InsurTech on the rise
“The insurance sector is currently undergoing a huge transformation. InsurTech start-ups are emerging, poised to change the way we look at insurance.” Mikael Hvolgaard, director and head of portfolio management at Tryg, number one insurer in Denmark and number two in the Nordic countries, is also an alumnus of our MBA in Financial Services and Insurance (MBA-FSI 2006-2008, greatest distinction). A look back and ahead.
“I hold a masters in finance. So, I chose the MBA-FSI because of its unique focus on the financial services industry. Back in 2006 I was more of a financial specialist, a number cruncher, but I wanted to broaden my horizon,” Mikael recalls. “And this MBA has certainly helped me do that. Soon after graduating I was appointed director of mergers & acquisitions, a position that requires you to take a holistic view of a business. As a portfolio manager I have a more focused job now, but being able to see the bigger picture is definitely an asset.”
Just as important as the courses were the contacts with his peers: “This MBA has left me with an invaluable network. You spend a lot of time together, away from your family, so you get to know each other quite well and we’ve kept in touch ever since. We’ve been exchanging jobs and job opportunities, for example. Because most of us are still active in financial services, we’ve been able to share experiences and discuss problems and challenges.”
The end of average
And there is no shortage of challenges. Digital technologies are radically changing how businesses operate and compete, and the financial services industry is no exception. First there were the fast-moving FinTech start-ups disrupting the banking sector, now the InsurTech companies are catching up, but Mikael doesn’t see them as a threat. “Actually, the digital opportunities opened up for insurers are huge and more interesting than those for bankers, but I guess I’m biased,” he says, smiling. “Insurance is about risk management, which boils down to data management and analysis, really. Virtually any data source can be useful.
And this is where the Internet of Things comes in. Data provided by all these built-in sensors may be extremely relevant from an insurance point of view. The potential is massive: researchers estimate that by 2020 there will be over 38 billion connected devices. Mikael: “How will this affect us? We’ll get access to large amounts of data. Used well they will generate valuable insights into people’s behaviour and the associated risks, which makes it possible to develop innovative insurance products, for example use-based insurance. Instead of thinking in terms of average risks, we could offer individualised solutions.”
Prevention and empowerment
These insights will also enable insurers to think more strategically about risk prevention, not only for their own sake to save on claims, but for the sake of their clients. “Think about self-driving cars, for instance, they could significantly reduce the number and severity of car crashes,” Mikael says enthusiastically. “There is this saying ‘good for mankind, bad for insurers’, but risk prevention doesn’t have to be bad for business. We just need to take a new perspective on what we do and how we work.”
The essence of insurance is the assessment and pooling of risk. Mikael feels insurers need to broaden their view and think beyond traditional car and health insurance. “We need to empower people to do what they want to do. And for me, that’s still what insurance should be about.” He pauses and adds: “Several InsurTech start-ups are now offering peer-to-peer insurance*. Many believe the peer-to-peer model is the end of insurance as we know it, but I’m not so sure. If anything, it takes us back to our roots: mutuality in the sharing of losses.”
How does Tryg deal with today’s challenges and opportunities? “We’re a major incumbent player with a large customer base and a strong brand, but we also have the rather cumbersome processes and systems typical of traditional companies that are often the result of several mergers and acquisitions. Basically we’re looking at two ways of transforming our organisation,” explains Mikael.
“First we want to reposition and strengthen our core business, to ensure it’s viable for the future. I’m convinced it is. As I said earlier, our core isn’t any different from that of InsurTech start-ups. We just need to make sure we become as efficient and as agile as they are and that requires proper resources, capabilities and education. Second, we try to disrupt our own business, to use a buzz word. We try to reinvent ourselves. The trick is to keep the two tracks of the transformation separate, so that we don’t slow down our repositioning efforts while we’re exploring new ideas.”
Joint-ventures, innovation hubs and labs ... there are many ways to generate novel ideas, to achieve this self-disruption. Tryg is also a partner of StartupBootcamp InsurTech, the first European start-up accelerator for the insurance sector.
“Via the screening process, we get privileged access to InsurTech start-ups and we can choose the ones in which to invest. We also draw on their ideas as inspiration for our own innovation initiatives. And last but not least, these start-ups help us change the mindset in our organisation, to become more agile and creative. This is also why we have our employees participate in hackathons and why we’re thinking of opening up our premises to some of these start-ups and create a co-working space. Rather than getting our people into a lab, we could have the lab come to us.”
Mikael is confident Tryg can beat the start-ups: “We have the brand and the experience. They have the new ideas and the agility. And we have found a way to marry the two.”
And he concludes: “The only way to beat the waves of disruption is by engaging them so you become part of the change. In times of disruptive change, organisations need managers who are open-minded, who can adjust to an ever-changing environment, which is exactly what the MBA-FSI helps you to become. And then there is the network it helps you build, which is more important than ever, as your peers will be a major source of inspiration!”
How digital is changing the face of insurance
Professor of Digital Banking Bjorn Cumps provides a clear and comprehensive overview of the five major trends in the insurance industry: “Advances in digital technology may not alter the insurance métier, but they will have a significant impact on their business model.”
* Peer-to-peer insurance: a reciprocity insurance contract based on a sharing economy concept, with a group of policyholders pooling together. In the event of any claim they support each other financially. If there is no claim, the insurance premiums are reduced. The aim of peer-to-peer concepts is to make insurance cheaper. Examples are Friendsurance in Germany and InsPeer in France.