Interviews
Ángel Uzquiza
Ángel Uzquiza
Corporate Director Innovation at Grupo Santalucía
Grupo Santalucía

The Growing Emergence Of Ecosystems In The Insurance Industry

~ 16 minutes

The Insurtech ecosystem is becoming more mature and ecosystems will change the way Insurance Companies engage with customers and generate value. In this interview, Ángel Uzquiza shares his perspective on today’s and tomorrow’s landscape of the Insurance Ecosystems.


With the new historical investment rise, do you consider that the Insurtech market is still in a growth stage, or is it going more towards consolidation?

Definitively, it cannot be otherwise to ensure the future growth and profitability of the sector. Currently, around 50% of insurers do not generate value above their cost of capital.

In this context, Insurtechs are strongly backed by investment capital, attacking the root problems of more traditional insurers: under-exploited for example Small and Medium-sized Enterprises (SMEs), Home, and Virtual Reality (VR), or non-exploited such as Cyber market niches, new customer relationship models that have a material impact on productivity (such as Robo advisor, chatbots, etc.) or additional value in the technical-actuarial logic (IoY or IoT for data capture) and always looking for scalability.

In addition, this evolution is favored by the push from startups, which is a boost when it comes to collaborating with more traditional insurers. In this way, startups are driving the transformation of traditional insurers at several levels, including products, personalization, distribution, and how insurers operate their customer care services.

Proof of their success is the value creation of some of these highly digitized players who are consistently achieving around 15%-25% annual returns over the last 5 years. In addition, if we look at adjacent sectors such as FinTechs with more proven business models, we could be talking about an expansion of around double that. However, this is still an early trend, these business models have yet to demonstrate their sustainability and viability in an extended manner (greater number of success stories, positive profit generation periods of more than 10 years, etc.).

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

Market data suggests that this gap could be reduced to some extent. However, the US market is showing strong figures and will remain the market leader in the coming years. Just a few figures: Venture Capital (VC) funding in the period 2016-2021: €19,700 billion in the US compared to €5.5 billion in Europe. In terms of the number of 'unicorns' or technologies with a value of more than 1 billion dollars that are not listed on the stock exchange, the US has 25 compared to only 5 in Europe, and in terms of the number of those expected, the US still has more: 29 compared to 11.

How do you see the evolution of the volumes of insurers’ investments in start-ups (both related and unrelated to the Insurance industry) in comparison to that in the last 5 years and how do you foresee it to be in the next 5 years?

I think we all see a clear evolution and increase in start-up-insurer collaborations that are, to a large extent, driving the digital and business model change and transformation that many insurers are exploring. Consequently, based on data limited to the Spanish market, we observe a similar growth pattern to that of France for financing rounds of more than 10 million dollars, with growth expected to multiply by 5 in the next 5 years.

From an international perspective, analyzing adjacent sectors such as financial VC versus insurance, we could be talking about a similar growth of five times in the near future (i.e., 34 billion financial pain excluding insurance versus 7 billion dollars for insurance; 2016-2020 but it is very difficult to estimate whether this will take more or less than 5 years).

Looking at your company’s contribution to Insurtech investments, do you think your role is crucial for Insurtech success or even to avoid the possibility of a new bubble?

Our view is that to ensure the survival and success of Insurtechs, the role of strategic investors is key. The evidence shows that many Insurtechs are gaining scale and maximizing the return on their digital investments by orchestrating their operations around ecosystems led by traditional insurers that have earned customer legitimacy, such as Ping An, Swiss Re, AXA, and USAA. To gain scale and maximize the return on their digital investments. At the same time, insurers have positioned themselves extensively in Insurtech capital in recent years in the face of possible disruptive changes to the market.

Insurers are investing more and more in distribution channels and commercial lines of business Insurtechs rather than in health companies. What is your insight on this? How do you foresee this trend for the following years?

Our perspective is not that Health Tech is not attractive. The problem is that this is a sector closely linked to scientific or technological developments and research, which traditionally take a very long time, directly affecting financial results and delaying market launches. This means that insurers prefer the more short-term profitability of other more attractive alternatives, as we shall see below:

Commercial Lines

At the global SME level, it represents a great opportunity equally as global as traditional insurers. In Spain, multi-risk commercial insurance has a turnover of 600 million euros and an addressable potential of 2.5 billion and they have not been able to respond for two fundamental reasons:

  • Low priority of these lines of business compared to the core lines of insurance companies, which limits the renewal of the Value Offer.

