Dispatches from the Innovation Frontline – Rewiring Insurance with Armin Molla
This is the first in an occasional series of interviews, “Dispatches From the Innovation Frontline” where we speak to individuals or organisations driving forward new business and service models within start-ups, scale-ups and corporates. This week we profile Armin Molla of Virado and talk about innovation inside and outside of an insurance behemoth.
If ever there was a sector where there’s hidden value to be unlocked through rewiring business models it’s in insurance. On the supply side there are archaic legacy practices dating back centuries and monolithic IT systems. Meanwhile there’s strong demand from buyers for cost reductions. So it’s no surprise that the insurance business is an easy target for disruptive startups.
Yet what happens when you try and disrupt such a sector from the inside? Corporate innovation programmes are always challenging, with the status quo and the inevitability of business as usual hanging like a Sword of Damocles over them. In such a conservative and heavily regulated business as insurance, it’s even more challenging.
These were some of the challenges faced by Armin Molla as he set about delivering products in one of Germany’s largest insurers, Ergo. Armin is now founder and CEO of Virado, a platform enabling brokers to sell relatively low-ticket policies through tablets and smartphones. We caught up with him after his presentation at the Lean Startup Summit in London and talked to him about his experiences innovating inside and outside a corporate.
Armin, tell us about Virado
It’s a service which enables insurance brokers to offer a section of insurance products on one platform. There are around 120 different products, mainly for niche policies, for example smartphones and bikes. The kind of premiums for these products are around €50 per year. They’re the kind of policy that don’t really provide a profit but are great for brokers to build relationships with clients that can grow.
They were the kind of policy which has previously been sold through retailers. No-one has brought this together before.
Where did you get the idea from?
I saw the problem when I was working at Ergo [one of Germany’s largest health and legal expense insurers and part of Munich Re]. If a small partner comes with an innovative idea such as this, then the big insurers can’t co-operate with them.
If they want to integrate these kind of products, then IT and portfolio management would need between two and four years. Two years would be fast! And there is no difference between the large insurance companies in terms of speed here. There is market potential for a lot of products but no underwriters for many of them.
That’s not such a great environment for innovation, who’s doing well in this space?
Hartford Steam Boiler (US-based B2B insurer, also part of Munich Re) is doing great here. They are working iteratively and developing projects [The company has a number of innovation strands including the “plug and play” incubator in San Francisco and a Venture Fund which invested $500,000 in IOT app Waygum last year]
You have experience of innovation in Germany, a landscape dominated by corporates. What innovation strategies are you seeing there?
It’s difficult to go fast in a corporate. Bayer and others are building lots of “speedboat” opportunities. That enables them to go faster to solve a problem, but they are not receiving direct investment. We see a lot of “labs, incubators, speedboat” type operations with multiple strategies. No-one is then executing on these opportunities at the level of, say $1bn. Instead they are buying startups or launching their own projects.
What’s the culture of the insurance business and how does it handle innovation?
The culture is still very much driven by the business side, driven by the numbers. The technocrats are still in power. When they talk about cultural change, they are going to Shoreditch, or Silicon Valley or Berlin and going to the new innovation hubs – they’re seen by management as “a lot of fun.” It’s the start of culture change. But realistically, with labs and incubators you’re talking about 3-7 years to see the results. It’s really a marathon effort to change culture.
And then, at the end of the day they have to do M&A to get the companies they need. To get the speed and numbers they simply have to do acquisitions.
Who’s doing innovation right in Germany?
Outside of insurance, Axel Springer has a fantastic approach. For example, they bought [international job portal] Stepstone and now can spend €1bn or more per year on acquisition fund. They’ve been doing that now for ten years – most of the other media companies did not learn [Springer last year acquired US digital news site Business Insider]. Contrast that with Neckermann [catalogue company which become insolvent in 2014} which could not change its business model in response to Amazon. When a big traditional company like that from the “Wirtschaftswunder” [Germany’s post-war economic miracle] disappears it sends shockwaves. Yet in other businesses keep on saying “we see the change but we’re still doing good numbers. If they get too big we’ll buy them”
But once the patterns of digital disruption touch your business, even if you’re losing just 1% of your sales to those forces that’s too late to react. In Germany now there are 150 companies targeting insurance.
Acquisition seems to be a very defensive tactic. Is there another way? What did you learn at Ergo?
Growing through M&A is defensive and also takes time to see results. If you want the company you buy to survive, you need to have the follow-up. You have to slow down to integrate it.
There is a different way. You can build a privileged project inside the organisation. That has to run on different KPIs from the standard ones which are usually around efficiency. You simply can’t operate at maximum efficiency in innovation.
Unlike the labs or incubators, you should be running maximum three projects, ideally two. You also need to deliver very fast results. In a standard organisation you can expect to deliver in two years. We needed to show that inside 9 months.
It’s about hiring the right people, and engaging the gatekeepers and stakeholders. You have to have C-level support, otherwise it won’t work.
You also need to have budget and the ability to spend it. Normally when it’s outside “business as usual” the CFO is told “if he tries to spend it, question it” You need to be able to spend as you need to. Quite often you see the shareholders want a digital strategy, the major stakeholders want one but in the end you can’t execute because of this.
And, above all, be positive. You are selling internally like a startup. It’s a new business and needs your energy and positivity.
Lastly, tell us about failing. You can’t innovate without it. Where have you failed?
When we were looking at selling bike insurance , we looked at high-end customers. We assumed that the owners with bikes costing €2,000-10,000 would want the full insurance with GPS trackers, so we geared our site to these customers. We found they were not taking the insurance because the tracker spoiled the look and feel of the bike. Looks were more important to them than tracking. Instead we learned and focused on those with bikes costing €700-€1,500.
We had another fail with printers at Virado for our POS solution. We thought that we would provide a tablet interface and also a printer, so we provided high-end printers to be able to print and sign contracts at retail. We realised that they already had a printer and didn’t have room for a second one.
The only way you can learn these things is by talking to people and learning.
In a Nutshell
- Insurance is mainly being disrupted by forces outside the traditional business such as customer enablement through smart devices.
- Core operations pursuit of “business as usual” and technocracy stifle new ideas and innovation
- Internal innovation can provide a valuable alternative to both M&A and incubators
- Different metrics must apply to the unit
- It needs engagement, focus on 2-3 projects only, hiring smart, internal sales and top-level sponsorship
- Failure is part of the process and needs to be embraced