Stefano Bison
Stefano Bison
Group Head of Business Development, Partnerships & Innovation

Insurtech, A Booming Industry Of The Future

~ 11 minutes

Generali is undoubtedly committed to continuous innovation and reinvention to remain competitive in the insurance industry. Stefano Bison, head of Generali's business development, partnerships, and innovation unit, shares with us in this interview a broad vision of the current and future context of the sector.

"It is definitely, not a bubble. I don't think volumes are going to keep growing at the recent rates, but neither will they stop growing or decrease in the short term."

In regards to post-IPO results and the exponential growth of these startups, do you think there’s more hype in Insurtechs than real impact?

It is definitely not a bubble. I do not think volumes are going to keep growing at the recent rates, but neither will they stop growing or decrease in the short term.

Insurtech deals have reached in 2021 a historical high of $40M on average ($11M the median), and this is the demonstration of a maturing sector; but still, the overall global Insurtech funding is less than 10% of the Fintech one: such small percentage tells me that Insurtech is not at scale yet, so I expect it to keep growing and consolidating, not being present structural reasons able to justify this gap

The booming of IPO valuations we have all seen in the recent past might have been caused also by a large amount of liquidity available in the market, overall, but this does not mean there is no focus on fundamentals at all

While liquidity becomes scarcer and interest rates go up, inevitably, investors are going to review their investments with more scrutiny and will be giving more importance to fundamentals. For example, Lemonade investors (just to name one, the most famous) will progressively stop looking only at customer base growth and start looking at its underwriting performance (as of today their CoR is, despite the declared improvements, still far from sustainability)

In summary, I do not think there is a real bubble, if not maybe in the US-listed Insurtech equities -and, in any case- a visible correction has already happened; in private funding, I expect further growth, despite a smaller hype/growth rate compared to last years. Lastly, over the recent years, there were a lot of digital D2C full-stack insurers and MGAs, and I expect startups to progressively shift towards being tech enablers / offering B2B solutions to incumbents (e.g., cooperation instead of disruption – a trend already visible and quite common in Insurtech in all honesty, much more than in the early FinTech).

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

As always, there is a curve of maturity that we are going through, and Europe is behind the US, also this time as in general Tech investments of all kinds (public, private, VC-led, …). Nevertheless, the EU Insurtech market is maturing rapidly, and it will keep growing, especially in new flows - e.g., new investments and new rounds. The share of Europe is going to grow more and more compared to the US, but I am sure that the US will keep “leading the show” because of the amount of liquidity available, and because their venture capital ecosystem is much more developed than the one in Europe, including the relative appetites of industrial investors. Nonetheless, and on top of the UK, Germany and France are also growing very quickly. I do not see a lot of noise or traction in Spain or Italy so far, but the Franco-German duet is picking up very nicely. I do not know how many others will be capable of having such big rounds, but I think that, geographically, the market is going to rebalance itself progressively over time

If there is a lot of technology in the startup we are partnering with, of course having a Tech Giant behind makes sense, it is somehow putting a sort of quality stamp on it.”

In startup investment strategies, it is well known that investors consider relevance to the other investors in the round. When participating in an investment round with other investors, is there any preference for the type of investor - VC, Tech Giant, or another insurer? Or do you just consider the startup itself and not the other investors behind it?

At Generali, we directly invest in startups only in very specific and focused cases. We believe much more in partnerships and co-development of solutions for our business together with startups rather than indirectly investing in their equity.

Notwithstanding, one of the things we always evaluate -at the end of the game we are insurers- is the underlying risk of the counterpart that we are partnering with and/or potentially investing in. If there is a lot of technology, then having a Tech Giant behind it makes sense because it is a quality stamp on it.

