The core of the insurance industry consists of two things startups are really good at: data and money. With this in mind, InsurTech startups believe that they can dramatically improve value by creating activities of incumbent players in the insurance industry.
The opportunities are so great, varied, and plentiful, that a lot of InsurTech startups get founded and equipped with venture capital. Especially in the last two years, InsurTech founding has skyrocketed. The pack sets off invading the multi-trillion dollar insurance industry.
Lost Overview on InsurTechs – Due to Daily Added New Startups
As I knew only a handful of national InsurTech companies, I had an overview of what they do, and how they create value for their customers and investors, even though each company appeared unique.
Now, as we look beyond national boundaries we can see dozens of InsurTech startups; each day, new players are emerging in the industry. Since last year, one can already speak of a glut. Observers and participants slowly lose track. The risk rises to overlook important new players.
Keep Track of InsurTechs using Incumbents Value Chain
The hack is based on the following considerations. If startups focus on a few value creating activities of incumbent insurers and if there is a body of knowledge including all activities in the industry, then it is possible to objectively differentiate and sort startups.
InsurTech Startups Focus on few Value Creating Activities
Startups Pull a Benefit of their Tech Advantage
Insurance is – at it’s core – an information product. Analyzing and calculating the correct data plays a significant role in the value-creating processes of the insurance industry.
The competitive advantage and strengths of startups are based on information and technology. These two ingredients are their natural turf. So, InsurTech startups focus on a few value-creating activities by using their information technology advantage.
InsurTechs Try to Dominate their Chosen Niche
InsurTech companies believe that entering a niche market is extremely lucrative. Niches allow startups to focus their energy, marketing, capital and attention more tightly. Everything they do is highly targeted and can be sorted into distinct categories.
InsurTech startups often use their first-mover advantage and establish a niche before more new or incumbent players become interested. Their specific skills serve them well to become the dominant players in the chosen market segment as quickly as possible. Their rifle approach promises higher chances of success than a shotgun approach.
New Players on the Block Make Most of their Funding
Most startups have limited funding, so time is money. As a result, startups pursue the fastest possible repayment ro their investors. By focusing on a few tasks in the insurance industry, they can extract (more) value. First, the new players try to get confirmation whether their service or product fits market needs, then they search for a repeatable sales or customer acquisition system.
After straightening out their key performance indicators (KPI), they scale the hell out it to positively affect their return on investment (ROI). The concentration on one or a handful of value-creating activities helps InsurTechs make the most of their capital.
All Valuable Activities of Incumbents at a Glance
There is a classic management tool containing all value creating activities in the insurance industry. Value-creating activities are documented and published everywhere on the Internet. Generations of management consultants have filled the body of knowledge known as Value Chain Analysis. The concept comes from business management and was first described and popularized by Michael Porter in 1985.
A value chain is a set of activities that an insurer operates in order to deliver a valuable service to his customers (policy holders). How the value chain activities are carried out determines costs and affects profits. Value-creating activities are categorized as primary activities; secondary activities support them.
Value Chain Analysis serves as a great overview of all activities.
Startups in the insurance sector, their investors and consultants are able to read a value chain documentation like an open book. They use it as a strategic tool to analyze internal insurance activities.
Illustration of a value chain in an insurance company
They recognize which activities are the most valuable for incumbents and which ones could be improved or substituted to create a competitive advantage. Then they pick the parts that they can create the most value from.
Value Chain Analysis Tool indicates value of incumbent activities.
From the perspective of an InsurTech startup, the documented value chains are almost valid as on the first day. They know incumbent players haven’t changed a lot in recent decades.
There has been more change of consequence to the insurance industry in the last several years than the last several decades; said Marcus Ryu, CEO of Guidewire Software
Having all statistics and numbers available on the Internet, the value of each chain element can be calculated in dollars and euros. So InsurTechs and their investors can make an informed decision about what activity is worthwhile to complement or substitute; in short, it’s where they make their ROI – Return on Investment.
A Hack for Regaining Overview on Rising Number of InsurTech Startups
Now let’s do the hack: Because InsurTech startups focus on a single or a limited set of insurance activities we can use the value chain tool. Let us map the performed activities on the chain. Now it is possible to differentiate and sort startups depending on their location. Startups that perform the same or similar activities can be organized into groups.
Example No. 1: An InsurTech Startup focuses on customer acquisition
Here is a typical example of an InsurTech startup that focuses on just one activity. The most numerous group of InsurTech startups is engaged in the acquisition of new customers, so their entry point is the customer side of the value chain.
On a lower level, they focus on the phase of gathering information in preparation for making a decision. On an activity level (from the view of the industry), it is the acquisition of the customer (policy holder).
Example No.2: A InsurTech startup focuses on a set of subsequent activities
Let’s take a look at the (in my eyes) second most common group of startups entering the value chain on the customer side. For example: aggregators, including closing the sale. These InsurTechs focus on four subsequent activities.
Their entry point is the customer side with the focus on the phase of gathering information too, but extended by a need analysis, quote, and – in the best case – of an sale. In this example the InsurTech executes even the issuing of a policy for the policy holder.
Keep Your Overview on InsurTech Startups
The growing number of InsurTech startups means running a danger of losing overview. Instead of considering each new player individually the hack allows us to sort them into groups. The group affiliation, in turn, depends on the activities they choose to focus on, based on the incumbent value chain.