Fintech narratives often slip into “disrupting banking” – whereas this is just a part of Financial Services – insurance is another vast part.
There is another narrative that assumes innovation is the preserve of the “t-shirts” not the “suits” – whereas in practice in the sector as a whole there has been massive (excess even?) innovation in recent decades.
Furthermore there are some FS incumbents who were born out of innovation and still live and breathe it.
Against this backdrop I am delighted to have on the show John Shaw Head of R&D and Innovation at the Direct Line Group. John is a great person to talk about innovation in FS as he has had gigs in a rare breadth of FS-sectors – consumer, private, and commercial banking before moving into insurance.
John’s very B2C marketing background is also a great counterbalance to LFP005 which was much more B2B focused. We start the show by discussing how we learned Marketing and Sales in the City – for John this was “meat and potatoes”. For me (coming from “ultra-B2B” City origins) I kinda had to work it out myself over time as the old imperial vibe of the last thing one wants to be was “in trade” (commercial? shudder!) pervaded much of merchant banking.
This B2C vs B2B division is a huge fault line in the Fintech scene which I have never seen alluded to. In essence if your business needs thousands or millions of transactions then there is one philosophy of how to address the marketing and selling functions [and this is the default “tech” vibe imported from the Valley]. Vice versa (and this is where techs can run into problems having de facto absorbed a tech sic B2C vibe) if a dozen deals a year is a lot for you – you need the B2B approach we discussed in the prior episode.
In getting feedback from chums who know the insurance market, everyone singled out Direct Line as being “real class”. In a way it was founded innovatively and continues in that vein. As is evidenced by this episode incumbents who embrace innovation can have a significant advantage in employing the likes of John to run an innovation team and get a very strategic grasp on their marketplace.
John’s view is that corporates rarely lack for good ideas but more often lack a means of trying and trialling and tweaking them to get success before then going on to industrialise them. We didnt capture this point on mic but he (like I) is very much against the whole idea (all too commonly seen in London incubators/accelerators) that innovation equals bean bags, ping-pong tables etc. Again if one subtracts the “valley vibe” there is no need to be teenage or childish to be innovative. Equally he is averse to the idea of “blue sky thinking” focusing more on delivering.
John lays out the strategic challenges for insurance coming from changing consumer behaviours in terms of key pillars of:
- the Internet of Things
- Quantified Self (more accurate data => more accurate pricing)
- Telematics (ditto but data on devices (eg cars))
- P2P/community insurance – eg: Bought by Many (social insurance and one of the best examples of an innovative insurance fintech) and a cracking tale about the “very French” “Mutuelles des Fraudeurs”!
- Ownership to usership
- the “End of Inefficiency”
I was very impressed by the grasp of the strategic threats and opportunities and mention that I have never seen (yet anyway) such a grasp of strategic innovation in banks [in LFP002 Warren Bond referred to the key roles of innovation departments in banks as currently facilitating the introduction of innovation into banks – not to originating it].
It hadn’t struck me before but the Insurance sector had wake-up calls ahead of the banking sector. This may be why relatively speaking it has less “really low hanging fruit” (unlike banks around FX and payments). The first wake up call was the move to online buying and the second was the advent of price comparison websites (which are looking to move more into value comparison (ie including quality as well as price)). If insurers were lagging and dragging feet before these, then once the business started walking out of the door they had to respond PDQ.
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