As an example, if Amazon or Google, who clearly are tech “ninjas”, say that they like a startup so much to invest in it, they have probably seen how the startup’s architecture is built, how well they leverage data or how their applications are run, etc. (on top of the other factors to be evaluated) and this gives us peace of mind that our investment is in good hands also from the tech perspective, that is the one often more difficult to evaluate outside-in. In fact, in Insurtech, I can, for example, do a competitive analysis, a deep dive on the business model and client portfolio, but it will be difficult to look through the tech stack and see if the startup systems are better than others without deep and appropriate due diligence, involving external experts. And I think this is valid for any industrial investor or strategic investor having some VC arm. Let me explain VCs e.g., are incentivized to invest the money rather than keeping it sitting there, which means that they have not always been a super fruitful source of truth for the underlying validity of the investment – incentives are not always fully aligned with our industrial ones.

In general, we are looking for partners to share the risk of our investment decision. Some VCs, but not all, and some Tech Giants are going to serve well the purpose.

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

It depends. For partnerships it is at the core of our innovation strategy, and we are extremely active, with a fat pipeline of prioritized opportunities, while on direct investments, as explained before, not so much, even though we are building traction. We do not have a CVC fund; we invest in other funds by selecting the best GPs in the market. Within our Group’s new three-year strategy, we recently announced new 250M€ commitments in Global Insurtech Funds that we are now vetting and selecting for investment. In these LPs-GPs relationships, some co-investments will of course be possible.

"Where do you look for growth? On embedded insurance, B2C, or open insurance? All these trends are somehow suggesting scouting for startups, Insurtechs, or partners that allow us to integrate into new distribution channels. Tech companies are doing the same but for different reasons, we will end up in the same space, over time."

Tech Giants and big corporations are very much into distribution and commercial this year too. Why do you think insurance companies and new entrants move in the same direction? Are they competing for controlling these markets or do you feel it is more of a collaboration scenario?

I do not have a super-strong opinion on this because it is a more recent trend, and we are still in observation mode. But I think there is a sort of a convergence of different sectors going on, which is coming from the fact that each sector, whether it is tech or insurance, is facing the same underlying issues with customers and market pressures. Techs will keep trying to integrate vertically wherever they can – they often have plenty of cash to do so.

Not all Tech Giants want to play in every market, but as an overall trend, they are trying to leverage their scale, presence, and tech capabilities to progressively integrate steps of the value chain and capture new margins. I do not think Tech Giants want to become insurers themselves, they are more interested in those elements or actors in the market who can help them integrate these pieces of the proposition into the value chain.

On our side, we come from a completely different world, but we are ending up here because the growth of our traditional channels is stagnating in most developed countries.

So, where do you look for growth? Embedded insurance, B2C, or open insurance? All these trends are somehow suggesting scouting for startups, Insurtechs, or partners that allow us to integrate into new distribution channels. Tech companies are doing the same but for different reasons, we will end up in the same space, over time (but sooner rather than later).

I do not think it is a real competition, but there will eventually be some overlap in some deals because we might be looking at the same counterparts from 2 different angles. But overall, I think we will collaborate more than we will compete directly. Of course, margins will decrease, but the pie hopefully grow in parallel.

What is your perception of the interest of Tech Giants in the Insurtech market?

Tech Giants are a wake-up call. As insurers -and I am including here the Insurtechs with some license-, we are sometimes very complacent and keep saying that our market is very sophisticated and regulated, and products are very complex. Having somebody coming in with a completely different perspective, simplifying massively processes and UX, and so on, is going to show us that sometimes doing the same things in a much easier way is possible and even successful.

“For young startups, having a Tech Giant behind gives you guidance and can be a big accelerator on the tech part of the Insurtech proposition.”

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

Tech Giants already have cloud instances and their applications. With startups, especially the younger Insurtechs in the early stage, most of the stuff they have is in an MVP phase, they do not have the whole machine set up already and having a Tech Giant behind guides you and can be a big accelerator on the tech part of the Insurtech proposition. That is something that, as insurers, we often cannot offer to them.

