Introduction

If you love Star Wars like I do, you are quite likely to enjoy this piece. I think enough is written about FinTech so I’ll focus on how the Star Wars timeline explains the progress of the InsurTech ecosystem. In this blog, when I refer to “InsurTechs” and “FinTechs”, I will primarily focus on “full-stack” entities i.e. licenced insurance carriers and banking charter holders.

Whilst the title might sound humorous, this is quite a serious piece where statements have been backed by evidence.

A New Hope

“I find your lack of faith disturbing.” – Darth Vader choking a high-ranking minion

In Star Wars, “A New Hope” signifies small & scattered efforts to rise up against incumbent “Empire” – on the surface, Luke Skywalker, Obi Wan & Yoda don’t appear like they can cause any damage to the 25,000 Star Destroyers the Empire can field. Heh, if you watched the movies, you know that was not true…

In FinTech, “A New Hope” emerged between 2014 to 2016 – Monzo (3M customers – ’19; UK [1]), Starling (1M customers – ’19; UK [2]) and a wave of independent challengers come to mind. The keyword here is “independent” – none of these challengers were backed by or spun out of their direct competitors.

“A New Hope” – InsurTech (where we were yesterday)

In InsurTech, “A New Hope” emerged prior to 2018. The period from 2015 to 2017 saw a large number of full-stack InsurTechs emerge which can broadly be split into:

1. Fully independent challengers
2. Challengers associated with incumbents through strategic investments

Fully independent challengers are those which have no equity investments from incumbent (re)-insurers or their investment arms although they might seek re-insurance capacity from them.

Star Wars fans might know that the roots of the “Rebel Alliance” (the challengers) stemmed from the Empire itself [3]! There are several ways you can interpret this –

1. Former insurance executives leaving to form full-stack InsurTechs
2. Some “challengers” aren’t really independent though they seem to be! (However, remember the student can become better than the teacher – the Rebel Alliance, an off-shoot from the Empire, wiped out the Empire)

I will stick with the latter interpretation here; some incumbent-linked challengers such as Lemonade Insurance have reported astounding revenue figures – over $100M ARR in 3 years of operations as per their transparency report. [4]

I believe it is necessary to view independent challengers as separate from incumbent-linked challengers, hence, below are some incumbent-linked challengers:

Changing balance of powers

“No, I am your father” – Darth Vader to Luke Skywalker

This iconic quote from Darth Vader in Star Wars is a telling tale of where FinTech was not too long ago (2016-2018) –

1. Digital challengers like Monzo and Starling were gaining ground; Monzo has gone from 2M customers to 3M in 2019 itself.
2. 2016-2018 saw the emergence of “enablers” like 11:FS Foundry, Railsbank amongst others
3. Asian super-apps like Grab and GoJek launched payment arms (GrabPay and GoPay respectively) – notably Grab spun out its financial services arm [5]

In case you’re wondering – like Luke Skywalker, I am confused too. In 2016-2018, FinTechs matured, incumbents got access to tools and new challengers emerged (at least in Asia). What stood out to me is that FinTechs matured (for example, Monzo got its banking charter in April 2017 [6])

In InsurTech, things are not different!

“Changing balance of powers” – InsurTech (an on-going occurrence)

Like FinTech, we’re seeing several “enablers” emerge such as Slice Labs, Trov (after its recent pivot [7]) but I don’t want to focus on them. At the same time, we’re seeing Big Tech (both GAFA in the West and BATD in the East) entering insurance; I will save this topic for “Return of the Jedi & The New Trilogy”

Many of the full stack InsurTechs I listed above did not begin life as licensed carriers. For example, Acko Insurance acquired its license in September 2017 [8]. A common criticism levied to InsurTech start-ups is that they don’t have a balance-sheet or that they are too focused on “niche” product lines. Times change…

The shift balance of powers that I want to highlight is that successful InsurTechs, previously operating as insurance intermediaries, have evolved to adopt the full-stack approach.

