On this episode of the Accenture Insurance coverage Influencers podcast, InsureTech Join’s Caribou Honig explains how incumbents can scale back the danger of investing in new options, the significance of expertise and tradition—and why failure and innovation go hand in hand.
Classes discovered from Caribou’s time in bank cards and lending: Expertise and tradition play necessary roles in driving an organization’s strengths and weaknesses; failure is important for innovation; typically it’s not sufficient to entry knowledge—it’s essential create knowledge.
Classes discovered from Caribou’s time as a VC: A visionary chief can drive success or catalyze change in an industry; and constructive choice is important to creating sturdy enterprise alternatives.
For incumbent insurers seeking to enhance their innovation capabilities, two choices are to amass a start-up or to construct these capabilities in-house. Shopping for requires the incumbent to foster cross-pollination of the start-up’s innovation capabilities; constructing requires a have a look at operational and compensation constructions.
Making a extra dynamic future in insurance coverage
Season two of the Accenture Insurance coverage Influencers podcast takes a deep dive at insurtech. Scott Walchek explains Trov’s journey from direct-to-consumer providing to supplier of white-label companies for incumbents. Ruth Foxe Blader, a managing director with VC agency Anthemis, appears to be like at what the insurtech industry must do for long-term viability.
Danger, failure and innovation, with Caribou Honig
That is our third (and final episode) with Caribou Honig. To date, we’ve seemed on the evolution of insurtech and the social implications of digital-first insurance coverage merchandise. On this episode, he explains how incumbents can take a web page from the start-up playbook to innovate extra successfully.
The next transcript has been edited for size and readability.
Hi there and welcome to the Accenture Insurance coverage Influencers podcast. I’m your host, Eagranie Yuh. My visitor immediately is Caribou Honig. Caribou is the chairman and co-founder of InsurTech Join, in addition to the co-founder of the HR Rework convention. Thanks for being right here immediately, Caribou.
It’s my pleasure. Thanks for having me.
Your background spans a number of industries and I feel that has attention-grabbing implications for what you’re doing immediately. I wished to begin not fairly at first, however at Capital One, which is a corporation that’s recognized for its data- pushed focus. What did you be taught there and the way does it apply to what you’re doing now in insurtech?
I actually had the nice fortune to chop my enamel for my profession at Capital One. I began there in ‘96 and it was the heyday for the corporate, the hyper-growth years. I used to be capable of extract a couple of classes.
Expertise and tradition. As you construct a company, expertise and tradition drives each the strengths—and finally, the weaknesses—of an organization. I nonetheless keep in mind the founders allotted 20 % of their time to interviewing candidates for the corporate, right through the entire historical past of the corporate. That was to be able to ensure they have been hiring the expertise that they wished. The affect of tradition is one thing I nonetheless take into consideration immediately from these days.
The significance of failure in firm tradition. There’s an anecdote I keep in mind, that the CEO would put up what he’d name The Eureka Checklist. It which was round how some particular person had so boldly proclaimed that some concept was going to work. To be on the high of the Eureka Checklist, you needed to have had that concept championed and have it fail amazingly within the market. This was truly meant to encourage folks. This was truly a level of pleasure to be on the Eureka checklist, as a result of when you weren’t sticking your neck out with concepts that might fail, then you definately weren’t doing all your job.
Knowledge and the scientific methodology. Capitol One is very data-driven as a company, and an enormous a part of that’s the scientific methodology was actually ingrained into fascinated with how one can function the enterprise. It wasn’t simply utilizing the info that was at hand, though it actually did that, however the way it created knowledge, proper? The notion that we’ve a speculation about how customers are going to behave, how they’ll react to some supply, what their threat can be and as soon as we’ve truly given them a product. And we could not know the reply, so let’s go forward and do the check and create the info set for that.
I feel that’s actually relevant truly to the insurance coverage world as nicely, each the expertise tradition facet and the notion of, you typically have to truly create the info relatively than simply entry current knowledge.
Tright here’s this status for monetary companies and insurance coverage, particularly, as being fairly risk-averse. So you’ve talked about, initially, this concept that to be able to be on The Eureka Checklist you needed to fail. That’s fairly atypical, I feel. And the scientific methodology entails not knowing the reply and going out to seek out it––I feel it’s one thing that makes incumbents a little bit bit uncomfortable. Would you agree or disagree?
I feel it makes them very uncomfortable. I feel that’s OK. After I take into consideration incumbents that may have been round for many years or in a couple of locations, centuries, they’re actually good at resilience. They’re actually good in danger administration—and that’s not meant as a euphemism for “not truly good in danger.” They’re truly, actually, fairly good in danger administration.
