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Ruth Foxe Blader works with early-stage fintech startups at Anthemis, a leading global venture investment firm. In this episode of the Accenture Insurance Influencers podcast, she looks at the need for insurtechs to scale, gaps in how the industry is using data—and why the future of insurance is embedded.

Highlights

• Insurtech has matured—and now is the time for well-funded start-ups to scale, focus and find the right problems to solve. 
• The future of insurance may be in embedded services, by offering financial transactions that are context-relevant—that may not require the customer to action. Embedded services could also be a viable way to provide coverage for emerging risks.  
• Incumbent financial institutions should be facilitating cultural change, as well as recruiting new people with diverse backgrounds, who can challenge the status quo and can further enable innovation.

Next steps for insurtech, with Ruth Foxe Blader

A few weeks ago, we asked Ruth Foxe Blader about how she’s anticipated and navigated change. In this episode, we look at the maturation of the insurtech industry, and what needs to happen next. We also look at the gaps and opportunities for incumbents—such as better use of data, addressing emerging risks and fostering innovation.

The following transcript has been edited for length and clarity. 

Hi, I’m Eagranie Yuh and this is the Accenture Insurance Influencers podcast. My guest today is Ruth Foxe Blader, a managing director at Anthemis on the investment team.  

Earlier this year, Ruth posted on Medium about the need for insurtechs to buckle down in 2019.  

The past couple of years have shown many talented teams proving product market fit for fintech propositions. 2019 must be the year of scaling, scaling up, scaling across borders and getting the unit economics right. To do this founding teams need time and focus. They need to be properly funded already in order to buckle down and figure out which problems are worth solving.  

I was hoping to unpack that with you. First of all, the scaling part. Anthemis generally invests in early-stage start-ups, and from what I see that scale is a really hard thing to achieve. So can you talk a little bit about scale? Going from that scrappy bootstrapped company, how do you get to the point of scale? And when you do get to scale what are the keys to success? 

I think Anthemis has been lucky and prescient and invested in a number of category-creating companies, like Betterment and The Climate Corporation; companies that have successfully scaled and in some cases exited. 

I would say that we look for the same thing that all VCs look for, in terms of founder excellence and a real unmet need in the market that someone has an interesting approach to. At that point, the quality of the product is really also key. So creating something that people want to buy. And in financial services it’s tough.  

I really use the analogy with other industries: you want to create something that flies off the shelf. And that means having not only a deep understanding of what the customer––whether it’s an enterprise or an individual––wants to buy, but also being able to capture insights and be reactive. 

In financial services, in order to launch, most companies need quite a lot in terms of insights from either from industry or capital, that could be risk capital in the insurance context, it could be a lending instrument. In order to get those things in place, the founders usually have to do quite a bit of thinking. We will invest even before those things are in place. 

It’s really fun to watch founders think about how they’re going to communicate their value proposition to whomever it is they need to convince to back the company. And then how they’re going to use whatever capacity they derive from their interactions with the financial services industry to create great products. Sometimes it’s not apparent. Oftentimes the products that we think that we’re going to market with are slightly or demonstrably different from what ends up selling. 

So, we really look to work with people who have a high level of creativity, who understand the value that they can create and understand the value that they can capture, and are willing to shape the proposition in a way that they can begin to do some of that. 

Another piece of your comment on scale, you said scaling up, but you also said scaling across borders. I’m wondering if you can talk about that a little bit more, because insurance is a global industry. 

Sure. I think it depends on the business. I can give an example from my current portfolio. There’s a company called Hokodo; we’re looking at providing support to SMEs through single-invoice credit risk insurance. And what’s really clear is that anything in the trade finance space is really quite international, quite early. 

Anthemis as a whole invests in about 50 percent US-based companies, 50 percent European companies, to date. And so we see the challenge of finding a geographical focus which is large enough to build a very large business. And I think the pan-European fintech is really just now getting started. It’s quite difficult, because of the regulatory regime and also the cultural challenges, to launch a company in multiple markets. 

I think that this is really key and really critical to this phase of fintechs becoming much larger businesses. And I wonder if what we’ll see is some of these companies scaling much the way insurance companies have traditionally scaled, which is through acquisitions. I’m anticipating that happening a lot more in the next year or two.

I wanted to dig into another piece of that quote, which is that “the fintechs need to be properly funded already.” And I understand this is in the context of the scaling argument but I’m wondering what your thoughts are on new insurtechs coming into the market. We’ve seen this huge explosion of insurtechs over the past three to five years. Is there a problem that hasn’t been solved yet and is there room for a new insurtech? 

I always say insurance touches everything. And it really does: it touches all parts of our life and it is the prerequisite for a modern economy. So when I talk about insurtech, I define that incredibly broadly. It’s really anything to do with risk and risk mitigation.  

So the answer is, yes, absolutely there is a lot of risk which needs to be mitigated, and there are a lot of products which, frankly, are not good and could be replaced; and processes both inside of insurance and inside of insurance companies which could be improved through the use of technology. 