  • High diversity of the sub-segments of this line of business (activity niches: hairdressing salons, offices, etc.) makes it difficult to make a real and impactful personalized offer (pricing, coverage, value-added services, and differential added value in advice) due to the lack of critical mass (around 1.5% of portfolio policies on average in insurers, with low premiums).

Therefore, new players are trying to capture this opportunity with results that are not yet consolidated.

Distribution

In the last 10 years, the broker market has had an annual rate of return of around 20%, much higher than what a multi-line or life/health company can achieve at around 10%, with dispersion by business (company and individual) and very differentiated concentration by geography (for example, in the US the market is very concentrated, unlike in Germany or France). Therefore VCs, who are aware of the situation, encourage entry into the insurance sector under this model.

However, it is important to mention some relevant points: the delivery as a broker of an Insurtech often responds to prove the investment thesis, being the aspiration in many of them to become fully stuck to have a truly differential and competitive value offer as other listed insurer, such as Lemonade, have done. On the other hand, the weight of Insurtechs in distribution is very relevant and will continue to be so, but more and more players are appearing in other parts of the value chain such as in claims.

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 this market or do you feel this is more of a collaboration scenario?

We could say that there are movements in one direction or the other. On one hand, it can be perceived as a threat to the insurance sector from Tech Giants, although it is also extensible to other sectors, such as banking.

These technology players want to lead the customer relationship with all kinds of hyper-personalized products and services (NPS around 50% compared to 30% for "Best in Class" insurers) by developing organic and inorganic strategies. In this sense, insurers feel threatened by the fact that they are limiting their relationship with the customer to the mere manufacture of products. Currently, more than 50% of consumers would buy insurance from Tech Giants, more than 20 basis points compared to 2020. On the other hand, we are facing a great opportunity for Tech Giants and insurers with Embedded Insurance (insurance attached to a transaction in a platform, marketplace, or ecosystem environment ), which represents a potential 12-fold increase in terms of market share (2% at the end of 2020, compared to 24% in 2030) where both insurers and Tech Giants are establishing different models of collaboration to realize the opportunity, such as Amazon with Sanitas or MAPFRE.

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

The development of new technologies such as big data, AI, IoT, etc. is leading to systemic changes from the point of view of the customer. That is, in terms of demand, customer behavior patterns are changing, which is leading to a change in supply, and a new competitive environment.

Customers are looking for a complete, seamless, and frictionless digital experience. In this sense, large digital ecosystems are emerging and, as I mentioned earlier, embedded insurance, where the different products (car, scooter, computer, travel) will be integrated with services that were previously exclusive to insurance and its networks (maintenance, repair, assistance). In addition, new IoT and AI technologies are making customers feel unique and, increasingly, they expect a personalized online treatment.

Tech Giants, especially the large platforms, are the ones who have been investing the longest in these technologies and who have the most information about customers today. Whoever manages to give this unique and differential value to the customer, whoever can integrate all customer needs in a unique and personalized way, whoever manages to be the reference company for customers throughout their life cycle, will be the one who captures and retains that customer and the one who retains the value of these new ecosystems.

Tech Giants know the value of the insurance world (traditional and Insurtech) and are trying to capture it, but the insurance sector has two major barriers to entry: it is a highly regulated sector, and the commercial and delivery networks are a differential value of insurers that allows them to give a unique treatment to customers.

Thus, the Tech Giants seem to be opting for a model of collaboration rather than a model of absorption of the insurance business (traditional and Insurtech).

Throughout its history, insurance has been able to constantly reinvent itself to offer adequate protection and prevention solutions to people and societies in which it operates and, once again, we are seeing this innovation and adaptation to new trends and demands.

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

There are five main areas of value of Tech Giants to Insurtech startups:

  1. Resources: tools and talent, i.e., advice through their expertise and know-how in new technologies. This allows Insurtech startups to grow from the very beginning, with structured and organized data models to obtain the full value of these technologies.
  2. An important customer and contact base that allows startups to scale their business.
  3. Financial capacity through their investments.
  4. A great capacity to communicate and reach out more effectively to all users and potential customers.
  5. In addition, large technology companies such as Amazon or Microsoft offer valuable services, such as their cloud services, which in themselves generate a great deal of attraction and incentive for Insurtechs to work with them.

One of the main pillars of the ecosystems is Data. Sometimes data comes from the Insurance, but data is now required to be real-time and actionable. If Data is the main driver, will Insurers become data-driven companies, or will they just serve the ecosystems at the end of the value chain?

The insurance industry is in the midst of a digital transformation. All insurance companies have been launching technology and digital transformation plans and initiatives for years, with the ultimate goal of having technologies and tools to be more agile, more efficient, and able to extract the full value from any point of contact with their customers. Today, insurance companies may still be at the end of the ecosystem value chain, participating but not leading. However, we do not expect this to change very soon.

