TRANSFORMATION: THE INSURTECH FINANCE DEPARTMENT In many ways, insurtechs are late to the innovation party that fintechs have been enjoying for several years now. Struggling to shake off its ‘necessary evil’ self-image, the insurance segment of the finance industry has, until recently, been characterised by minimal product innovation, paper-heavy processes and a less-than-stimulating customer experience. Then, along came the insurtechs, putting the user front and centre and building the industry a new reputation as a form of guardian angel – helping to prevent disaster happening, but there to support when it does. With their focus on convenience, advice and reach, among the many gifts they brought to the industry were embedded insurance that’s built in at point of purchase; solutions that intuitively offered insurance, even before consumers were conscious they might need it; and a prevention-is-better-than-cure approach, particularly to life and property cover, using data insights to encourage customers to live healthier lives, and promoting connected devices that monitor and protect their assets. AI and machine learning to make the most of wider data sources, robotic process automation to streamline claims management and payments, and superfast onboarding, were all core technologies used to deliver them. As a result, many insurtechs have seen spectacular and rapid growth, with more than 20 unicorns foaled globally over the past six years, including the UK’s ManyPets, Germany’s wefox, Clearcover in the States, and PolicyBazaar in India. And, as the market has matured, merger and
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TheInsurtechMagazine | Issue 7
Aptitude Software’s Christophe Kasolowsky tells us why insurtechs must focus as much effort on financial management as they do on product innovation – or risk stunting their ambitions acquisition (M&A) activity has soared, driven not only by legacy institutions buying the competition, but also larger insurtech players themselves now flush for cash and hungry to build full-stack businesses. Lemonade, the AI-driven home and pet insurer in the US acquiring equally innovative Metromile in the auto insurance market late last year, was a case in point. Meanwhile, venture capital (VC) has been burning a hole in investors’ pockets, with insurtech rounds reaching record highs throughout 2021. But insurtechs’ game-changing contributions will be short-lived and their ambitions – be it to attract VCs, launch initial public offerings (IPOs) or achieve a successful M&A and a golden ticket for their founders – will be thwarted if they don’t match their product and service innovation with sound regulatory and financial management, observes Christophe Kasolowsky from financial management solutions provider Aptitude Software. “The problem insurtechs have is that, the majority of the time, they will have started with a back office or finance function consisting of one person and a spreadsheet,” he says. “They might have been a little bit more adventurous and
gone for an off-the-shelf Cloud solution, like Xero, but as they go beyond a certain scale, their boards, and particularly their non-executive directors, who are personally accountable for ensuring the organisation reports the numbers accurately and for making sure they comply with regulations, will want more detailed answers. “Fast-growing organisations often reach that pivot point sooner than they think, and directors start getting nervous and want to dot the Is and cross all the Ts when it comes to fulfilling their fiduciary duties relating to finance and regulatory reporting. Some insurtechs aren’t ready for that and it becomes a scramble to then go and solve it.” This failure to get their housekeeping right can, ironically, significantly dent their innovation potential. “It’s almost like a brick wall, where their agility and innovative mindset are stopped in their tracks and they have to do things in a fairly boring, mundane, sequential way,” says Kasolowsky. “And sometimes that can be a really difficult pill to swallow, because it will constrain how organisations do business going forward, and they will probably take a bit less risk. “They might have to stop and think ‘let’s make sure we really understand what these numbers are telling us and make sure the actuaries get on top of that and do the stress testing before we go and acquire this tranche of customers’, whereas when they started out, they just had to get on and do.” There is much talk of proportionality in regulatory reporting and
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