Interviews
Gerardo Di Francesco
Gerardo Di Francesco
Co-Founder Wide Group Spa - General Secretary
Italian Insurtech Association (IIA)

The New Paradigm of Collaboration and Open Insurance

~ 8 minutes

Supporting open innovation and collaboration between new companies of the Insurtech field and incumbents is the direction Insurance Industry must take to accelerate Digital Transformation. In this interview, Gerardo Di Francesco gives his insights and thoughts with regards to the different trends of the Insurtech sector.


“In the near future, what I'm expecting is on one side a driver of consolidation just to build up numbers and on the other side more collaboration between new ventures in the Insurtech field and incumbents in a paradigm of open innovation and collaboration.”

In regards to post-IPOs results and the exponential growth of these startups. Do you consider there’s more hype in Insurtechs than real impact in the market?

All the IPOs that we saw on the market when it comes to Insurtechs are below the expectation in a zone between 60%-80%. This is a very remarkable underperformance of the listed Insurtechs.

On one side we experienced the fact that from the capital market we had an insane amount of money that had been allocated aggressively. On the other side, the division between Insurtechs and incumbents is too strong. When we speak about Insurtech, it is about a comprehensive phenomenon that embraces all the insurance value chain.

The insurance industry is strategic all over the world, a trillion-dollar market with hundreds of years of history. The disruption of this structure is maybe too bold, and I think that now the huge Insurtechs that have been listed for the last two and three years are experiencing the reality of the numbers. The investors and the market are starting to price the enterprise value according to performance, which has not been as positive as expected.

In the near future, what I'm expecting is on one side a driver of consolidation just to build up numbers and on the other side more collaboration between new ventures in the Insurtech field and incumbents in a paradigm of open innovation and collaboration.

“The main European economies like Germany, France, and to an extent Italy, are increasing the number of investments and the number of Unicorns taking a European approach to business is increasing.”

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

Definitively yes, due to a specific reason. In the European market and financial culture usually, the valuation and pricing of a new venture are very numbers-driven. In contrast, the US is keener to evaluate a venture by looking into future performance. For that reason, I am also expecting that a lot of US capital will invest in Europe’s Insurtech ecosystem.

On the other hand, the main European economies like Germany, France, and to an extent Italy, are increasing the number of investments and the number of Unicorns taking a European approach to business is increasing. Therefore, the gap we have seen in the last five years between Europe and the US will be closed or at least reduced in 2022 and 2023.

How do you see the evolution of the volumes of insurers’ investments in startups (both related and not related 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?

The investment from an insurance company in innovation is not only corporate venture capital, which is easier to measure. We know that the investment of corporate venture capital and investment funds owned by an insurance company is increasing. Investment is also in R&D because as an insurer, you can invest in new products with a negative claim ratio. For example, you can invest in a new project in embedded insurance or in a new project to integrate new players.

Those kinds of investments are the most interesting since they are not pure financial investments but industrial and strategic investments. The most relevant investments of the insurance industry and carriers will be in that direction. R&D and internal investments to put on the ground new Insurtech projects. A very clear example is the embedded insurance phenomenon, it's clear that the incumbents are opening their mind and their business model to a new way to do business.

In the 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 to invest in and not the investors behind it?

This kind of investment which is a purely financial investment is corporate venture capital, usually, the insurer is keener to a co-investment strategy with a follower placement. The anchor investors are VCs or other kinds of institutional investors, and the corporate venture capital vehicle of the insurer are co-investor and follower. The proposal of this kind of investment is not always to do an exit with a return of the capital invested, but it is also to support innovation. Thanks to this investment build-up collaboration the digital transformation of the insurance itself is sped up.

In the Italian market, we have different use cases like RGAX, Generali, or Reale Mutua Corporate Venture Capital Department that are investing a lot in new startups, and thanks to this investment they are changing their business model and their value chain inside the company itself.

“This kind of investment will switch from a pure digital channel to intermediaries and physical intermediaries’ technology empowerment investment.”

Insurers are investing more and 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?

The investment we have seen in pure digital distribution has ramped up quite quickly. There has been an acceleration in this field and an increase in empowerment thanks to the technology of agents and brokers.

