“Corporates have now wholesale outsourced R&D to the startup and venture community” is what Dave McClure, founder of 500 Startups, claimed at the CB Insights’¹ 2017 Innovation Summit. However, since more than 550,000 new startup businesses were established on average per month² in 2016, how could they support R&D developments within insurance companies and deliver significant value chain improvements?

This chapter intends to support the design of insurance value chains ecosystems that are valuable for both consumers and insurers, as well as to other key stakeholders relevant within the insurance value chain.

The InsurTech landscape is getting wider and wider where each InsurTech fixes a specific issue across the insurance value chain. With this four-step practical guide we intend to describe ways to identify and develop value chain improvements and then new business models by combining InsurTechs that leverage IoT, wearables, and blockchain capabilities.

To develop effective InsurTech value chain ecosystems, an organization needs to consider the following four steps:

1. Conduct startup-storming.
2. Organize startups’ themes using the Kawakita Jiro method.
3. Scout for relevant solution(s) using the Quality Function Development matrix.
4. Select the right solution.

We will review each step in turn to identify those startups that may be the most relevant for your business.

Step 1: Conduct Startup-Storming

Startup-storming is the process under which an organization will research and identify startups that are emerging with the InsurTech landscape. At this stage, you will want to produce a list of InsurTech startups that potentially correlate with these challenges to solve within your insurance business. These will include the big names or usual suspects, but should also include those that may seem to be, at face value, less relevant. Such lists can be compiled by reviewing top venture capitalists’ portfolios as well as the yearly intakes of accelerators’ cohorts (e.g. 500 Startup, Startupbootcamp, and Techstars). They all have a thorough selection process. Once you have put together your list, you will want to capture the elevator introduction from each startup. Such statement highlights (1) what they are about and (2) which issues they want to fix.

For instance, Lemonade’s vision statement is “a transparent instant insurance for renters and owners”, while Fitsense’s mission is “making insurance truly personal”.

Step 2: Organize Startups’ Themes Using the Kawakita Jiro Method

With a list gathering together hundreds of themes, it is likely you will get lost. Kawakita Jiro (KJ), a Japanese anthropologist, invented a method for organizing and classifying ideas into affinity groups.³ This method facilitates group problem-solving efforts and focuses on organizing a wide number of ideas into a limited number of groups. As a result, the idea selection process is improved and the problems solved better understood. Hence, startups are often grouped into affinity groups that link them together based on their core theme. Such groupings also ease the understanding of their capabilities.

Step 3: Scout for Relevant Solution(s) Using the Quality Function Development (QFD) Matrix

The QFD Matrix⁴ links the affinity groups with measurable characteristics and key performance indicators (KPIs). For example, in insurance we have metrics like Average time to settle a claim, Loss ratio, Claim frequency, Underwriting speed, etc. The result is captured into a matrix where addressable consumers’ needs are listed on the rows, while the KPIs metrics are listed on the columns.

We have simplified the explanation using a few exemplary startups.

Use the QFD matrix to evaluate, on a scale from 1–5, how much each startup could impact the insurance business; and the strength of the relationship between startups and a KPI to be measured using 9 for a strong relationship, 3 for an average relationship, and 1 for a weak relationship. The scores at the bottom of the matrix are calculated by adding each column from top to bottom, the product of the startup importance, and the strength of the correlation with the KPI.

As an example, consider the column “Average time to settle a claim” (see Figure 1). The absolute importance rating of 48 is calculated as follows: (2 × 9) + (5 × 3) + (4 × 1) + (2 × 1) + (3 × 3) = 48.

The relative importance of a KPI provides a measurement of how much value could be created from a combination of startups. Comparing all the results, the absolute value of 48 for “Average time to settle a claim” has the lowest relative importance (3%). Whereas, “Revenue per policy holder” is the KPI that should be improved by combining the right startups.

Step 4: Select the Right Solution Using the Pugh Matrix

The purpose of the Pugh Matrix (see Figure 2) is to support a brainstorming session to discuss and debate the most relevant new business models: “Which are the KPIs with the highest scores and which appear across a number of startups?”, “Which startup differentiates itself with just a few high rated KPIs?”, etc. This approach facilitates the identification of new solutions and ensures that product managers can proactively share new relevant ideas. You will find below three examples that emerged from discussion.

• Solution 1 – Personalization of a Health Insurance Product
• Millennials and digital natives in industrialized countries have different life expectancies to those of Generation X mostly because of lifestyle. Consumers’ needs change over time. This solution allows an insurer to gather the relevant data to develop and launch a health insurance product that a consumer can co-design with a simplified user interface. This goes beyond the concepts of instant umbrella, coverage on demand, or modular offers (e.g. Allianz1 by Allianz Italy).⁵ Quotes are evaluated accordingly to personal lifestyle and behaviours as well as insights from different data sources, including wearables, doctors, and historical data. Related startups: Geniuschoice, Teambrella, Instanda, and Fitsense.
• Solution 2 – Smart Life Insurance Leveraging the P2P Pooling Model
• We can extend the P2P concept beyond ventures such as Lemonade and Teambrella by equipping each peer with his own analytics tools to become familiar with the complexity insurance products. The risk of each new peer wanting to enter a pool will be measured from a variety of data sources and automated rules. This assessment will be used to decide whether to approve a party to a specific pool through clear decision support. For life insurance review, each peer will be able to gain the best advice by leveraging the peer associated to a dedicated portfolio. Related startups: PensionBee, Myfuturenow, Teambrella, and Orbital Insights.
• Solution 3 – Micro-Health Insurance for Developing Countries
• In this scenario, organizations can learn a lot from the microinsurance products that are being designed for the emerging markets. Those products are often supported by payment platforms able to accept the settlement of small premium amounts directly from mobile telecom contracts, particularly for those with no bank account. Such products connect a digital platform to local healthcare systems and telemedicine services, practitioners, patients, and drugs providers willing to participate in the program. In many African countries, for instance, over 75% of the population have no access to basic medicines and would do well to access proper diagnosis, monitoring, and digital recovery services. Related startups: Bima, Jamii, Totohealth, and Practo.

A final assessment is delivered by reviewing the scores captured at the interception of the matrix. These are the −1, +1 or 0 meaning, respectively, worse, better, or equal results to the baseline reference. Your Pugh result is defined by adding all the scores from each row. These results estimate the level of innovation provided by each solution. Consider developing these solutions with the highest scores, leveraging an agile methodology, as they are indicative of solutions providing more value to customers.⁶

Conclusion

“Creative thoughts must always contain a random component.”⁷ Analysing capabilities developed by startups and learning from their success might be a great alternative to developing your own internal innovation initiatives.

Startups with great solutions give insurers and insurance providers great headway over their competitors and help high potential ventures to prosper and grow since only 0.9% of startups that are founded (if they reach that stage) become unicorns.⁸

Creating new value-adding ecosystems was the purpose of this chapter. My intent was to share with you tools that can help you accelerate your ability to identify and work with the most relevant startup business models that are emerging daily. I believe that operating results will come from combining several startups rather than working with just one.

The cases of Lemonade and Teambrella have already created some level of discomfort within the insurance sector. What will it take for insurers to take a leap of faith to acquire those capabilities that will help them survive in a highly uncertain market?