Innovation as a step function

Is it the beginning of the end?

Shefi, Avi and the rest of the Coverager family are on the frontlines of the insurance and insurTech news. Their effort to discover and report (with a delightful sense of humor) changes and development in the insurance industry has only a few competitors, and so, I assume, is their exposure to less exposed movements in the industry. So, people pay attention when Shefi Ben-Hutta comments on Billy Van Jura’s post saying

“this is the beginning of the end.”

That comment made me wake up from my writing slumber (I have been busy working on my venture) and pick up my keyboard. I can’t tell if it is the end of InsurTech, but it is the end of this chapter, or maybe the end of a phase, in the InsurTech trend.

There were several InsurTech products and investments trends:

  1. Aggregators and compare engines

  2. AI and “Big Data”

  3. MGAs and agencies

Somewhere, in between, there were other investments and creation of startups that promised blockchain solutions, infrastructure and robo-advisors.

Where is the END?

Matteo Carbone, a top insurTech thought leader’s, mantra is that “every insurance company will be an InsurTech.” Following Matteo’s prophecy, we are far from the end, as the majority of the insurance companies in 2018 are not InsurTechs and are still in the unregulated oscillation stage. The industry will achieve a steady state once all InsurTechs grow to a mature IT providers and incumbents will acquire the current startups and shut down the current legacy systems. I estimate it at 2034.

Using an analogy from Electrical Engineering - the fluctuations in the industry will converge at a future time. (This is a simplified model)

RLC circuit response to a step function

RLC circuit response to a step function

Step Up

The entrance of startups to the insurance industry, nearly four years ago (2015), introduced a change, innovation, that made all the components, whether they are linear or passive, to react. The new teen spirit that the startup introduced acted as a step function that increased the value of the industry. The input may be a nice and clean function, but as we saw earlier, it has a ripple effect that affects the entire circuit until is converges on the new and higher level.

An illustration of a step function

An illustration of a step function

The resistors (R) are linear components. They don’t resist the change. The output changes linearly according to the size of the resistor. On the other hand, the capacitors are passive and resist, or delay, the change until they are set in the right potential. Think of it as an internal buy-in in the organization.

The insurance companies

The insurance companies reacted in several ways. This topic can be a series of articles and #InsurTechTalks in #InsurTechLA.

Spin out an external InsurTech and run a semi-controlled innovation effort without the politics and the legacy systems. For example, Mass Mutual and Haven Life.

Create a venture arm to invest in startups with strategic or tactical value. Fours years in, we see that a venture arm needs to invest outside of the insurance domain to promise a valuable pipeline and return to the LPs — for example, XL, AmFam and Mass Mutual.

Take part in “tech tourism.” For example, all of Plug and Play’s customers.

Establish an innovation team to innovate new insurance products… or to adopt new technologies… or to get a buy-in for a change in process… or develop new technologies in-house… AND train and update other employees about industry and technology advancement — for example, Farmers insurance, All-State and more.

Hire an Entrepreneur in Residence (EiR) that can bring a fresh perspective and attitude to take on challenges that the organization wants to advance. For example RGAx and QBE.


The insurance ecosystem is populated by many service providers that keep the industry moving.

Law firms started to strengthen their insurance and InsurTech practice. We see more and more firms participate in the conferences and trying to slice the pie of customers who need traditional C-corp/investment services and regulatory work.

The Big Four (EY, Deloitte, KPMG, and PwC) adjusted their practice and took several exciting steps to position themselves as valuable players in the digital transformation that the insurance companies and the insurance ecosystem are undergoing.

The prominent IT consultants and infrastructure providers DXC, Tata, Accenture and more, find themselves in a similar boat to that that the Big Four were fast to adopt. For example, DXC announced an innovation competition to drive internal innovation acceptance by showcasing external startup products that have the potential to provide value to DXC’s customers.

The National Association of Insurance Commissioners (NAIC) is taking the change head-on. In my humble opinion, each state commissioner faces a complex organizational challenge. The commissioners are ramping up their workforce so it that can understand the latest technologies, and algorithm-based products, and make a decision that will protect the population and serve their expectations of modern products.

The End


The journey is endless, but we are reaching the end of this chapter. New profound innovative products will not be as common as another robo-advisor or a compare engine. The first innovation Step Function elevated the industry to a new height that new entrants will need to climb.

The Blue ocean is still blue.