Big Interview: Flock CEO Ed Leon Klinger

In the summer of 2016, when everyone else was deciding whether or not they wanted to leave or remain in the European Union, two fresh-faced university graduates, one from Cambridge and one from Imperial College London, were setting up a new business.

Fast forward seven years and that business, while still trading under the same name, looks quite different to when it was created.

Drone specialist

Flock was originally set up as a risk analysis company, CEO Ed Leon Klinger tells Insurance Post, born out of the research projects he and fellow founder Antton Peña were working on at their respective universities.

“Originally, we launched as a risk analysis company, and less so as an insurtech,” he says. “We turned our risk analysis into a tool that could intelligently price drone insurance using real time data.”

But why drones? Klinger says the reason Flock dealt with drones was because of the interest both he and Peña had in the tech coming out of university.

“We emerged from academia back in 2016 from the research projects at Imperial College London, where Antton was studying, and Cambridge, where I was studying. We had a keen interest in drones and a good understanding of the drone sector by virtue of the research that we were doing. Drones was a really natural sector for us to launch the business into.”

With their risk analysis tool ready, Peña and Klinger took the business to market, and after a couple of years, in 2018, Flock launched its own drone insurance proposition.

By 2020, we became a leading drone insurance provider. In Europe, we had over 3,500 commercial customers.

Ed Leon Klinger, Flock

After this, Klinger says Flock quickly established itself as a major player in the drone insurance market, with a considerable customer book and market share throughout Europe, while also being the official scheme provider for the British Insurance Brokers’ Association.

“2018 was when we launched our drone insurance proposition,” Klinger continues. “By 2020, we became a leading drone insurance provider. In Europe, we had over 3,500 commercial customers.”

All things seemed to be going well but then, in 2020, Flock made the decision to expand its product offering and enter the commercial fleet motor space.

Klinger explains: “We were making a huge amount of progress in the drone industry but, in 2020, we took a long, hard look in the mirror and we realised that we could probably impact thousands, if not hundreds of thousands of lives by entering an industry significantly larger, with many more, and much larger customers.

“An industry where our technology could have more of an impact. We were very thoughtful about our expansion.”

Commercial fleet

Klinger explains many sectors were considered and researched before finally opting for the commercial motor space.

“We didn’t simply pluck a new industry out of thin air,” he says. “We ran a really comprehensive, multi-month consultancy process where we looked into 10 different industries. And we assessed those industries against a number of factors, such as the size and growth rate of those industries, but also the prevalence of connected vehicles in those industries.

“We also spoke to dozens of potential customers to really understand their needs. And to ascertain whether or not a dynamically priced insurance product that leverages real time and environmental data can help customers reduce risk, and then reward those customers for reducing those risks, would be valuable and desired in those different industries.”

Klinger explains how Flock found a “desperate product market fit in commercial motor for a product like Flock’s”.

So, in 2020, Flock launched its commercial motor fleet product, and one year later, the business had partnered with larger insurers such as Aioi Nissay Dowa, QBE and NIG to distribute its motor fleet insurance policies.

“We now have over 600 commercial fleet customers,” Klinger says.

But what about those sectors that just missed out?

Klinger explained that while commercial motor was the chosen sector for expansion, other sectors were up for consideration, such as micro-mobility and aviation.

“We looked closely at micro-mobility,” he says. “It is a really exciting, rapidly growing sector. It is a sector that would be well served by a product like Flock’s.

“But the name of the game is focus. So, we decided to go for the opportunity that we thought was simultaneously largest and most immediate in terms of the impact that we can have, which is commercial motor.

"It has, in my mind, proven to be the right decision based on the growth we have experienced, the partners we have landed, and the fundraising we have achieved.”

When asked if Flock is considering expanding further and entering these sectors, Klinger says he would never rule it out, but that the focus at the moment is building the commercial motor fleet product.

End of drones

In 2021, Flock was still offering drone insurance, but it became apparent the real opportunity for growth was in commercial motor.

Klinger decribes how the team took another look in the mirror and came to the “difficult, emotional decision” to put the drone business into run-off.

“We were growing really rapidly in commercial motor and we thought it made sense for us to be very focused, as a small business, on doing one thing extremely well," he explains.

Today our motor business is orders of magnitude larger than our drone business ever was.

Ed Leon Klinger, Flock

“So, we made the difficult, emotional decision, but an easy academic decision, to close our drone business down and put that into run-off.

“Today our motor business is orders of magnitude larger than our drone business ever was, so I think we’ve been vindicated in our decision making.”

Investor reaction

When Flock was looking for investment back in the mid-2010s, an investor would get involved based on the quality of the idea. And with drones becoming evermore popular, Flock’s business idea was very appealing to investors early on.

So how did those investors, who backed an insurtech specialising in the drone insurance business, react when that business completely changed course?

Klinger explains while Flock did specialise in drones to begin with, what investors were backing was the mission of the business, which went further.

“Our mission as a business is to make the world quantifiably safer. We firmly believe that the insurance company of the future can use data to help customers minimise risk and become safer and avoid the need to make a claim by avoiding incident. That is the vision our investors originally bought into.

“We build highly collaborative working relationships with our investors, we have a board of directors who meet regularly, we're in regular communication with our investors, and we have strategic conversations with our investors.”

He continues by saying how Flock’s investors participated in all major business decisions, from entering commercial motor, to putting the drone business into run-off.