There are insurance companies in Asia today that have been able to structure and lead more than one ecosystem. An example of this is Ping An, which, through organic developments, agreements, and acquisitions, has transformed its insurance business model into a complete ecosystem of products and services, with which it has almost quadrupled the number of customers.

In the same way that Ping An has done, and considering the fluidity and dynamism of these ecosystems, the rest of the companies in the sector aspire to capture the value of being the ones to attract and retain the Customer in their ecosystem through data, giving those customers as much value as possible.

How do you see the journey to the ecosystem in your organization?

The Santalucía Group is a leading insurance group in funeral (top 1), home (top 5), and life (top 10), vertically integrated with the provision of services, which allows us to control the entire value chain and ensure unique quality standards. Santalucía is, very focused on family care and we have a wide range of products and services for families, in both insurance and assistance, with a special presence and focus on older customers. In fact, Santalucía has 25% of Spain's senior population (over 55) as customers, and we have been building a differential value proposition for them for years. As a result, we are already able to lead the Senior Ecosystem.

Moreover, due to the inversion of the generational pyramid, the Senior segment is and will be, highly represented and with high purchasing power, in some cases, even higher than that of other segments. For this reason, we want to continue to cover the value offering to this group, offering them solutions adapted to their lifestyle with innovative and long-lasting products and services. In this sense, we are already working on initiatives aimed at the different needs of this segment of the population, such as those related to dependency, both for the dependant and the family nucleus.

On the other hand, we are very aware of the need and opportunities derived from reaching a young public. In this regard, Santalucía is working on value propositions that use new trends and technologies to build products and services that are sufficiently attractive to reach this segment effectively. The goal of our journey towards ecosystems is to be the company of reference for our customers throughout their life cycle and to be the provider of protection, savings, and family assistance services with a relevant presence in multiple channels and geographies.

Do you consider that submitting an idea or a project to a regulatory Sandbox is the right step for an insurer? Has your company considered participating in any of them?

A sandbox is a controlled testing environment where the insurance industry can derive enormous value. It is an environment with a specific regulation, preserving and limiting risks for the client, but it is somewhat more open than the strict insurance regulation. It is precisely this strong regulation of the sector that has limited the spontaneity and evolution of companies towards more innovative environments, and it is important to take advantage of this opportunity that is now available to us.

In addition, a sandbox provides the ideal environment or framework to advance in collaborative models between insurers, startups, and technology companies, which allows us to move towards broader and more evolved ecosystems, leveraging disruptive technologies, legal security, and focus on the customer. At Santalucía, we are interested in participating in sandboxes and we are studying which of our projects and ideas are the best candidates for that.

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

Santalucía has been working on open innovation for years. We work with different ecosystems: startups, entrepreneurs, universities, science parks, technology companies, consultancy firms, entities in the insurance sector, and other large companies. On one hand, we have our Santalucía IMPULSA Startup Acceleration Programme with which we approach and advance initiatives with the entrepreneurial ecosystem, startups of all kinds, including Insurtech, closely related to our expertise, and we connect this ecosystem with our Santalucía IMPULSA Employee Programme, where our intra-entrepreneurs work hand in hand with these external entrepreneurial initiatives.

On the other hand, from our Innovation area, we work in open innovation ecosystems with other players: public and private entities, as well as large technology companies, with which we assess possible synergies in terms of new products, processes, and services. So, although we still have, like everyone else, a long way to go, we still have some maturity in open innovation.

Looking into the crystal ball, what are your predictions for the Insurtech industry for the next years?

There is a clearly growing trend in the number of investors interested in participating in the insurance startup ecosystem and presenting much more established business models. This trend will only continue to grow as technology solutions are providing insurers with new sources of profit and revenue, while significantly boosting their operational efficiency, helping them to know their customers much better, and increasing their chances of building customer loyalty.

More specifically, we believe that Insurtechs will make steady progress in specialist lines of business with a full-stack model where their distribution model will be B2C, basically as a testbed for their business model, with their main business being participation as a supplier in ecosystems, either with technology giants or more traditional insurers (B2B2C). It is possible that in the construction of these full-stack models, we will also see acquisitions of Insurtechs to enable completions of the value offer or generating consolidation processes (build-up) in specific markets to tackle the inefficiency due to the atomization of competitors.

Likewise, we see a strong rise of Digital Factories, such as SMEs, Health and Wellness, and their cooperation with large technological giants or traditional insurers to attack major market opportunities for niche or new insurance products. To achieve these moves, it will be key to use highly scalable and cooperative digital capabilities, advanced analytics, and AI throughout the value chain.

