Interviews
Michael Maicher
Michael Maicher
Global Partner & Director
Allianz

The Insurance Industry is Moving Towards a Partnership and Ecosystem Approach

~ 10 minutes

Digitalization has made the Insurance Industry to accelerate innovation and modernization and to provide new digital solutions. In this interview, Michael Maicher, strong believer in Open Insurance and Partnership Approach shares his vision about the current situation and the expected outcomes of this sector.


“For Insurtechs that are entering into a more mature stage, the biggest challenge is to reach profitability. Based on the pressure by their investors to scale fast, many insurtechs are looking to tap into new revenue opportunities by further diversifying their initial book of business.”

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

I currently see both developments. On one hand, more investments are flowing into the market, and on the other hand, there is continued pressure for consolidation.

First, capital has been very cheap over the past years. For many founders, raising capital last year has been much more easier, compared to some years ago. In 2021, the total amount of VC invested in Insurtechs exceeded $11 billion – this is double compared to 2020. Many times the funding rounds of Insurtechs are even being oversubscribed, which means that private-equity investors are still ready to put money into this fast growing space. We also see the trend that investors are increasingly looking to invest sooner, which is further increasing the amount of capital flowing into the market.

Second, for Insurtechs that are entering into a more mature stage, the biggest challenge is to reach profitability. Based on the pressure by their investors to scale fast, many Insurtechs are looking to tap into new revenue opportunities by further diversifying their initial book of business. As an example, Lemonade has been acquiring Metromile to offer car insurance, partnering with Bestow to sell life insurance, or selling pet insurance as a bundled product. The pressure for diversification and consolidation therefore continues in the mature Insurtech space.

“Insurance is a very capital-intensive business, especially for those Insurtechs, who chose to go for a fully-fledged insurance company model. The expense base including license, compliance requirements, regulatory capital, customer acquisition, and operations makes it unattractive i.e. for those investors, who compare Insurtechs not with insurers but with tech companies.”

In regard to post-IPOs results and the exponential growth of these startups, do you consider there is more hype in Insurtechs than real impact in the market?

So far, we can see that Insurtechs face the challenge to perform well once being public. Based on a latest market study, Insurtech share prices are down roughly 75 percent from January 2021. Overall, we can see that many investors are looking for a growth story. Once listed, the pressure to achieve profitability is increasing and for many investors the time needed to break-even can cause concern. It is not a surprising reaction as we need to keep in mind that insurance is a very capital-intensive business, especially for those B2C Insurtechs, who choose to go for a fully-fledged insurance company model. The expense base including license, compliance requirements, regulatory capital, customer acquisition, and operations makes it unattractive i.e. for those investors, who compare Insurtechs not with insurers but with tech companies. Looking at some usual insurance metrics such as loss ratio, expense ratio, and combined ratio shows that it is not that easy to build a profitable book of business on a short-term basis in insurance, if fast scaling is wanted.

In parallel, established insurance companies are also accelerating their speed of change – means that the initial Insurtech investor stories need to be constantly reviewed whether their initial value proposition is still really that unique after some time. For instance, usage-based insurance is an important solution, i.e. for those markets where the traditional ‘ownership’ model is transforming to usage behavior, such as the new mobility segment. Here, existing leading insurance carriers, such as Allianz, have been investing a lot of resources to innovate and upgrade their traditional offerings, providing state-of-the-art usage-based insurance solutions.

“Established insurance players look for innovative solutions outside their own existing capabilities – this, to speed up their innovation cycle and to adopt much faster to the constantly changing customer needs in a dynamic digital world.”

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

Almost all internationally leading insurance companies have been investing into the Fintech space in the last years – this has become a common practice and now also more domestic carriers and insurance brokers are following this trend. Established insurance players look for innovative solutions outside their own existing capabilities – this, to speed up their innovation cycle and to adopt much faster to the constantly changing customer needs in a dynamic digital world. I foresee this trend to continue in the next years, as we are still in an early stage of this exciting development.

Comparing the investment behavior of insurance- with reinsurance companies, I can also see a difference in the investment focus. Many reinsurance companies have more strongly invested into MGA based B2C Insurtechs – this allows reinsurers to get an increased direct market access, instead of supporting only indirectly through the established insurance companies. In general, reinsurers have the required capital, underwriting- and product knowledge, but usually no direct market access. MGA based Insurtechs can provide a suitable alternative to them. As a consequence, we might see that the ‘Reinsurer-MGA-Insurtech’ partnerships further increase the competition with the existing B2C insurance carriers.

On the other hand, leading established insurance carriers, such as Allianz, tend to focus less on MGA based B2C Insurtechs, due to their existing wide distribution network and direct market access. Instead, these players tend to invest in B2B Insurtechs that enable a better insurance ecosystem to support the insurance value chain and further strengthen their digital processing. Large insurance groups have started to build their own digital capabilities, but are equally open to the innovative solutions of B2B Insurtechs with emerging capabilities including telematics, artificial intelligence and machine learning. In certain areas, this can be a crowded marketplace with many Insurtechs, who are competing for the attention of carriers.

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

Yes, absolutely. Our role is crucial at least for the B2B Insurtechs that aim to provide new solutions to the insurance value chain. There is hardly a week where we are not getting approached by an Insurtech player, who wants to explore joint opportunities with us. I personally strongly believe in the partnership approach, so to continuously challenge ourselves and to strengthen our customer value proposition within the various ecosystems. I see that many established insurers have realized this over the last years and we therefore can expect the market to further enter into more partnership models. Those B2C Insurtechs, who predominantly focus to attack and ‘revolutionize’ the established insurance market, without the deep underwriting expertise and distribution network of the larger insurance groups will find it harder to succeed on a sustainable basis. The risk of failure can further increase when significant capital is raised, more investors to come on board with continuous high expectations to scale fast. Those players are also in need to equally establish a path to profitability – otherwise, a new bubble can become more likely. In general, Insurtechs that can demonstrate solid economics and a realistic path to profitability will stand out from the crowd.