In Italy, the biggest commercial network and infrastructure we have is distribution, so this kind of investment will switch from a pure digital channel to intermediaries and physical intermediaries’ technology empowerment investment.

“At the beginning of the health hype, we experienced an underestimation of the complexity that churns the market, which occurs both in insurance and health respectively.”

Related to Health, why do you think those investments decreased during this last year?

In Europe at least, we saw last year some remarkable investments like Alan or Bright Health, and the biggest rounds were closed on health, what has decreased maybe is the number of average investments in health and the capital is going to fewer initiatives.

At the beginning of the health hype, we experienced an underestimation of the complexity that churns the market, which occurs both in insurance and health respectively. In Italy, we are experiencing an interesting phenomenon; on one side the incumbents are buying hospitals to replicate the motor business model that we saw in the last decades. On the other side, looking to hospitals that are trying to maximise the billing relationship with the patient and distributing insurance. And on both sides, there is a kind of undervaluation of the complexity of the other side of the industry.

The large number of health ventures that we saw last year are facing this complexity, and the winners of this trend will be the startups that can manage this. Being flexible and enablers of both ecosystems: selling health services to the insurance distribution network and selling insurance products to the health system without arrogance.

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

Tech Giants are entering the market softly and smartly. I do not predict a huge disruption to insurance distribution, I expect more involvement in the infrastructure of the insurance market.

As to the impact of Tech Giants, in terms of numbers, I see the automotive giants will be champions of the distribution model thanks to the embedded products like Tesla or Toyota. Thanks to the new paradigm for mobility, we will have an evolution in the transformation of the car demographic of the country. If we assume that in the next 10 years 30% of all cars will be new, I wouldn’t be surprised if half of this 30% will have embedded insurance.

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

In my experience, as a startup collaborating with a Tech Giant like Amazon or Google, I see a huge professional value regarding the infrastructure.

For example, working on microservices infrastructure and auto-scaling in our server can put you 10 steps ahead of any kind of incumbent that battles with legacy infrastructure. This kind of know-how and awareness can arise only thanks to the collaboration with Tech Giants.

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

As an association, we partner up with the Italian authorities to facilitate the onboarding of applications to the Sandbox.

Regarding the sandbox itself, this makes sense if your idea, business model, or startup is new AND needs a special space where the regulation, technology, and the business model are unknown. In this case, you need a sandbox, otherwise, you get hurt.

The main area that requires improvement is infrastructure, as the number of entities that are able to interact via APIs is very low.”

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

In terms of consciousness and knowledge, open insurance is mature. The main area that requires improvement is infrastructure, as the number of entities that are able to interact via APIs is very low. The number that have leveraged APIs or RPA to manage a streamlined customer journey, is very few.

I hope that the focus for these stakeholders over the next few years is to focus on and level up this infrastructure.

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

Aggregation and consolidation.

Which trends do you see becoming increasingly important?

In terms of technology, it will increasingly important the development of solid and innovative infrastructure or at least a contemporary infrastructure. Specifically, I am expecting the possibility to login into platforms with a digital identity, as a market standard. And the adoption of microservices with increase among the stakeholders.

Who was the Top Insurtech of 2021? Why?

Globally speaking, the Native tech insurance companies like wefox, Wakam, or Iptiq, as these companies are working to change the very DNA of the Insurance business model.

When it comes to Italy, I think of Wide Group, because it was the only Insurtech startup that I know that didn't raise €1. It's a full equity project and has managed to achieve €100million of premium and €15 million Commission with a 20% of EBITDA. It was the only Italian start-up able to present to the market such solid numbers.

Who will be the next Unicorn? Why?

The next Unicorn in that field will be an aggregator company that can be on agents, on brokers, insurance itself, or on MGA, but will be someone that will be able to put on the ground revenues and EBITDA using technology starting from the present distribution infrastructure.

Which was the top technology in 2021?

Computer vision applications in underwriting from, for example, satellite data or on clearing and settlement of claims.

Which will be the next top trend in the industry?

Aggregation through RPA and microservices infrastructures.

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

All the models that include and embrace the present and incumbent structure of the market like pure digital distribution or a 100% automated underwriting system.