And that applies for a lot of, many banks and that applies for a lot of insurance coverage corporations and the like. However normally, what they’re not structurally that good at––and there’s at all times going to be exceptions in fact––is nimbleness and agility relatively than resilience. They’re not going to be nearly as good, usually, at good risk-taking, proper? At how one can create a tradition, how one can construct the expertise pool, the product designs that facilitate taking dangers, relatively than managing dangers. And that’s the place you get these openings for the start-ups to come back in, or different kinds of organizations, that may begin to discover pockets of alternative and develop them into one thing attention-grabbing.
That’s an concept that I’m certain we’ll be returning to in a while in our dialog. For now, I’ll carry us again to our stroll down reminiscence lane. After Capital One you co-founded QED Traders, a boutique enterprise capital agency that had a give attention to data-driven corporations. So identical query: what did you be taught there and the way does that apply to what you’re doing in insurtech immediately?
Certain. There have been in all probability two massive classes that I discovered or bought strengthened throughout my time at QED:
The affect of a visionary chief and the way they’ll drive the success of an organization and even catalyze change in an industry.
The significance of constructive choice in offering us a powerful pool of corporations to pick out from, and spend money on.
First, start-up management. We had the nice fortune to spend money on many corporations that had visionary leaders. Not each chief that we invested in turned out to be a visionary, and a handful have been visionaries who possibly couldn’t execute on the imaginative and prescient on a regular basis, however you can actually see the affect that a singular, top-notch entrepreneur had on the end result for the corporate. And it’s a little bit little bit of traditional VC knowledge, however I feel it’s additionally true regardless, that you simply’re actually backing, at the beginning, the entrepreneur. Everything after that comes secondary.
The opposite lesson I discovered—and this was an perception by one in all my companions—is that at a sure level you begin to turn out to be like a hammer searching for a nail. The place you begin to do numerous insurtech investing, you begin to see all the pieces like an insurance coverage play.
As VCs, what actually struck us was the notion of constructive choice as the important thing to the fort. We noticed how a lot of the job of investing was making a model and a price proposition about who we have been as buyers, in order that one of the best entrepreneurs and greatest corporations that have been one of the best match for us, would search us out or get referred to us. That meant we may very well be fairly good at determining which corporations have been nice prospects (and which ones weren’t), but in addition that we’d have an amazingly good pool of corporations to have a look at and choose from when making our investments.
All of it comes right down to: How do you drive some constructive choice? That’s an sudden lesson from the VC facet that I feel applies to all these threat companies.
Tright here have been numerous company VC arms sprung up as subsidiaries or related companies of insurance coverage corporations, making an attempt to seize a few of what boutique or non-public enterprise capital corporations are doing. Do you are feeling like there’s a distinction in how that enterprise is executed? Are there locations the place possibly the smaller corporations are higher, the larger corporations are higher, and what can they be taught from one another?
I actually like and have been…I’ll name it surprisingly impressed, by the company VCs from insurance coverage. I should admit I am going into it having a reasonably skeptical, possibly even cynical, view of company VC. It’s arduous, and so they usually are requested to serve too many masters without delay. Their incentives are sometimes fallacious in company VC. They usually should have a line operator as one of many champions and that finally ends up messing up the timelines. However I’ve been actually impressed that the company VCs in insurance coverage are working, for probably the most half, fairly neatly—and not simply from the angle of industry information, which in fact they’ve bought, however from a course of standpoint.
It’s again to being an opposed choice / constructive choice query. In case you’re an entrepreneur and you’ve got a few time period sheets from conventional, monetary–kind VCs and also you’ve bought the promise of possibly a time period sheet from a company VC two or three months sooner or later (due to their course of and timelines), you’re going to take the chook within the hand. Even if, all the pieces else being equal, you like the company VC.
That implies that a company VC that has an unusually lengthy timeline or an unusually onerous course of is just going to get the entrepreneurs and the start-ups that the normal VCs don’t give time period sheets to. And that’s a recipe for opposed choice.
I don’t know if it’s express in the mindset and considering of the company VC, or if it’s simply so deeply rooted within the DNA of insurance coverage corporations, the notion of “how will we keep away from opposed choice?” However I feel that they’ve boughtten and internalized that lesson, and for probably the most half function in a really industry-standard approach.
I feel lots of them have made nice investments. There have been some actual winners on the market among the many company VCs and insurance coverage. So I like what they’re doing.
Inside incumbent insurers, there’s a expertise hole and challenges enticeing youthful employees. At the identical time, the insurtechs are inclined to skew a little bit bit youthful and are attracting youthful folks to the insurance coverage industry. So what’s taking place as incumbents and old-school workflows are coming along with youthful employees and insurtech?
Relating to expertise and tradition, I feel that insurtech is actually good information for the industry as a whole. I firmly imagine it’s drawing in an incremental expertise pool that beforehand wouldn’t have been prone to take into account insurance coverage for his or her profession.
