Depending on where you get your news, you’d be forgiven for thinking that disrupting insurance is easy. Insurers are apparently less trusted than banks, their propositions are “outdated”, entrepreneurship is flourishing. The insurtech ecosystem has emerged and accelerated since mid-2015.
But setting up an insurtech start-up remains challenging, both for reasons specific to insurance and more broadly applicable to founding companies.
In any industry, successes are covered prominently in the press; failures only if they are spectacular. So what of those start-ups that have not gone to plan?
We spoke to five founders whose insurtech start-ups failed to understand why this was the case, and how insurers could help others succeed in future. Some wanted to remain anonymous and so we have decided not to name any of the participants.
There were two broad reasons for failure: timing and team.
All the founders we spoke to suffered from the same overarching problem: their product did not meet a current market need. That meant that either insurers or customers were not ready for the product offered. (Some call this ‘product-market fit’.)
One interviewee commented that they were building a mobile-only insurance app in 2010 “when smartphone penetration was only at 20%; the market was just not ready.” Another commented that they were trying to sell a telematics data service to insurers “who hadn’t even heard of insurtech.”
These examples illustrate the fine line between being a pioneer and going too early, and the need in insurance to find the right moment on both the consumer and carrier side.
One founder commented that venture capitalists can exacerbate the problem. Keen to be part of the next big thing, “VCs were super keen to take a meeting”, but the founder spent most of his time “educating them”. He added “we wasted a lot of time as it was just too early for them.”
To some extent, issues on the carrier and VC side are being reduced as awareness of insurtech increases. Most interviewees closed their businesses before 2016. Many of the founders believed it would be a different story today: “There are now 20-30 start-ups doing exactly what we set out to do. It probably would have made money if we’d started last year.”
Founding a start-up in any industry is emotionally tiring. Founders therefore pointed to the team as being the single most important asset of the business early on. One founder commented: “You get to know people really well when you work with them 24 hours a day. You see teams get to a point where they realise they just don’t want to spend any more waking hours together.”
Most of the start-ups we spoke to avoided this pitfall. Problems only showed themselves when longer term ambitions and expectations were tested. One founder commented that the different life stages of the team was a challenge: “I was early in my career with no other responsibilities and they were looking to start a family. No matter how enthusiastic we both were we just had different expectations.” Another said that he discovered his co-founders were working on the start-up “as a hobby”, whilst he “had to make the business work to pay the bills.”
Other reasons for failure
Many other reasons for failure were cited in our discussions. These included:
- Lack of specialist skills: “We had a great idea but struggled to get good technical resources, especially given insurtech was not a big thing in 2014.”
- Working solo: Finding a co-founder is sometimes a chicken and egg situation: without progress, it’s hard to attract talent – but without talent it’s hard to make progress. Working solo is a challenging approach – you’re “in an echo chamber of one” and you don’t have anyone to “keep you on the straight and narrow.”
- Delaying funding: Even if you can self-fund, getting funding gives you room to allocate proper resources. Or, as another founder said, it “makes you look like a proper business” to employees, future investors and possibly customers.
- Being too corporate: It’s a fine balance: you need to do things well, but you need to be agile. “We started renting big corporate offices and talking about governance processes. We’d lost our agile roots.”
What have we learnt?
It is interesting that these reasons are not specific to insurance – nobody cited a lack of access to products as their reason for failure, for example.
The failures were, however, exacerbated by the dynamics of the insurance industry, particularly on timing. Insurance is a slow-moving industry and has longer development and sales cycles than other industries.
Insurers can help most with timing. Firstly, by being clear what they are trying to achieve before engaging a start-up. Secondly, making quick decisions. Finally, it’s ok to say no. Just don’t refer them on to someone else in the business. Start-ups would much prefer a flat no than being sent around the houses on a wild goose chase.
While insurers can’t help start-ups with their team they should take it into account when selecting partners to work with. If an insurer does not believe in a team, then it should question whether the firm is likely to succeed.
So finally, would the entrepreneurs do it again?
“Yes!” Without pausing for breath, each of our interviewees said that they would do another start-up when the opportunity presents itself.
This was true no matter the founder’s age (which ranged from 25 to 55). Most were taking time out to lick their wounds and earn some money; several had already moved on to the new opportunity.
A huge well done to all involved with organising our Remembrance Day event on Friday, including our Corporate Real Estate team. One of them, Ibrahim, took this incredible footage of poppies dropping as he (along with others) leaned (safely!) over the gantry to let them go. pic.twitter.com/pSbapkWBBR— Lloyd's (@LloydsofLondon) November 12, 2018
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