As someone who has launched several successful new insurance enterprises in Canada, what are some of the key tips you can give founders who are building an insurtech company?
The key to success for insurtechs or really any company is, in my opinion, the team of people you are able to attract. Having a great idea, concept or solution is important, but so is having a connected senior executive able to attract solid, capable people as co-founders and as team members. If you can’t attract a strong team your business will struggle. That is the cornerstone of success.
Having a clear strategic vision of where you want to take the company and having a plan in terms of how you expect to execute that vision is key. But you also have to be agile and be ready to pivot on a dime in the event circumstances change, which they inevitably will.
Insurance remains a relationship business—it is very much who you know and the extent of your network and your connections—so a new insurance business needs to consider how they are going to get access to the right people and companies.
Using data effectively to drive pricing and decision-making in the insurance industry is another area where people are really starting to compete and differentiate.
Strong partnerships and relationships are also important on the journey toward raising capital, having an appropriate capital structure, and ensuring the long-term viability of the company. It is also crucial to have strong capital backing from a partner you trust with a common vision of what you intend to do with the company, either selling, taking public, etc. Most insurtechs burn cash and lose money in their early years and are soon scrambling for capital, which can take time and focus away from the business. Companies only go broke for one reason—they run out of cash or lose access to cash. So, while having access to additional capital is key, insurtechs should also find a path to profitability as soon as possible because once a company is profitable, or at least cash-flow positive, it then controls its own destiny, while maximizing the valuation of the company.
What are some of the top technology areas you expect to emerge within the insurance industry?
Within the P&C industry, everybody is talking about generative AI and machine learning and maximizing the collection and use of data to help with business decision-making. There are numerous opportunities for finding ways to efficiently handle tasks in what has always been traditionally an inefficient business. Approximately one-third of all premium dollars paid end up being spent on expenses and overhead, and all insurance companies are trying to find ways to reduce expenses to be more efficient and find a competitive edge, often through IT strategies. The current view is AI may provide that edge.
There’s also a lot of perceived risk associated with it, and everyone from regulators to executives and senior management is asking “Where does this lead?” and “Can it create additional unforeseen issues, challenges and risks?”. But there’s no question that this technology is an enabler and a foundation for transformation, and the business is definitely going that way.
Data is another big element. Using data effectively to drive pricing and decision-making in the insurance industry is another area where people are really starting to compete and differentiate. Both artificial intelligence and how you collect, manage, store, and utilize data can impact the business and can help drive growth and make better-informed decisions.
What are the biggest challenges facing emerging companies in the insurance space?
If you’re starting a company in the insurance space in Canada or trying to grow a small one into something more meaningful, I would suggest the number one limiting factor is people. You’re only as good as your people, and it is not easy to find, secure and retain really good talent. You also need to get your team aligned around the vision of what you’re trying to accomplish and ensure that your culture is conducive to what you’re trying to accomplish.
Are there any underserved areas in terms of the adoption of technology that you feel the industry is now turning to, or that they should turn their focus to next?
One of the key areas in P&C insurance that the industry has been debating for years has been the future of distribution. Many have predicted the demise of the broker’s role in P&C insurance with the expectation that more business consumers will eventually buy direct. This just hasn’t been the case, especially when it comes to the larger more sophisticated accounts. There have been inroads made by several digital and online insurance providers and brokers offering improved experiences for insurance customers with fairly straightforward requirements. While I believe there will always be an advisory role for the broker on the larger risks with complex needs, the game is changing when it comes to the smaller, less complicated risks.
Most insurance companies distribute their products through brokers although some have also gone down the path of automated direct-to-consumer approaches. Insurance companies are increasingly distributing products through managing general agencies (MGAs), who are specialized brokers, often with underwriting expertise, who utilize a delegated underwriting authority to write business on behalf of an insurer. The MGA business has been growing significantly in Canada over the last decade with currently over 80 active MGAs. MGAs take on much of the underwriting work on behalf of the insurance company, which helps with expense management. They also typically have a fast turnaround as they tend to be focused on certain segments—so if a risk falls within their authority, they can immediately provide terms and bind the risk, generally on excellent terms. Retail brokers are also turning more and more to MGAs to help them place business efficiently.
Insurance companies, brokers and/or MGAs that can deliver efficient and positive customer buying experiences are likely going to benefit the most in the future as consumer buying behaviours continue to evolve. How companies throughout the insurance value chain unlock solutions to interact more efficiently and reduce costs is key. Technology solutions will be at the core of this evolution. There are several solid MGA platforms offering smaller consumers digital opportunities to buy insurance, who in turn operate efficiently with insurance companies. Those insurtechs will continue to flourish and have significant growth, particularly as they expand their product offerings.
37% of insurance CEOs polled by PwC stated that they think their organization will no longer be economically viable in 10 years. So, there is this tremendous pressure within the industry, with leaders asking how they are going to transform—and technology is really at the core of that.