I feel we will agree that insurance, as an industry, has a little bit little bit of a model drawback. It’s both very stodgy and old-school or it’s lizards with an Australian accent. And I feel that insurtech shines a highlight on innovation alternatives.
Tright here are some actual attention-grabbing concepts about transformation of this industry, notably led by know-how and notably led by, in some instances, some modern know-how. I feel that performs into the consideration set for folks in search of work. Whether that has them graduating from an awesome faculty comp science program and going straight right into a start-up, or going to an incumbent first, it virtually doesn’t matter. So long as you carry the expertise into the industry, then that expertise will begin discovering methods to do nice issues.
Now, you’ve bought to make it possible for the antibodies don’t come out in the event that they go to the incumbents. If I’m actually fired up about making a distinction in folks’s lives and I be a part of an insurance coverage firm with 40,00zero folks and all my pleasure will get snuffed out by the antibodies from individuals who’ve been there for 30 years…nicely, that’s a disgrace.
I feel that probably the most formidable insurance coverage corporations which were within the industry for many years or centuries, they do must be actually conscious that they’re creating the best surroundings. An surroundings the place innovators and a next-generation, very completely different kind of expertise, don’t simply really feel at dwelling, however can truly thrive. And that’s not a simple job from a change administration perspective.
I feel lots of people give attention to the know-how: we must be digital, we must be customer-centric. However as you say, on the finish of the day it’s a tradition subject and that’s rather more difficult to vary.
You’d talked about that at Capital One tradition was actually pushed by the management. They have been spending 20 % of their time interviewing folks and ensuring they have been getting the best folks. If you might be an incumbent that has traditionally not had that sort of a tradition, the place do you even start?
I feel there’s a couple of completely different paths there, and I don’t assume there’s solely one path that works or doesn’t work universally.
There’s a traditional “construct, purchase, lease” method relating to company technique, intertwined with the expertise and tradition piece.
I feel that when you’re going to attempt to construct from inside—which is a wonderfully legit method—you’ve bought to do it actually eyes huge open. Are you going to do it by ring-fencing: creating a bunch that’s off to the facet? Or are you going to do it throughout the current administration construction? You don’t wish to do it midway and not succeed in any respect since you’re mixing and matching.
You’ve bought to consider compensation. There are honest critiques and downsides of the equity-based compensation that start-ups use, notably of their first few years, to draw nice expertise. However there’s additionally numerous upside to it, together with at a cultural degree. As a result of by the way in which, when you’re asking folks to work twelve hours a day as an alternative of 9, then giving them some fairness—some sense of possession—in what they’re constructing, is necessary.
How do you try this? Even when you’ve bought a skunkworks, or ring-fenced group proper inside a big group, how do you give the workers of that skunkworks some sense of possession and a few type of financial participation in what they’re doing? And when you do begin to give them some fairness participation or phantom fairness in it, then does that anger everybody who’s not within the skunkworks? Do they are saying, “Hey, these guys over there are getting fairness, however I assumed I used to be doing one thing necessary however I’m not getting any.” Do I open a tough can of worms there? Perhaps.
You’ll be able to purchase. But while you purchase, you’re additionally getting a group, you’re getting folks and also you’re getting a tradition with it. And particularly on the sort of multiples that it’s essential pay to amass something in fintech or insurtech, you actually are shopping for much more than simply the product and distribution that the corporate has immediately. You’re actually betting on the group that you simply’re buying, that they’ll proceed to ship. How do you try this?
Considered one of my favourite acquisitions that I’m monitoring, as a result of I’ve my very own thesis about it, is totally unrelated to fintech or insurtech. It’s the Walmart acquisition of Jet.com. I feel when Walmart acquired Jet.com, they mainly put the founder/CEO of Jet answerable for Walmart.com. Walmart truly increaseed the acquisition scope to incorporate an important a part of the acquired’s firm.
Primary, that’s key for spreading like the tradition and DNA of Jet to the broader group, like a retrovirus. Walmart needs extra Jet DNA; it doesn’t wish to have its antibodies come out and snuff out Jet’s DNA. In my very own head, I guess that the CEO of Jet.com is the eventual CEO of Walmart. That’s in all probability a little bit bit extra on the market as a prediction.
However I feel that if the view is, “Okay, how will we set up this firm for the following 50 years?” Ultimately, that is an e-commerce firm, married to a brick-and-mortar firm. We’ve bought all of the brick-and-mortar DNA we’ll ever need; we want that e-commerce DNA approaching sturdy.
So if I hear tomorrow that some 50-year-old insurance coverage firm is shopping for a succeeding insurtech start-up, then I’ll be most excited to see what scope of authority that acquired firm has and whether or not they’re truly attending to handle a bunch of the acquirer’s enterprise, not the opposite approach round.
I like this analogy of a retrovirus. As an alternative of seeing the insurtech as being engulfed by the incumbent, it’s the opposite approach round––the affect strikes the opposite approach. Do you see different sorts of retroviral therapies to go along with the analogy?
