A couple years back, I had the opportunity to speak with Todd Galina from Trace 3, a consulting firm that works with CIOs on helping to transform their IT operations and their businesses. Trace 3 has an interesting program for its CIO clientele, who tend to hail from mainline businesses: they will fly them out to Silicon Valley for a chance to immerse themselves in startup culture. In Trace 3’s “VC briefing program.” The consultants will “take CIOs out of their offices and fly them out to the Silicon Valley, where they meet with many up-and-coming start-ups,” Galina explained. “Most of them are start-ups that would help them with their businesses.”
Some of Trace 3’s clients were insurance CIOs, and there’s no doubt many more would benefit from such exposure to startup culture. Especially nowadays, when many established insurance companies are interested in developing their own startups in the burgeoning insurtech space.
The pace of startup activity will continue. In a new report, Gartner consultancy estimates that more than half of the world's 25 largest insurance companies have already invested directly or indirectly via their venture capital arms in insurtech startups. In addition, the consultancy predicts that 80% of life and P&C insurers worldwide will partner with or acquire insurtechs to secure their competitive positions within the next two years. The number of technology startups in the insurance industry has more than doubled globally during the last three years, according to Gartner analysis of the sector conducted in the second quarter of 2016. Digital customer engagement, mobile insurance management and analytics are the most common technology focus areas of insurtechs.
Gartner also has a piece of advice for insurance executives interested in launching an insurtech startup: keep it separate from the main part of the business. Gartner VP Juergen Weiss said he “has seen growing interest among insurance business and IT leaders in collaborating with insurtechs or making them part of their overall innovation policies.” There’s also a challenge to this. “Most insurance CIOs are not familiar with these companies or their value propositions," Weiss said.
Essentially, a startup culture is very, very different than an established business culture. It may be something as simple as the more informal (albeit longer) work hours that are part of the startup experience, versus the more structured 40-hour weeks that are seen in established companies. There’s also a greater, and more informal, openness to innovation seen at startups, versus the more bureaucratic channels that new ideas must wend their way through within established companies.
But there’s something else that must be considered as well. Startups are risky, and often fail. While an established enterprise has a cushion that can help it ride through tough time, or support a long gestation period of a new product idea, there’s little room for error in a startup. You never know when the plug may get pulled. Not all insurtechs “will survive," Weiss points out. "Insurance CIOs will need to develop a fail-fast approach and an exit plan that secures intellectual property and critical resources."
When it comes to launching an internal startup such as an insurtech operation, a separate organization, with its own culture, is needed, startup experts emphasize. “All companies want to explore new areas, but in the established organization it’s difficult to start something new,” says Janne Jarvinen, co-author of The Cookbook of Successful Internal Startups. “With an internal startup, you don’t worry about the existing organizational structures. From a company perspective, because the startup is not embedded into the larger organization, it’s easier to handle and it’s easier to see whether it’s producing results. It also gives employees the chance to be involved in something new.”
Eventually, with success, the internal startup matures, and it is at that point it begins to meld back into the main business. By that time, new markets have been explored, new products are flowing, and new customers are part of the community.
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