The industry in general has struggled with how it collects and uses information. Multiple players in the insurance value chain all enter the same data multiple times, which adds cost and increases the risk of error. Technology solutions offer the opportunity to collect data once, to ensure it is accurate, and to have that data available throughout the supply chain, which can create huge value. However, it has been difficult for insurance companies and brokers to land on the appropriate methodology. Although progress is being made through APIs and various other means of connectivity.
In my view, the way people and companies purchase their insurance coverages will continue to change and evolve and IT will play a key role in how the industry adapts and transforms.
What do you feel is a key consideration for an insurance company when integrating new technology?
Virtually every single insurance company is forever changing, upgrading, or integrating new technology. It is just a perpetual activity, and so a competitive advantage is having a super capable IT team along with a state-of-the-art and effective technology suite. Companies burdened with archaic legacy systems are at a significant disadvantage.
Today more than ever, IT is a key strategic consideration for an organization. Having IT leadership as part of the senior executive team is critical, as is ensuring the business and IT are working hand in hand. This provides a significant advantage against companies where technology is kept away in a silo or not involved in the matrix of strategic decisions. Companies that bring IT into the boardroom and make it part of their strategic planning as a critical success factor are going to be the ones that succeed. And the ones that ignore it, or allow IT to operate in a silo, do so at their own peril.
Having sponsored numerous IT development projects throughout my career, and at the risk of overstating the obvious, implementing small, incremental projects in the spirit of continuous improvement to existing systems tends to be far less disruptive than massive sweeping changes involved in taking on new operating platforms. But it's table stakes to have the right underlying platform.
What are your thoughts on the regulatory landscape in Canadian insurance?
Canada’s regulatory environment has continued to become more demanding and more complex throughout my career.
We have OSFI, the federal regulator, which is primarily concerned with prudential requirements, meaning they want to ensure that an insurance company is well capitalized and can meet its policyholder obligations. In short, that it's got enough money to pay claims and is financially strong.
Then we have the 13 provincial regulatory bodies. These are primarily concerned with consumer protection and ensuring that the conduct of insurance companies is appropriate. And so, you have the financial considerations at the federal level and then you have the consumer protection aspects on the provincial level. All levels of regulators in Canada are continuing to bring forward new guidance and additional requirements that place an even greater burden on financial institutions.
On one hand, OSFI and the regulators in Canada have done a really good job relative to their global counterparts, as we have had very few bank failures and very few insurance company failures. However, on the other hand, one of the challenges for insurance companies is the increased time and cost brought on by all of the additional regulations, all of which require senior management resources and ultimately increase the cost of doing business.
It can create barriers to entry, as it is difficult to navigate and satisfy the many rules and requirements, and the process of incorporating a new insurance company and obtaining licenses to operate often takes at least 18 months. So, it’s not conducive to fostering innovation or to increasing choice for Canadian consumers but it does do an excellent job of ensuring insurance companies are financially strong and that consumers are protected.
What is your 10-year forecast for the insurtech industry?
PwC did a poll on global insurance company CEOs, and 37% of participants stated that they think their organization will no longer be economically viable in 10 years unless they change how they do business. So, there is this tremendous pressure building within the industry, with insurance leaders asking themselves how they are going to transform in order to remain viable and relevant—and technology is really at the core of that.
Much of this transformation will be fueled by enhancements and improvements in terms of IT. How people buy insurance will continue to change over time, and technology will unlock ways to enable and improve the customer buying experience.
One of the big challenges that we are all going through is climate change and the increase of volatility in weather-related events. Properties are worth more, investments in real estate and infrastructure continue to escalate in response to our growing population, yet there are significant challenges in providing sufficient coverage, resulting in protection gaps and underinsurance in various areas, and insurance companies can struggle with responding effectively to catastrophic events. Parametric insurance is a great example of how the industry can innovate and tackle some of these issues.
In terms of the insurtech industry, over the next 10 years, there will be winners and losers. There have been so many new ideas and concepts brought forward, many of them excellent, but with technology and capabilities continuing to evolve at such a rapid pace, some will take hold and make a difference while others will not make the cut. One thing is for sure, insurtech solutions will drive the transformation of the industry, but I don’t think anyone knows for sure what those solutions will look like in a decade.
Mike George is the CEO of Tokio Marine Canada Ltd., a new, Canadian domestic P&C insurance company with dedicated capital providing full-service commercial and specialty lines capacity to select Canadian brokers. A seasoned insurance executive, Mike has a track record of successfully building specialty lines insurers from the ground up. Most recently, Mike was co-founder and CEO of Trisura Guarantee Insurance Company, which started operations in 2006 and went public on the Toronto Stock Exchange in 2017. Mike retired from Trisura in 2019, taking some time off before deciding to re-engage with Tokio Marine Group, spearheading the development of the business plan and obtaining regulatory approvals for Tokio Marine Canada, which launched operations in May 2022.
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