I feel that any time that an incumbent is partnering with start-ups, I feel that it’s going to create publicity and, notably if it goes nicely, that may begin to create some beacons and behavioral adjustments and a way of what’s attainable. I feel that the company VCs play a job in that, however actually not the one position as a result of I feel that there’s numerous business partnerships taking place.
I feel that there’s a 3rd class of firm moreover the incumbents and the insurtechs. And it’s mainly the tech titans, and I loop a few of the profitable fintechs into that as nicely. These corporations have the DNA of start-ups, grew their enterprise someplace exterior the scope of insurance coverage, however now are beginning to someplace between dabble and encroach within the insurance coverage house.
And I feel that’s attention-grabbing once more, as a chance for an incumbent to begin to have interaction there. Maybe they’ll have interaction cautiously, however begin to have interaction, as a result of once more it’s an opportunity to begin to get publicity to different methods of doing enterprise, different concepts, different examples of carrying threat administration and risk-taking collectively. How do you are taking resiliency and agility beneath one roof?
Do you’ve gotten any feedback on how one can make these issues come collectively a little bit bit extra simply? In case you’ve bought resilience on the a part of a pretty giant incumbent, and you’ve bought the agility of what’s in all probability a smallish start-up, what are methods to get these two issues linked? And how do you cross-pollinate the best issues versus the antibodies?
From a enterprise perspective, I feel it usually comes right down to, “How will we spend money on lowering the danger of being fallacious?” If I can take the danger of being fallacious right down to one thing the place it’s the minimus, then that offers me the power to take much more threat taking with out sacrificing my threat administration dedication. Sometimes, it lets me transfer extra nimbly with out sacrificing my resilience.
For occasion, that is the place I get obsessive about automated programming interfaces (APIs). They’re the glue between completely different items of software program.
I prefer to say that an API is a extremely a enterprise technique masquerading as a know-how technique, as a result of though nominally it’s concerning the know-how you’re utilizing, actually it’s a enterprise thesis round lowering the price of integration between completely different elements of what you are promoting. When you scale back the price of integration or exposing some functionality you’ve bought to , right down to one thing that’s the minimus, then biz dev, as an example takes on a completely completely different look.
If I should do a half–million–greenback IT integration to be able to check out some new knowledge set or some new algorithm or some new claims functionality, that’s not only a half million dollars I’ve to outlay of IT. There’s truly a complete decision-making equipment I want to use, and a gross sales equipment that has to get utilized by whoever is making an attempt to make that sale to me. And so forth. And which means then there’s additionally a protracted timeline that in all probability lasts months. Why? As a result of the minimal value to strive it’s half 1,000,000 dollars.
But when the API is on the market already and it’s nicely documented, my value of making an attempt it’s a lot much less. If I’m the developer and I wish to strive it out, I learn the docs and register my e mail and I get to do 10 pings a day. All proper, okay. And possibly I want pay 5 dollars per ping for it, nice. I can try this on my company card. I don’t want my CFO to log off on something. I don’t want a gross sales particular person to speak to a buying division.
So you get this functionality examined rather more cheaply and rapidly. And I feel that’s very, very highly effective for enabling this mixture of threat taking and threat administration, this mixture of agility and resilience.
We’ve talked about loads. Collectively, what steps does this industry must be taking to be able to put together for a wholesome, agile, resilient future?
If I should take it down to at least one core piece, it comes again to one in all my beginning themes right here, which is constructive choice. I feel that in a threat enterprise—and actually insurance coverage is a threat enterprise, as is lending—the actually attention-grabbing transformations occur when corporations construct out product improvements that drive constructive choice.
When an organization does that, whether or not they’re a 100-year-old incumbent, or a 20-year-old tech titan, or a 2-year-old start-up, that’s the place the magic can actually occur. And it’s magical as a result of it advantages the shopper and the supplier and the entire worth chain.
It’s been actually attention-grabbing to have this dialog Caribou. Thanks for taking the time to affix our podcast.
Thanks. I’ve loved it and I hope your listeners do as nicely.
Incumbent insurers are expert in danger administration, however not in danger taking—and that’s creating pockets of alternative for insurtechs.
Insurtechs present incremental elevate to the insurance coverage expertise pool—particularly, attracting expertise who wouldn’t have been prone to take into account profession choices in insurance coverage in any other case.
To foster innovation, incumbents want to have a look at methods to scale back the danger of being fallacious. For instance, APIs can considerably scale back the time and price of testing concepts.
To attain a wholesome, resilient future, insurance coverage gamers ought to have a look at product improvements that drive constructive choice—that entice the purchasers they need, that drive the outcomes they need, and that reinforce the expertise and tradition they’ll must succeed once more.
For extra steering on balancing threat and reward:
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