Insurers are investing more in distribution channels and Commercial Lines of Business supported by Insurtechs rather than in Health companies. What is your insight on this? How do you foresee this trend for the following years?

As explained before, I see that reinsurers are mostly investing in B2C Insurtechs to widen and diversify their distribution channels. More domestic insurers with lower international distribution capabilities beyond their home market might also focus more on new distribution models with MGA-based B2C Insurtechs. In Europe, this is can be more easily done in the P&C product lines, mostly on a freedom-of-services basis. Highly locally regulated insurance products, such as Motor Third Party Liability or Health are more difficult to scale fast across various jurisdictions, as local regulations can be quite different. Therefore, most Insurtechs focus on less regulated products so to allow fast scaling across various countries. The right partnership with an established international network insurer can bridge this potential gap. These discussions are currently happening and I would expect that new Insurtech solutions in health will also become more popular going forward.

“The Tesla insurance pricing reflects the benefits of using Tesla’s active safety and advanced driver assistance features, which is an important direction for the industry. In general, the market is moving towards using telematics data metrics to build more dynamic pricing models.”

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

So far, I cannot see that insurance is currently high up on the agenda of Tech Giants because insurance is generally a low-margin business. Tech Giants can still achieve better margins in their core businesses than going into insurance. However, I can see an increasing interest towards exploring new business models in partnership with insurers to further improve their customer experience. Currently, the motivation might be less in building insurance as a new profit generator, but more as added value to delight their customers.

This, however, can change fast in the future. Already today, we can see new developments in selected segments such as the automotive industry, e.g. where Tesla launched their own Motor Insurance with introducing a highly competitive telematics usage-based insurance offering in selected markets. For Tesla, the main motivation might be in providing an easy and complimentary insurance solution to their existing customer journey so further accelerate their car sales expansion. Besides, the Tesla insurance pricing reflects the benefits of using Tesla’s active safety and advanced driver assistance features, which is an important direction for the industry. In general, the market is moving towards using telematics data metrics to build more dynamic pricing models. Whether these new models can then also create a more sustainable profitable insurance book of business must be seen. In any case, the insurance market is well advised to stay alert to these trends and dynamics by keeping an innovative mindset and being open to new solutions.

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

Europe is never an easy market, i.e. for US-based tech giants, with facing the challenge to speak various languages in a multitude of different local insurance jurisdictions. This results into a relatively high complexity for a comparatively small market compared to the US, India or China. In addition, data privacy rules and GDPR is playing an important and vital role in Europe, which sometimes can be seen as an additional hurdle for those Tech Giants who aim to scale fast in insurance.

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

In Europe, I already see solid frameworks to allow companies to strike a good balance in between regulation and technology. A lot of improvements could also be achieved during the pandemic period, where digital solutions such as e-signatures, have become an accepted procedure in the insurance market. European regulations, such as GDPR, IFRS 17 or Solvency II, with the various compliance- and accounting rules are there for good reasons. Fintechs sometimes struggle to comply with those in the beginning, where the pressure to scale fast might be higher up on their priority. Important remains that all market players are treated in the same way so to allow a fair competition. Insurtech companies should not get exemptions from those established regulations just to build their equity story in a faster way. At the same time, I would not like to support that we simply copy and paste the privacy laws of North America or China into Europe, instead, I hope we can continue to build a high standard European model to ensure a sustainable market environment.

“In the B2B2C sector, large business partners want to understand the insurance data as much as possible, so to improve their own customer experience. Based on a mutual partnership, we see that the digital interaction through APIs is not only easier in processing but also increasing conversion rates and customer satisfaction.”

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

In general, I am a strong believer in Open Insurance. In the B2B2C sector, large business partners want to understand the insurance data as much as possible, so to improve their own customer experience. Based on a mutual partnership, we see that the digital interaction through APIs is not only easier in processing but also increasing conversion rates and customer satisfaction, e.g. clients do not have to type information twice or three times during the same journey. The simple exchange of data within the existing compliance- & regulatory framework is the first step. More importantly is to then also create true insights on the data provided. Here, business partners and insurers need to work closely together so to generate the right insights to jointly increase customer satisfaction and to apply pro-active risk management measures to reduce claims and build competitive solutions on a sustainable basis.

To conclude, this is the right way forward and I do not perceive it as a threat, but rather as an opportunity for partners to profitably grow together and to improve overall performance.

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 important?

Insurtech players, who enable a better insurance ecosystem will always be needed. In case they are able to drive accelerated growth, increase the efficiency of their engineering and professional services functions, they will have a high chance to succeed. In addition, the model that might be continuously growing is the MGA B2C Insurtech model, where various value propositions of several insurance companies can be combined to build the most compelling customer experience.

What is the highest hype in the Insurtechs?

Digital insurers, who have gone public are now likely to face the same pressures as traditional insurers. They need to work on the economics, such as profit, claims ratios, expense ratio, and combined ratio. All of this is extremely hard to achieve while scaling fast. At the same time, they must still continuously ask for more capital to support the growth. It’s quite challenging for these companies who were riding the hype wave. Based on my experience, it is important to build an insurance book of business slowly and steadily as insurance is a ‘get rich slow’ business In addition, latest trends in blockchain and cryptocurrency, remain still hard for me to assess when and how they will be able to create a true difference.