“Nobody likes surprises, least of all investors,” he says. “So, the big decisions we make as a business are made collaboratively with our investors, and with buy-in from our board of directors.”

He then goes on to say that expansion out from drone insurance was always on the cards for Flock.

“If you go back and look at some of our very early pitch decks that we put together back in 2016, we had a roadmap that showed us expanding from the drone industry into other industries, automotive included.”

New investment

Recently, Flock welcomed new investment as it secured $38m (£30.5m) in Series B funding led by Octopus Ventures, taking its total fundraising to around $60m (£48m).

Maintaining the business’s focus on motor, he says: “We have various expansion plans we're working on that we'll be rolling out in the coming year.

“We will remain focused, however, on commercial purchase fleet. We are certainly going to continue growing the book. We have only scratched the surface of the UK industry, where we are doubling down on our core segments, which are self-drive, courier and trade, in which we are currently active.”

However, Klinger explains that, moving forward, Flock plans to grow by embracing brokers, something he feels other insurtechs are yet to fully embrace.

“In order to achieve growth in customer numbers, we are going to be doubling down on broker relationships.

“I think a couple of the original insurtech players and successes made a name for themselves by disintermediating brokers, to make distribution faster and easier, and going direct to customer.

“The more mature and evolved industry is recognising the value of brokers and recognising how important they are in distribution. So, when we think about growth, and we think about where we spend this money, a big part of that is doubling down on our broker relationships for products and services.”

Klinger says the business has plans to evolve its product offering, leveraging the data it collects, and using it in a more efficient way, allowing it to pass benefits onto the customer.

“For example, using telemetry data that we collect from customers to inform our pricing model, such that the price that we provide to customers is more reflective of the risk that we predict they will take,” he explains.

Insurtech funding

Flock managed to secure its funding before the recent news stories around bank collapses and the subsequent fears around funding for insurtechs. However, Klinger believes the mindset around funding from venture capital providers and incumbent insurers has changed, and some insurtechs are starting to adjust to that.

“The old approach of scaling as quickly as possible, at all costs, is dead. This is, in my mind, an approach that many other insurtechs have fallen foul of. But this new wave of insurtechs, Flock included, will not be going down that road.

“Flock is – as are many other insurtechs – very focused on building long term partnerships, and long-term partnerships with insurers requiring aligned interests. The interests of the insurance carriers are around building healthy and profitable books which grow but which grow sustainably.”

But for Klinger, at the time of interview, the change in mentality has only come into play in the latter stages of fundraising.

For those start-ups and insurtechs still at the very early stages of development, things are still fundamentally the same.

“At the very early stages of a new insurtech, what you might describe as a pre-seed round, that industry and that stage is still relatively unaffected by the broader economic climate,” he says.

“Deals are still very much getting done. The criteria of those deals, I would say, have not changed dramatically. If you are investing in a pre-product business, primarily, you are investing in the quality of the founder, or the founding team, and how closely you align with that founding team’s vision.

“Where there has been a dramatic change is at those later stages of investment. The expectation now is still absolutely a strong founding team and a compelling vision that sees that business growing very large and into a large market where it can capture meaningful market share.

"But there is a lot more scrutiny on whether or not that company is actually able to deliver, and how effective that company is at executing on its stated mission.”

Klinger says this change in mentality and extra diligence from investors is “a good thing” and will ultimately improve the insurtech space, hopefully leading to more success stories.

“It's a positive thing that investors have become more diligent, more metrics-focused, and expect businesses at these later stages to be delivering on their stated goals and be able to point to the metrics that matter most, and demonstrate a pathway to profitability and demonstrate a commitment to sustainable and efficient growth.”

He believes that while some insurtech founders might not like the new way of thinking, it is “fundamental” for the space.

“This is fundamental for a healthy investment and start-up environment,” he says. “It is a good thing. Although it will cause pain and frustration among founders who maybe started their business in a different economic climate.”

While investment might be more difficult to secure at the moment, Klinger says “there is funding out there”, but only for firms that show they can deliver on their promises will survive.

“Investors are being more scrupulous, and data driven, in their approach,” he says.

“There will be a flight to quality; investors will continue to invest and deploy capital, but they will do so in those businesses by which they are really convinced.

“Standards are higher than ever. And as a result, unfortunately, some businesses will not make the cut.”

So, what can insurtechs do to have the best chance of surviving? Klinger says that while an insurtech may have a fresh new approach to insurance, there is a lot of value in bringing in experienced minds.

“One of my key learnings that I repeat many times is the value of embracing the insurance industry, not just from a partnership perspective, but a talent perspective,” he says.

“Don't underestimate how valuable it is to hire someone very experienced in the insurance sector, into your start-up. What is important is that those individuals must embrace a fast-moving and dynamic and innovative culture. If you find someone who can combine that fast-moving dynamism with that storied insurance experience, you can make magic happen.”

But, if investors are changing the way they approach funding, Klinger says some tough, emotional decisions must be made in order to put an insurtech on the healthy path to profitability. He stresses founders, CEOs and boards of these insurtechs must be ready to quickly make those decisions, the same way Flock did back in 2020.

He says: “Founders and CEOs of insurtech businesses need to be extra vigilant, highly responsive, and agile. They need to be willing to make big, important decisions quickly. Because if they do not, they will not be responding to the evolving market. Now is the time, if they have not already, to sit down with their leadership teams and with their board of directors and take decisive action to put them on a pathway towards profitability and sustainability.”