Paul Ricard
Hi everyone, and welcome to Oliver Wyman’s Reinventing Insurance podcast. I’m your host, Paul Ricard. Today, I am delighted to welcome Gaurav Garg to our podcast, an Oliver Wyman advisor and property and casualty insurance and technology leader. Welcome, Gaurav.
Gaurav Garg
Thank you, Paul. Really happy to be here.
Paul
Gaurav, please tell us about your experience and your background.
Gaurav
I’ve been in the insurance industry for over three decades. Without sounding too old, I probably started very young. And I’ve been around, seeing almost all aspects of insurance.
The last role that I had at AIG, I was running global personal insurance, which is all of the consumer insurances, which spanned 70 countries, and was almost $11. 5 billion of premium, just 44-ish percent of their total P&C revenue. And then, over the last several years, I’ve been deeply involved in the challenger space, which is the new-age insurance, people would call them insurtechs.
But basically, the thing is that coming in with an incumbent mindset, having spent time with large companies like AIG, Chubb, a little bit of Marsh McLennan, and others, and I even did some work for IBM, I had the background of how incumbents think. And then, being involved with the challengers, being on advisory boards, and on boards of several of these new-age companies. Having worked with them very closely, I understand how the challengers think and operate. I think that puts me in a very unique position to be able to actually bring in perspectives for incumbents as to how they’re trying to frame and address the changing marketplace and changing consumer behavior.
Paul
That’s terrific. To dive in, what has changed in the insurance industry in the last few years? What has happened that has made the change accelerate?
Gaurav
That’s a good question. Companies have been trying to do new things for several years, almost a decade. You’ve heard of talks of digital transformation, Agile workforce, and everything else. But what has changed, Paul, is that it was never a burning platform, and therefore, whatever was happening was on the fringes; it was very incremental.
The last three years have seen a couple of things that are creating a sense of urgency, and the obvious thing is the pandemic. What happened during the pandemic is that, due to the shutdown, companies have been forced into a new way of working. And the new way of working is technology-driven. We are on Zoom, and we never had so much of Zoom’s kind of virtual meetings. Everything is driven by technology, so it’s their own workforce, their distribution partners and their customers.
What it has shown is that the buying behavior of customers is changing, the risk perception is changing, and the way the distribution interacts is changing. And that has brought about a sense of urgency, and acceleration on being new age, being able to meet the customer, and the end customer and their stakeholders, which is their employees, and the distribution partners where they want to be met. I think that’s the main difference between earlier and now.
Paul
That’s interesting and evidently, at the same time, we were talking about insurtech and traditional players, or new-age players and incumbents. Evidently, some insurtechs have seen their rise and fall in the span of the last three years as well.
It seems like the market has not necessarily been very kind to some of these new-age players as well, who have been hard at work trying to reinvent the insurance industry. Why is that?
Gaurav
Paul, you bring up an interesting point, and this is what I have heard from many people. People are thinking, is that the way insurtechs are going?” I would like not to generalize this because we are clubbing insurtechs text into these four or five IPOs that happened. And I’ll talk a little bit about that, but let’s unpack this a bit.
I would look at players, ; the whole space has new-age players. Challengers, new-age players – and I like to call them new-age players – and I would place them into distinct archetypes. The ones you’re talking about are the archetypes that have a balance sheet. Most of these players that have gone IPO are actually insurance companies, which are technology-driven with balance sheets of new-age insurance companies.
The other archetype is new-age players, which are really in the space of what we call in the insurance industry, MGAs, where they don’t have balance sheets, but they’re tech-driven. And the third archetype is the tech-driven services around insurance. As you see a lot of development around claim services, you’ve got a lot of development around assessment, you’ve got a lot of development around all of these platforms that support.
That’s how I see this new-age ecosystem, as I would like to call it, developing. If you talk about all of these companies that have been IPOed, they are all competing in highly commoditized marketplaces. These companies are in personal lines, so you have auto, home, and health. And they are competing with major established large players who have large balance sheets, who have large pockets, a large set of distribution channels.
Paul
What’s your take on how these large incumbents are dealing with all these changes today? What kind of archetypes are you seeing in that broader and older, longer-lasting space?
Gaurav
First of all, I would like to emphasize that the incumbents are actually sitting on very valuable assets, and they are looking at ways and means to unlock the assets. They have rich data and seasoned books of business, so they know the market. They’ve got a very large customer base, and they’ve got established and wide distribution networks. They’ve got deep insurance knowledge and experience over the years, and most importantly, they’ve got large balance sheets.
What they want to supplement this with is what challenges bring. New-age digital technologies, freedom from legacy infrastructure, nimble environment and swift decision making, great customer interface and experience, frictionless, innovative, and dynamic solutions. Basically, that’s what they’re looking to do.
Now, what I’m seeing that they’re doing is, again, keeping the example of what kind of archetypes I see on the incumbent side. The first off were incumbents who started investing in insurtechs. You would’ve seen a lot of insurance and reinsurance companies set up their venture capital funds and started investing just to dip their toe in the water and understand the space.
That’s the first off. The second one was, some of them started acquiring insurtechs, which wasn’t very prevalent because the valuations of insurtechs were totally through the roof, so there were a few acquisitions that happened. There are a couple of acquisitions that happened recently as well, though the valuations now are much lower, and maybe that might spur more acquisitions.