I’m very bullish that there are a lot of really important problems left to solve. In terms of the traditional P&C insurance start-ups, I’d bet that there are still companies that we’ll see coming out and will improve on the mistakes of some which have shut down. And I think that it is about being circumspect about how much capital is really needed to build the business. 

And it will be special founders who are really smart, and probably have proven exits elsewhere who can attract investors who are willing to take the punt. I think that investors are pretty smart too and they recognize that these are very expensive problems to solve.  

What I’ve noticed is that typically the insurtech companies which are raising multiple rounds––the more traditional companies that are selling insurance digitally and perhaps better products with more digitally native backend processes––those companies tend to be represented by founding teams who can attract capital a little bit more readily. 

Great. I wanted to move on to another theme that you mentioned as far as Anthemis and its mandate. And one is that this idea that fintech is embedded. There’s a general adage that insurtech is five to seven years behind fintech. Based on your experience in fintech and what you’re doing and insurtech currently, where do you see this embedded insurance idea moving within the industry? And what does that mean for both incumbents and the insurtechs themselves?   

I think it’s really scary for incumbents, and I know this from spending seven years at Allianz. I think that there is a sense that it would be really interesting to provide customers with insurance products in a context-relevant way. The thing that came up at Allianz, because everyone just liked to go to Austria and ski, was like, “Oh, what if when you hit the slopes then you get a message and you can just opt in and have skiing insurance?” (I’m not looking for that start-up, believe it or not.) 

But I do think that the trend that we’re seeing both at the infrastructure layer and also at the customer acquisition layer, is that people are increasingly expecting finance to become invisible. And they’re expecting to have financial transactions that make sense and are context-relevant, and which perhaps they don’t even need to choose to action. 

And that really becomes embedded. And it becomes embedded in people’s normal lives.

I think the other thing that we’re thinking about is with emerging risks, helping people to quickly, deeply understand those risks and protect against those, without a ton of thought. Historically what the insurance industry has said is that insurance is a product which is sold not bought. This would really turn on its head that old adage. And I think it is quite threatening for incumbents, from the perspective of “who owns the customer?” and “are we just product producers?” The same questions that, as you said, the banks were asking a decade ago about becoming the dumb pipes.  

In reading some of your other interviews, I understand that you have a bit of a thesis on data versus math in insurance. I’m wondering if you can talk about that. 

Yeah, I think this comes from a blog post from Jeff Jonas where he was writing about how data beats math.  

When I started working in insurance I was like, “Oh cool. Now I totally get to roll up my sleeves and hang out with data scientists and do tons of stuff with data.” And I was literally horrified by some of the things that I saw, because insurance is a data industry––and the amount that we actually use our data and actually capture it in a way that it can be used or even understood is just pretty insane.  

So I started to develop this idea that insurance hasn’t reached its data beats math moment. We have large numbers and the ability to win using statistical math, which is very sophisticated and works. But in terms of both external data and internal data, internal to companies and internal to the industry, I think that there’s really massive improvements that we can make on understanding risk and understanding customers. 

And I also see trends around the historical use of data. It’s “we have a historical data set; we can apply our models and we can look backwards and understand our risk,” but not necessarily “I can take these new forms of data and predict risk.” Can you comment on using data to look backwards and on using data to look forwards? 

I think historical data is the basis for insurance and it serves us pretty well. And there are a lot of really interesting data models that that are developed to deeply understand historical data, and also to create stochastic paradigms, so it’s not just pure history. At the same time, predictive modeling in some ways has been around for a while and in some ways is in its infancy, and there’s a lot of debate about how accurate it is. I think we have to use it.  

We’ve been doing a lot of research in my team about synthetic data and the options that it presents for really understanding risk and understanding situations differently. I think even just having very basic data about assets, insured assets, can really change the way that people approach insurance. 

I was recently at our hacking finance retreat––Anthemis hosts a hacking finance retreat annually in the French Alps––and we had a really great discussion about what happens when we have a lot more data and we more deeply understand risk? Does the entire insurance paradigm change? Insurance is really about pooling risk and getting a big enough pool so that the probability of something catastrophic happening is low and then everybody pays out of the pool. What happens when the pools are comprised of just the very best risks, because we actually understand who the best risks are in different contexts? Does that sort of break the whole paradigm of solidarity and where do we go from there? I think we’re a long way from being there. 

And I think that we’re at the cusp of really taking a lot of the ambient data that’s out there about properties––people is a whole other topic because there are a lot of privacy issues there––but really understanding, on a much more fundamental level, what the risk looks like, and either helping the owners to shore up against potential risk (and there are a lot of new risks when you think about property and climate change) or just building books that are more sensible. 

And if you ask people who have exposure to those risks, despite the fact that it is a new paradigm and the model for assessing stuff with new data hasn’t been built inside of insurance companies yet, they are nonetheless very, very excited about it.  

