InsurTech, Big Tech and Disruption — An Interview with Sascha Noack
I recently had the pleasure to sit down with Sascha Noack of the New Players Network, and talk to him about the current state of InsurTech in Germany. Sascha, who is Specialist Business Design and Innovation at Digital Impact Labs, knows both sides of the insurance spectrum and is one of the best connected people in the German insurance market. We met at the Digital Impact Labs in Leipzig to talk about the New Players Network, innovations (or the lack thereof) within insurance, Big Tech possibly disrupting the sector, and more.
The interview has been lightly edited for clarity.
“We open a lot of doors but the InsurTech’s need to step through them.”
Albert: Can you tell us a bit about what the New Players Network does?
Sascha: At New Players Network we see ourselves as facilitators between startups, who are breaking into the insurance industry, and incumbent insurers. The idea is to use our access and network to help startups find the right cooperation partners within the insurance industry, and the other way around. Ultimately, we open a lot of doors but the InsurTech’s need to step through them. A lot of interesting cooperations have developed that way between various startups and incumbents, such as in the case of fileee (digital document management) and VGH Insurance, as well as virtual Q and Gothaer.
Albert: Where along the insurance value chain do you think can InsurTech startups affect the most change?
Sascha: Historically, the sales side has seen the most attention but there’s more activity appearing on the B2B and B2B2C side now. One example of that is Kasko, which is offering InsurTech as a service and integrating complete digital concepts for incumbent insurers. With that said, I think that currently the winners are the ones who are improving the back-end processes of insurance and who are focusing on everything data-related. Moving beyond comparison portals and digital brokerage concepts can generate a lot of value, especially in areas which do not fall within the classic insurance core competencies. However, the key question for startups is always about where along the value chain they can do things better and deliver the most benefits with their niche offering.
Albert: Has InsurTech maybe been too focused on the B2C part of the insurance value chain? Does the focus need to change?
Sascha: There’ve been a lot of copycat concepts at the beginning of the InsurTech wave and this has led to the distribution end of insurance becoming quite crowded. As a consequence, you need to be able to offer more than just the pure end customer focused play if you are entering the market today. If you’re just adding another B2C sales app to the lineup, you may be missing the mark. I am also not sure that there’s any space left between the large aggregators sites, and customer acquisition costs have become quite high in any case. But, it will be very interesting to see what happens within this segment when WeFox secures its next financing round. Money can change the entire playing field considerably.
“I really can’t hear the word “disruption” anymore, because ultimately nothing is being disrupted at the moment.”
Albert: Do you think that InsurTech is actually disrupting the insurance industry, or is this word being used too lightly these days?
Sascha: When you look at the insurance industry you find something of a market anomaly, in that a lot of money is being made, but in a very inefficient and largely manual way. It feels like there just aren’t many markets that would be similar in that respect. I really cannot hear the word “disruption” any more, because ultimately nothing is being disrupted at the moment. Things are being improved upon and efficiencies removed, but I think it’s a bit bizarre when we talk about innovation with InsurTech in mind. There’s still not that much that is actually new in the market — the name of the game are still cooperations, and InsurTechs developing solutions which are then sold to incumbent insurers.
“I think things will become really interesting when the Big Tech players move in.”
Albert: At what point do you think will be able to speak about disruption and where do you think will it come from? Re-insurers, Big Tech?
Sascha: I think that re-insurers, especially in terms of investments and cooperations are quite a bit faster than insurers, and they are also more aggressive. But, I think things will become really interesting when the Big Tech players move in. In the end, it is about who understands the customers and gives the customer exactly what they want. I don’t think that customers want the 7th modular insurance product, as much as as they simply expect risks being taken care off in the form of another seamless service offering. If someone starts to view this market from a non-insurance perspective, adoing things complete differently, that’ when things will start to become really interesting.
Albert: Do you think that Big Tech is really interested in the entire insurance value chain, and which insurance segment would they go for?
Sascha: I don’t think that players such as Amazon and Google want to become risk carriers, and if they move into insurance my assumption is that they will get a strong reinsurance partner on board to transfer the risk to. If that happens, it will also become quite difficult for the InsurTechs to make a dent, because in terms of pure tech and data competency they are no match to Big Tech. How exactly these new entrants would change the market is really tough to predict, especially because they may view their entry more from a customer acquisition and retention angle. I don’t think that health and life insurance would be the key focus initially, but then again, it just takes one player to decide in few years that we fundamentally need to rethink health insurance in Germany. Looking back five years, I would’ve not predicted the emergence of ottonova health insurance back then.
“Insurance is a business that’s largely dependent on scale, and it is safeguarded by regulation.”
Albert: What other changes could affect more fundamental disruption of the entire insurance sector?
Sascha: A lot of change may come via fundamental changes in how people view insurance these days and one example of that is arising already within the mobility sector. If we move from insuring vehicles to insuring a person, for instance, enabling people to drive any kind of vehicle and be covered in every case, insurance would be changed quite fundamentally. The basic concept of insuring risks of the individual through the collective will most likely remain intact in the future. However, most people do not want to enter into long term contracts for every source of risk and liability in their lives — they want these needs be taken care of in a more simple and service-oriented manner. In other words, removing the cumbersome insurance viewpoint, but retain the security aspect. This too you see emerging within mobility, with people completely rethinking what it means to be mobile, and consequently they are changing their perspective on car ownership.
In my view — and I may get a lot of slack for saying that — insurance, or the financial management of the underlying risks, is not that complex. Insurance is a business that’s largely dependent on scale, and it is safeguarded by regulation. When that structure crumbles, banks, Big Tech or large investment funds could move in and handle the risk-bearing component in the future. If that happens, and you add to that changing customer attitudes, things will start changing dramatically.
“I don’t think that all the InsurTechs out there have been founded on a solid business model.”
Albert: Is the market liquid enough at the moment to finance the startups coming up?
Sascha: From what I can tell, there is money in the market, but the question is whether startups coming up that cater to the right needs at the moment. If anything, I would rather say that we are maybe seeing something more reminiscent of a bubble, since I don’t think that all the InsurTechs out there have been founded on a solid business model. It remains to be seen what kind of ROI the money that has been injected into the market will generate. Whether someone like WeFox will be able to close their next funding round will be a good indicator for the market sentiment and a precursor for many changes as well. Wefox has a clearly articulated strategy and so let’s see what they do with the money once they receive it.
Albert: What main problems do you see when startups are moving into the insurance space and cooperating with incumbents?
Sascha: The real problem is that you have two very different worlds clashing here: startups and insurers. I think that for startups it is important to realize that the insurance business requires a long term commitment. Many founders come from non-traditional backgrounds with little insurance expertise, and they may be used to a more innovative and fast paced environment, such as E-commerce. But in insurance you inevitably have to deal with very complex regulatory frameworks and the sales cycles are long. There are also many founders who don’t understand the insurance business well enough, but you really ought to have a mix of an insurance and a startup mindset on your side. And in any case, you also better have a detailed understanding of Solvency II and insurance regulation.
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