Notice how all three recent examples are from the 2016 vintage – this is not a coincidence; if you’ve had a chat with me, I’ve always advocated for giving 3 years credit to any D2C InsurTech start-up to set-up (can even take 1.5 years to get an MGA up & running!)

My specific reason for focusing on this “shift in the balance of power” is that none of above full-stack InsurTechs have equity investments from incumbents (as per Crunchbase) – the growth of independent challengers is healthy for the ecosystem as its spurs competition across the board. This is a sign that InsurTech is maturing. For some further evidence on InsurTechs maturing, do refer to my blog-post here.

The Empire Strikes Back

“You have your moments. Not many of them, but you do have them.” – Princess Leia to Han Solo

If you live in the UK, this was not a jibe at previous comments by banking executives on Monzo……

In FinTech, the “Empire Strikes Back” best takes the form of incumbents launching digital challengers; recent examples include:

1. The launch of Mettle (SME digital banking proposition) by NatWest [9] – Nov ‘18
2. The launch of Bo (retail digital banking proposition) by RBS [10] – April ‘19
3. The beta launch of Kinetic (commercial digital banking proposition) by HSBC [11] – Nov ‘19

InsurTech is not too different……

“The Empire Strikes Back” – InsurTech (where we are today)

(Re)insurance companies have begun to respond to InsurTech – moves by re-insurance companies such as Munich Re, Hannover Re and Greenlight Re are very well documented (if you’d like me to expand on this, I’d be happy to write a follow-up blogpost; just put that in the comment section below). I would like to focus on the underappreciated efforts by incumbents below:

Salient points to note:

1. Leapfrog legacy issues
   • Leapfrogging legacy technology is not the only advantage of launching a digital challenger proposition (which I’d hope is cloud native!)
   • At the time of launch of Blue Insurance, CEO Charles Hung Tak-chow was quoted saying that Blue allows Aviva to side-step the traditional broker channel and go direct to customer (in some cases, the agency channel costs 70% of first year premiums).[12] Nice way to keep everyone happy, isn’t it
2. Sustaining versus disruptive innovation

• • If you’ve read “The Innovators Dilemma” by Clay Christensen, this statement would make sense. The Harvard Business School professor advocates that well managed companies should spin-off units to explore new technologies.
  • It appears as if AXA has done this rather well and seems to have given them some budget as well (unlike most “innovation” departments) evidence from AXA Venture Partners. You can read the statement from AXA here.

To be completely honest, I could fill a few pages here on what incumbents are up to, but that isn’t constructive in any way.  What I’ve found interesting is that people comment on start-up failure but never on incumbent failure in the same critical light.

This month, AXA closed down Fizzy – its parametric travel insurance product running on the Ethereum blockchain protocol. Tensions ran high on InsurTech twitter – I’d commend AXA for running a serious blockchain R&D project. Bottom line – once you’ve tasted a failed experiment, you know you’re really trying to innovate. And, just like some start-ups fail, we will see corporate innovation projects fail too.

Return of the Jedi and The New Trilogy

“I need someone to show me my place in all of this.” – Rey to Luke (during “The Last Jed”)

If you’re a Star Wars fan think about this – we’re currently in “The Empire Strikes Back” – who (or will be) the First Order?

I won’t be prophetic here but Big Tech has been doing a lot in FinTech lately –

1. Apple Card with Goldman Sachs in USA (struggling with social bias) [13] – Aug ‘19
2. WhatsApp Pay is making (slow) progress in India [14] – June ‘19
3. Google’s recent announced tie-up with Citibank in USA [15] – Nov ‘19

In InsurTech, things are no different

Return of the Jedi & The New Trilogy – InsurTech (where will we be?)

BigTech is making big moves within insurance – to understand why, it’s important to appreciate the concept of “Jobs-to-be-done” (JTBD) [16]

Ask yourself – “Why have (if at all) I bought (motor, home or XYZ) insurance?”

You don’t want that piece of paper (unless it’s a motor policy and you’re proving to the policeman that you’re insured!) – you seek peace of mind that in the event something happens to you, you’re safe.

JTBD would tell us – the underlying job of an insurance customer is downside protection.

