and the Insurtechs. You can have the best product with the most appealing user journey. If you do not have the right distribution strategy, no one will buy your product. Mostly, customers do not want to do a lot of research by comparing 20-30 offerings nor to look at all those details of our insurance contract, instead, they take what´s convenient and seems to be fair for them. That is why a lot of investment is going into this field.
And yes, of course, they are competing with other players in this market. But also, other industry players like Tesla in the automotive industry may have better access to customers in a certain field. So, the insurance industry must be aware of that, and they must ensure access to the customers.

What kind of value do you see a Tech Giant can bring to a young Insurtech?

The most important resource is data. There is a mandatory need for a client base, even if it's not coming from the insurance field but the channels. Insurance always has something to do with behavioral economics as well. Seeing how people react to the risk analysis is critical for understanding the customer. Tech Giants often have plenty of in-depth data or real-time data that some insurance companies do not have (yet). So, it can be interesting for startups to have access to this data and to play around with their models and adapt their algorithms.

Another way that Tech Giants can add value is by bringing together startups with insurance companies. For startups, there are sometimes technical hurdles to overcome, and they do not have the capacity to do the whole implementation. Therefore, Tech Giants can be partners here, since they know how to implement solutions to a big corporate standard. When there is a specific demand from the clients of Tech Giants, they can bridge between their clients and startups. In relation to data security, Tech Giants have already covered the issue of data security with their legal departments and technical partners.

Why do you think Tech Giants are not yet investing in the European Region, especially in 2021 when Europe stands out from the rest of the regions?

Well, I think it is for a couple of reasons. First, I think that among VCs there is always a strong preference to invest first in the market they know best in terms of market potential and regulatory requirements - which is normally their home market.

Second, it is about scalability. The Asian and American markets are big markets, and they probably see more potential for the startups to grow faster than in Europe - despite the technology being equally good. For instance, looking at Insurtechs in China. They have a much higher growth potential in their home market as compared to a startup in a European country. Thus, they can acquire a huge number of customers in a short time.

“For insurance, health is a very strong starting point since customers have the first contact with insurers in general and thus insurers have quite a lot of interaction with customers.”

We have seen 3 main roles in the ecosystem: owner, enabler, and participant. On one hand, we see that insurers are participating in different ecosystems actively as participant partners, but sometimes they are intending to build and own their ecosystem. What do you think are the roles that insurers are playing in different ecosystems?

I believe insurers could potentially cover any of these three roles. However, it will be more difficult to take on the role of ecosystem owners, as there is strong competition to be the main contact with the customers and orchestrate a platform. And it also depends on the business line. For insurance, health is a very strong starting point since the policyholders in this field have a very frequent exchange with insurers in general. In motor insurance, it depends on the OEMs and their openness to collaboration. Some want to cover the insurance business themselves and others prefer to cooperate with insurers here and let insurers take the lead. Insurers have a better understanding of the risk analysis, so they can share data and get data through telematics products. Still, it is not quite clear what kind of role insurers will take, but, certainly, they can’t take the lead in all lines of business. Especially, smaller insurers probably do not have the capacity to orchestrate a platform. Therefore, it is also a question of size, market power, and consolidation in the market.

Currently, we are discussing the role of insurers within a Financial Home ecosystem. At the moment, banks have a strong starting position here. Yet also insurers could provide an interesting entry point through the long-term financial planning and financial stability approach - as opposed to short-term investments.

"From my perspective, if the insurance company wants to maintain its brand towards the end customer, they have to stay involved with the customers and maintain the access point.”

One of the main pillars of the ecosystems is data. Sometimes data comes from the Insurance company, but data is now required to be real-time and actionable and probably this will be outside the insurer. If data is the main driver, insurers will have to become data-driven companies, or they’ll just serve the ecosystems at the end of the value chain?

I believe that access to the customer and access to the data will continue to be crucial, and that data should be conceived as the main entry point. If insurers depend on the data delivered to them by another provider, they probably won’t be the owner, but only the enabler. The decision of whether to be the owner or the enabler also depends on the line of business, the interaction with the customer, and the data that you get out of that. There e.g., white label insurers that have a different approach. They offer risk analysis and underwriting services, but the product and the brand is with the partner client company.

Insurance as a service could be one way to go. Looking at the ecosystem of mobility, with many trends happening in this field such as autonomous driving, car producers are coming into the insurance industry.

Some of them, like Tesla, are offering their own insurance business with their own data. This poses a substantial risk that they might lose contact with customers. From my perspective, if the insurance company wants to maintain its brand towards the end customer, they have to stay involved with the customers and maintain the access point. Otherwise, in the end, they just become like a supplier of the risk license or a B2B partner.

What do you think are the greatest challenges that affect an insurer when we combine the terms regulation and technology?

Regulation may be a challenge, but also offers protection. Regulation has been helping the incumbents up to some point, setting high hurdles for new market entrants. But regulation is also hindering insurance companies to innovate.

Taking health insurance as an example, private health insurers would like to do a lot more on the prevention side, but this is not so easy due to regulation. For insurers, technology improvements have been a big challenge. Now clients are getting used to new modern technology like cloud services and real-time data. So, for insurers, it is the main point to modernize their legacy systems and open up for cloud services.

Looking into the crystal ball, what are your predictions regarding the Insurtech sector for the coming years? What trends do you think are coming up?

First, the overall trend is to get access to the customer and be customer-centric in the whole new customer journey. Under this overall trend, there are different layers. For example, embedded insurance is coming up quite strong in some lines of business. Another important trend is the access to new data, to offer more personalized products. The combination of personal advisory with digital data will make a difference since, in some lines of business, people still want to have human contact.

Furthermore, prevention is getting stronger in all different kinds of fields like mobility and health. In this case, it is necessary to adopt a new business model to make customers aware that rather than paying for something that may not happen, they are paying for prevention.

Who will be the next Unicorn? Why?

There are a lot of good startups out there that have the potential to become unicorns. If I had to place a bet, I would go for those startups that provide new digital distribution models for the incumbents and/or a totally new customer experience.

What is the biggest hype in Insurtech?

I would say that full-stack carriers may be a little bit overhyped. There were a lot of IPOs of full-stack insurance carriers, especially in the United States, but they are also facing a lot of challenges when it comes to customer acquisition and regulation. I think startups with a B2B2C model that collaborates with incumbents are undervalued. I see a lot of potentials here in collaborating with insurance companies than going on their own way. However, it is good that full-stack carriers exist and apply pressure on the market.

What are the models that you feel are not going to grow or have relevance?

I think that the market for pure comparison platforms and aggregators is not going to grow so strong anymore. Especially if we think about the strength of embedded insurance, integrating insurance into other services automatically solves distribution, which will probably take a little bit of dynamic from the aggregators.