Which trends do you see becoming increasingly important?

As I mentioned earlier, we believe that ecosystems will change the way we engage with customers and generate value in the future. It is estimated that 15% of all global sales in 2025 will be generated through ecosystems with synergies with the insurance world.

In addition, digitalization is accelerating and transforming products at the levels of personalization, distribution, and care. We are increasingly seeing how artificial intelligence is being introduced into the processes of insurers to offer more personalized services and make the customer experience more efficient and satisfactory. We also see an increase in technologies such as Machine Learning that are helping to completely change the analytical models of insurers, achieving greater personalization of the offer, and adapting effectively according to the customer's profile.

Who was Top Insurtech of 2021? Why?

Considering the definition of Insurtech as the sector that brings together traditional insurance companies, technology companies, and disruptive startups that use new technologies to create new ways of offering products and services to the end customer within the insurance sector, our choice would be Ping An.

Ping An offers us a disruptive business model whose strategy addresses the new vectors of the data economy:

  • Redefining market potential (e.g., the expansion of its Ping An healthcare ecosystem); transforming data into value (AI applied to credit quality); redefining user experience (such as the Ping An Good Doctor health app with around 160 million users); radical automation (e.g. in end-to-end claims management for auto insurance); and accessing capabilities through open ecosystems (e.g. enterprise cloud services).

  • Moreover, it is consistently demonstrating that it can execute its strategy: in value creation with a historical 20% ROE and a cost of equity well above US and European business models (with some exceptions); and with a customer-centric approach: a customer volume of 225 million growing at a compound annual growth rate of 11% between 2016 and 2021, leveraged on a compound annual growth rate of 13% between 2016 and 2021 of internet users within its ecosystem.

Therefore, we believe it is not only the Insurtech of 2021 but will likely be at the top for years to come.

Who will be the next Unicorn? Why?

In line with the above, what concerns and occupies us at Santalucía is the generation of sustainable value in the medium and long term. Valuations of $1 billion are achievable in the early stages, especially when there is so much investor appetite, but it is difficult to achieve a return on these investments within a reasonable period of time. This is also the case of Amazon, one of the companies with the highest valuation in the world, which obtained its first positive profit after 10 years and payback after 16 years. Therefore, we will refrain from mentioning futuristic names.

Knowing that it is a complicated matter to predict, we believe that the Insurtech ecosystem is becoming more and more mature. We have seen how many startups have been growing and consolidating themselves as important players within the insurance ecosystem, and we predict that in the next two or three years, we will see some of them succeed as the ecosystem is increasingly evolving, which is a guarantee for success.

Which was the top technology during 2021?

Thanks to the pandemic, all companies took giant steps in their digital transformation. Currently, we can identify three: Artificial Intelligence, present at various points in the insurance value chain, from damage prediction and assessment to assistance, cost estimation, and personalization according to customer profiles. The second is Data: its implementation makes it possible to automate information in real-time and, among many other applications, to offer much more precise and accurate diagnoses, as well as to create products that are much more tailored to the user's needs. Thirdly, the rise of RPA with an efficiency vision has given way to advanced analytics with a business vision. The value of data as a basis for segmentation and/or personalization, which allows businesses to be fed with value proposals that are more focused and specific to the individual needs of customers, is what we are most looking for, both large and small in the sector.

The implementation of Big Data has made it possible to automate information in real-time to offer much more accurate and precise diagnostic tools. More personalized management models have meant the acceleration of new ways of offering services to policyholders. Some of these proposals are the automation of commercial processes; the implementation of chatbots for more fluid customer service; the digitalization of distribution channels; and Machine Learning.

Which will be the next top trend in the industry?

With improved connectivity through 5G and improved data processing and usage, IoT can perhaps start to take off and fuel new models and better personalization, as well as improved data capture. Additionally, everyone is already talking about the metaverse, but is it something new, or could we say that it is virtual reality "on the rise"? The question is, is it a passing trend, or is it here to stay? For the time being, we will keep an eye on market movements, exploring the trend in depth.

What is the highest hype in the Insurtechs?

Changes in consumer patterns are leading us towards consumers seeking immediacy, personalization, and a seamless experience in their day-to-day lives, which leads us to open innovation and highly collaborative models between industries and companies to meet these expectations. From a sector perspective, the main niches on the rise are SMEs in a broad sense, i.e. focus on small businesses and seeking to meet their needs, Health, with a vision not only of treatment but clearly of prevention, and Home, with the ambition, to reach complete ecosystems, not so much by small startups, but by insurers and Tech Giants.