And the third archetype is that some companies’ incumbents said, hey, we’ve got all these assets, we’ve got smart people – we can hire smart people. Why don’t we build our own new-age platforms? And there are certain examples of large companies that have – I would say successfully, but still, it’s too early – but let’s say successfully launched some new-age platforms that seem to be gaining traction.
And the fourth archetype that is emerging is that, as the challengers are coming of age – when I say coming of age, they’ve got scale, they’ve got stability – companies’ incumbents are looking at them and saying, should I just partner with them, because they’ve got all of these things that complement me? The best in class. Or do I make a lot of investment and build, which might not be the best in class, and I’ll have to take that risk?
I’m seeing an emergence of that partnership pattern quite a bit now, which I think is a healthy thing because it gives incumbents what they lack, from the challenger side, and it fills in for what the challengers need from the incumbent side.
Paul
It feels like it used to be, “we incumbents will either build something from the ground up, or we’ll place some initial investments.” And now, it has moved more towards strategic acquisitions, or strategic partnerships, or building a broader ecosystem – potentially supporting a solution that is being built internally that is leveraging some of the assets and strengths that some of these incumbents have.
It’s not like there is one way for incumbents to be successful, either. It seems like there are multiple options out there in this broader ecosystem. If we fast-forward five, 10 years, how do you see this evolving? Do you think there is a winning formula? Who do you think will be the winners? Who do you think will be the losers? What’s your prediction?
Gaurav
They have to play in areas where they are good at, so we have to really help companies understand what categories they have strengths in. And then, how do they win in those categories? And to win in those categories, what do they need to do?
They need to see what’s happening in the market, what the challenger set is doing, and what other companies are doing. What kind of alliances, relationships, or partnerships would benefit them?
Ultimately, I think, fast-forward 10 years, 15 years down: the real driver to change is the customer. Everything revolves around the customer, so it’s how the customer wants to interact with you. How your customer, which is your producing distribution partner, wants to interact with you. How are your other stakeholders, which I don’t want to leave out of the workforce, because that’s very important in insurance – that if we don’t have the right workforce, we are selling a promise, actually. How they want to interact with you.
If companies don’t remain current, if they don’t have their ear to the ground, if they are not listening to what’s happening in the market, those companies will struggle to maintain value.
Paul
In parallel, I would like to test with you. Looking at what happened in the last two, three years, and what’s likely to happen in the next few years, is what happened in the automotive industry, especially with electric cars, where, evidently, Tesla has been one of the biggest players in there, and has introduced new technologies, has certainly taken a challenger approach to manufacturing and designing electric cars, and is now the most valuable car manufacturer out there.
There are a couple of things that I think are happening, which I think are interesting parallels with what’s happening with the workforce in the insurance industry. The first one is: there are people who have now been at Tesla for quite some time, but who had been in the auto industry for decades before that. And they’ll have an interesting blend of challenger and incumbent in the way they operate.
At the same time, all the biggest automotive manufacturers now have certainly gotten into the electric car game, into the self-driving car game, and have also attracted talent that either came from Tesla or that had similar spikes in their talent.
Both in the case of a Tesla and a more traditional auto manufacturer, the workforce is a little bit of a hybrid of the challenger and the incumbent from a few years ago. It seems like this is something we’re starting to see in the insurance industry as well. What’s your take? Do you see that happening? Do you feel like there’s going to be a similar trend happening in insurance?
Gaurav
On the incumbent side, I also see that they are investing heavily in creating this whole challenger mindset. And the way some of these companies are approaching it, that they are either spinning off or setting up standalone units or standalone businesses, which are totally new-age businesses, which are built only for the new-age customer.
Some companies are reinventing parts of their businesses and so on and so forth, and they’re hiring people with the right skillset, but it has to be a blend. Insurance is a sale with a tail, so if you lose sight of the tail, it may come back and whack you when you’re not even expecting it to, and therefore it’s a risky business, and one has to have a balanced approach.
Paul
One question I always love to ask is. Do you have any final words of wisdom for our audience? In particular, any words that would be targeted at our incumbents? Any words that would be targeted at challengers?
Gaurav
Identify your strengths, play to your strengths, and build off your strengths. Now, that doesn’t preclude a company from getting into a new area, but to do that, I think a better route than trying to do an organic new area thing is to look for assets that would give you that strength to actually create a winning proposition in that category.
And talking to a lot of investors as well, private equity and VC and companies. They want to see companies first go deeper in the areas they are in before they go broader. And this is for the challengers. If the challengers or the new-age players try to go broad very quickly, it’s very difficult to manage because it’s still a new company. Whichever space they are in, they need to first grow deep and then grow broad.
Paul
Gaurav, thank you so much for your time. It was a pleasure discussing challengers and incumbents with you today. It was very insightful, and I look forward to seeing if some of these predictions turn out to be true in the coming few years.
Gaurav
We’ll have to wait and watch. If anyone could predict, he’ll be a very rich man, and we’ll see how the market forces play out. But Paul, thank you. I really believe that these podcasts that you run are very informative, very helpful, and I hope that the audience finds this one as well. And as you know, we are always open to more questions. If anyone wants to connect with us separately, happy to do that.
Paul
Terrific. Thanks ever so much. That was Gaurav Garg, who is a property and casualty insurance and technology leader. I am Paul Ricard, your host, and for more information, as usual, feel free to visit www.oliverwyman.com/reinventinginsurance. I will see you next time.
This transcript has been edited for clarity.