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

It changes a lot depending on the subsector but let us say health is one of these areas where insurers can play an important role, for example, Oscar Health in the US and Alan in France. They have the capability of being the orchestrators and pulling everything together. At Generali, we have the ambition and I think we can sometimes be the orchestrator ecosystems, but it depends on the specific applications and uses cases.

Talking about mobility, as an example, I think the OEM is going to be the ultimate orchestrator because the car provides embedded connectivity and will manage the data package and the data flows. They have the technology and the customer relationship, we (insurers, in general) just put the risk capacity – a quite commoditized asset. In fact, at Generali, we are extending our services in the mobility space and have launched a pan-European mobility platform through JenIoT, our captive connected solutions provider.

In Home Insurance, I do not think Insurers will have any chance to be orchestrators or owners of the ecosystem, and I’m not only talking about incumbents, but I’m also including Insurtechs because there is no clear standard in terms of technology and because the customer loves talking about tech and gadgets, maybe even security, but not so much about insurance. If you are not owning the customer relationship, if you are not top of customers’ minds, it is tough if not impossible to try to “go against the tide” and become the orchestrator in an ecosystem where the customer does not care about you.

In Life Insurance, I do not have evidence if there is any ecosystem yet, both for protection and life or savings even.

“Comparing ourselves on data, directly to big tech players out there in the market (e.g., GAFAs) on data, we are -as an industry- nowhere close to them unless we become very aggressive and completely rewire our strategies around data.”

One of the main pillars of ecosystems is data. Sometimes data comes from within insurance. However, data is now required to be real-time and actionable, and such data originates from outside the insurer. If data is then the main driver, will insurers transform into data-driven companies, or will they just serve the ecosystems at the end of a value chain?

Although there are many interesting projects finally reaching scale, I have not seen huge success stories from Insurtechs or the big insurance incumbents. Regarding data, if we want to transform our companies and become more data-driven, we will have to do a lot of efforts to integrate external data sources, among other things. But in all honesty, comparing ourselves directly to the big tech players out there in the market (e.g., GAFAs) on this, we are nowhere close to them, unless we become very aggressive and completely rewire our strategies around data.

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

The main challenge is in culture because you are putting together tech and innovation that in the end is people’s businesses who are trying to do things differently with regards to compliance, data privacy, and GDPR. Regulators come from very different worlds that are not even close, even if recent initiatives (e.g., the Banca d’Italia one in Milan) are showing increased attention.

Sandboxes are not enough. They are good because they force us to talk with the industry associations, regulators, etc. But they are often not real experimental environments where you can test, learn, share, and create a bit of common case for change.

We need to keep all our compliance, audit, and legal teams on board and informed, constantly, innovating together with us and the business. Otherwise, ignorance and fear for the new/unknown might become alibis for blocking innovations.

How would you define the degree of maturity of your company regarding participation in Open Insurance initiatives?

We have run some initiatives in the past, e.g., we have participated in a blockchain sandbox with some Italian associations. In open insurance, we are now starting to involve some regulatory bodies to regulate this new field.

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

I think we are going to see the shift from D2C full stack insurers or MGA's to B2B enablers and embedded insurance. Embedded insurance is going to be “THE” trend for at least a couple of years.

What is the highest hype in the Insurtechs?

It is difficult to say because looking back, I would say it is health, but my feeling is that it is gone. Going forward, embedded insurance.

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

In the next few years, I would say it is blockchain, unfortunately, whilst I see a huge hype in finance, in the decentralized autonomous organization (DAOs), decentralized finance (De-Fi), and all the crypto bubble.

We are experimenting through B3i, the Insurtech blockchain consortium, but real business traction is still limited. I still lack the evidence of some very solid and convincing use cases that will start the snowball effect in adoption. It is as if blockchain is not interesting for insurers, yes, besides some interesting but still small niche applications. And, unfortunately, I do not see this coming, at scale, anytime before the next couple of years, but I´d be more than happy to be proven wrong.