I like that that breakdown a lot. And I’m curious because traditionally insurance is P&C, and to another extent life, but it’s tangibles. And this came up in Season 1 of this podcast, where a large portion of what the insurance industry covers is tangible goods, but increasingly there’s a lot tied up in intangibles. So intellectual property, cyber, etc. I’m wondering if you have any comments on that and how that’s changing with technology? 

Yeah, I think it’s really scary and when I talk to people older than I am, they’re super scared of this stuff. I think that it’s really a generational sensitivity. A lot of the privacy issues, we’re going to see a lot of social change around those attitudes. But in terms of cyber, the cyber risk factor is everywhere. 

And I think we’re starting to see––maybe it’s our perception in 2019, maybe it is reality––but we’re starting to feel like risk is just all-encompassing and cyber is a good example of that. And it’s a good example again of how, in that case, really combating those risks does need to have an embedded feature. 

One of the early investments that I made at Allianz Ventures was a company called Argus Cyber Security and basically it was a cyber technology preventing cars from being hacked. And you think about the electrical grid or cars or identity theft, like all these things are really emerging risks. And insurance companies are far away from understanding the impact of those.

Another thing that you had mentioned was that Anthemis has really split its investments across the US and Europe. There are some really interesting things happening also in Asia—and in China in particular—as well as in South America. I’m wondering, to what extent are you looking at that and does that change your perspective or inform your perspective of what you’re looking for in a start-up? 

Yes, we are looking at both of those areas and in fact intend to do a lot more work in Latin America. And we have a big part of our thesis where we are very closely following China, because we see that there’s a lot for us to learn from the Chinese Internet.  

We do invest in geographies other than the US and Europe, we do that opportunistically for now. Watch this space. But yeah, we definitely feel that it’s incredibly important to be abreast of the way that people are interacting with technology in other places. 

So with a lens towards the fact that you’re dealing primarily in the insurtech space, what do you think incumbents can be doing today to prepare themselves for this digital future that, as you’ve mentioned Anthemis envisions, this embedded, data-driven future. What can incumbents be doing to ensure that they are part of that future? 

I suppose the companies that I’m working with that really seem to be taking advantage of this wave of technology that’s focused on our industry, number one, they’re grateful that there is a whole generation of technologists who are focused on the industry. It’s such a boon. They’re paying attention to it and they are looking for consistent ways to institutionalize interactions with start-ups into their organizations. 

I think that there are a couple of things concretely that you can do. One is to know your strengths and to sort of say, “I want to know everything that’s going on that impacts these lines of business.” The other thing you can do is to say, “You know what, a safe place to try new stuff would be this, because we don’t have any channel conflict or we’re not cannibalizing ourselves.” I don’t think either of those is wrong. 

I think that whatever people are doing to put serious resources behind understanding change and innovation is really important. Legacy tech and legacy ideas and thinking are the enemy of innovation. And so the extent to which you can create a space where people can use new technologies, full-stop, is really important. Also having people around—and I think this is happening more and more—who are open minded and who understand technology and who aren’t scared of it.  

Those are big culture shifts that folks running financial institutions can be putting in place. And attracting new people who don’t look the same as everybody else and who are willing to challenge the status quo, I think is really interesting. But I think really putting resources behind innovation is a no-brainer for the insurance industry. 

Is there anything that we haven’t talked about that we should?  

I invite anyone with awesome ideas about insurtech to get in touch. Follow me on Twitter and, you know, get in touch, direct message me––whatever. 

Very cool. Thank you so much for taking the time to speak with me today, Ruth. It’s been a really interesting conversation.   

Thank you so much.

Summary

In this episode of the Accenture Insurance Influencers podcast, we talked about: 

• Why insurtechs need a lot of capital to take on the incumbents, a fact that investors realize. The insurtechs that can attract multiple rounds of funding are typically represented by founding teams that attract capital more easily (often serial entrepreneurs). 
• The reasons that insurance is adept at using statistical math, but that there’s room for improvement when it comes to using data to understand risk and customers. 
• Legacy systems and thinking as the enemy of innovation. Conversely, innovation is essential for the industry, and incumbents need to create spaces where people can use new technologies.  

For more guidance on innovation: 

• Find out what Accenture learned about customers’ willingness to share data—and what they expect in return. 
• Tune into the Talking Agility podcast: Building trust and overcoming fear with Edwin Van der Ouderaa and Andy Young. 
• Read about three ecosystem essentials every life insurer needs to accelerate innovation. 

That was our interview with Ruth Foxe Blader from Anthemis. Join us in two weeks as we wrap up our conversation with Caribou Honig. We’ll be talking about how incumbents and insurtechs can work together for a more agile and resilient industry. That’s not all. In four weeks, we’ll speak with the sibling team behind the sometimes-snarky, always-informative email newsletter Coverager. 

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