Part of the “InsurTech movement” has been focused on moving from retrospective indemnification of damage (the traditional insurance model) towards proactive risk mitigation through the use of telematics (motor), wearables (health) and IoT devices (home).

Examples of this movement include Vitality insurance (UK; health insurance), Hippo Insurance (USA; smart home insurance) and Root Insurance (USA; motor insurance) amongst others.

In a world where insurance becomes focused on risk mitigation with residual risk transfer, would insurance companies (as we know them today) be better placed than technology companies? It is hard to say, but let’s examine some facts:

Google recently acquired Fitbit for $2.1bn (Nov ’19) [17]

I wrote an extended piece on how this acquisition might have significant implications for the insurance industry. Google Ventures has sizeable stakes in some US based health insurance start-ups such as Clover Health, Oscar Health and Collective Health – could Fitbit (owned by Google) become the de-facto wearable associated with health insurance policies from Google’s investee InsurTech companies?

Academic literature now suggests that wearable devices could be used for pricing life and health insurance schemes [18]

Apple has been building its insurance presence

• Apple partnered with Aetna (now owned by CVS) to offer the “Attain” app in the USA; a wellness app to complement Aetna’s health insurance programme. [19]
• Apple Watch Series 5 is the wearable device offered under Vitality UK’s health insurance plan. [20]

Amazon has made forays into insurance

• Led the $12M Series B in Acko Insurance (India) – May ’18 [21]
• AmazonPay will be distributing insurance in India (similar to price comparison website but with restricted scope). [22]

Let’s look Eastward to Tencent and Alibaba (Ant Financial) which are pioneering the “mutual aid” model as an alternative to insurance. “Mutual aid” is the idea of individuals coming together and only paying for the actual cost of claims incurred by others within their group (think of this as peer-to-peer insurance).

Perhaps, BigTech might indeed be the “First Order” (from Star Wars) in the future for the insurance industry……

For you:

What are your thoughts on using the Star Wars timeline to understand the progress of FinTech and InsurTech?

Who do you think will emerge on top (incumbents, InsurTechs or Big Tech) and why?

Is there any part of this article you’d like me to expand on in detail?

Closing words

1. The Star Wars timeline provides a mental model for how the FinTech and InsurTech ecosystems have progressed over time; although I focused on InsurTech here, I’ve made every effort to highlight the parallels for FinTech as well.
2. The progression of FinTech and InsurTech aren’t all that different –
   • Both are witnessing the early vintage of start-ups “mature” and incumbents are responding
   • Both are increasingly seeing direct (partnership model) and indirect (venture capital investment led) participation from BigTech (both in the West and in the East)
3. The New Star Wars Trilogy suggests the emergence of a “First Order” (new powerhouses) but it remains unclear as to who the powerhouse(s) will be; is it:
   • Successful InsurTech start-ups OR
   • Incumbents who innovate OR
   • Someone else (perhaps, Big Tech?)

Disclaimer

Views expressed in this article are my own and do not represent those of Accenture, its management, its employees or its affiliates. This article does not constitute investment or any other form advice. The author bears no responsibility in the event of financial or other loss arising from actions taken by the reader or any related party on the basis of information represented in this article. The author does have any financial interest in any firm mentioned in the article above; this article is produced for educational purposes. For any further queries or complaints, kindly email me at rahul.j.mathur@gmail.com

About the Author

Rahul is a Consulting Analyst at Accenture; he is currently the Cohort & Communications lead at Accenture’s FinTech Innovation Lab in London. Prior to joining Accenture, he was an Insurance Product Manager at Laka Insurance, a London headquartered early stage InsurTech start-up which recently won at the British Insurance Awards 2019.

He spent his childhood in Mumbai, India and holds a master’s degree in Statistics from the University of Warwick. As an Ambassador at the Asia InsurTech podcast, he has a keen interest in the InsurTech ecosystem in Asia. If you found this article interesting, feel free to reach out via LinkedIn or Twitter. Any comments, feedback or constructive criticism is welcome.