Industry the March 2018 issue

Think Tank

Accelerator programs offer access to innovation.
By Mike Patten

“When I arrived in Hartford, I was thinking, wow, there’s got to be a lot of stuff going on,’’ Tyler says. “I started reaching out to a lot of people to see what was happening, and it was very, very quiet, just kind of waiting for somebody to throw a match.”

Two years later, a match has been thrown. Helped by a grant from the state of Connecticut and investments from several major Hartford insurance carriers and other investment groups, Hartford InsurTech Hub opened in January. It’s driven by Startupbootcamp, a Danish firm that operates accelerators in several industries to identify promising new startups and expose them to investors and industry partners. Eleven startups selected from more than 1,000 applicants will participate in the three-month accelerator, where they will be coached on how to improve their products and how to get their ideas in front of the right people in the insurance industry.

“For many years [Hartford] was the go-to place for insurance technology specialists,” says Frank Sentner, sole proprietor at Sentwood Consulting and former technology guru for The Council. “Unfortunately, it plateaued and stayed there for 25 or 30 years. They didn’t invest in technology, so there are very few people here who have the skills necessary to meet today’s needs. Insurance companies are having to go to New

York or Boston to attract people who have the skill set they need.”

Sentner believes the Hartford InsurTech Hub is an opportunity to move past that plateau and bring innovation back to Hartford. Tyler agrees. “A lot of people want to talk about disruption, but I think we’re really focused on evolution,” Tyler says. “And I think we all need to figure out how we rewire ourselves so that we continue to grow and insurance remains a vital part of Hartford. The need here is for this group to rapidly educate itself and start to rewire the industry.”

What’s in It for Me?

Accelerators have shown they can provide a range of benefits—jump-starting a local economy among them. According to a 2016 Brookings Institute report, the first U.S. accelerator was launched in 2005, but growth in U.S.-based accelerators really took off after 2008. Business models vary, with some accelerators making their money from investors who want a front seat to check out new technology, while other accelerators take a percentage of equity from participating startups. They may also charge investors to participate.

Working with young entrepreneurs is a great place to be. These entrepreneurs often deliver in creative ways solutions able to solve world problems in an easier and faster way than we will ever be able to.
Sabine VanderLinden, CEO, Startupbootcamp InsurTech

Startupbootcamp, for example, takes a small equity stake in the startups it accelerates. Additionally, major corporate sponsors contribute to each accelerator that Startupbootcamp offers. In the Hartford case, corporate sponsorship is provided by Cigna, The Hartford, Travelers, CTNext, USAA, White Mountains, and Crawford & Company. In exchange, the sponsors give Startupbootcamp guidance on what types of technology they would like advanced.

“Working with young entrepreneurs is a great place to be,” says Sabine VanderLinden, CEO of Startupbootcamp InsurTech, which is based in London. “These entrepreneurs often deliver in creative ways solutions able to solve world problems in an easier and faster way than we will ever be able to. While they bring product design knowledge, creativity and marketing acumen, large entities provide years of data, regulatory expertise, relationships.”

For The Hartford insurance company, having an accelerator in its backyard allows the carrier to expose more of its employees to new technologies, says John Wilcox, the company’s chief strategy and ventures officer. “There’s obviously benefit for us in terms of outsourced R&D at some level, but there’s also benefit in getting some of our people exposed to this ecosystem and this set of new ideas and the creative thinking of the startup community. That’s hard to do when they are on the West Coast,” Wilcox says. “Having them here in Hartford, we can engage in a much more robust way. It’s easy for us to get mentors and executives to go and spend time there and understand what they are doing.”

The Global Insurance Accelerator (GIA), launched in 2015 in Des Moines, Iowa, also positions access to startup innovation as a selling point for funders. GIA has seven sponsors that contribute $100,000 each to the accelerator. Each sponsor receives an equal share in the 6% equity surrendered by the participating startups, which each receive $40,000. “The ask of these seven was a $100,000 contribution per year and participation from their key leaders,” says Brian Hemesath, managing director of GIA. “The promise of delivery was that there would be this new innovation platform where they could discover new technologies and they could interact with the startup companies and their employees would get a chance to learn from working with them. If you do the math on a multi-member fund like this, where we only take 6%, the potential for return just on that 6% is not anything to get excited about.”

We get visibility in an efficient way because accelerators are a gathering place for startups.
Paul Mang, global CEO of analytics, Aon

In addition to making it easier for brokers, carriers and others in the industry to witness insurtech technologies in person, accelerators can help these stakeholders keep tabs on what competitors are doing or identify rising talent.

“We get visibility in an efficient way because accelerators are a gathering place for startups,” says Paul Mang, global CEO of Analytics at Aon, a corporate sponsor of GIA as well as Plug and Play, another leading insurtech accelerator. “Startups converge at a place where, for us at Aon, we get more access, more connections to interesting ideas that are coming from outside our own boundaries. Not only do we get to assess the ideas that are coming from different non-traditional sources, but we are there looking for talent. We’re at least looking at people we might track as they develop. And we also get to see what others in the industry are doing, what the other corporate sponsors are doing.”

Marie Carr, PwC Partner–US Advisory, says leaders at carriers and brokerages are beginning to appreciate the innovations being developed by startups. “Insurance moves at a very cautious pace, even if there is a potential need,” says Carr. “What has changed is that every executive that I talk with now is saying, ‘This stuff is so good. That company right there could solve a number of our problems.’ They are really looking at partnering. A couple of them are not only looking at offensively, but defensively, which is, ‘Hey, maybe I should get in and buy this startup because I know my competitors are investing in it too. I think I want to own it.’”

From Insight to Investment

For the startups themselves, participating in an accelerator can yield a range of possibilities. Initially, startups can gain valuable insight into what their products need in order to be a viable investment for the industry.

“The terrific thing about them is they are smart people, they understand technology, are creative and high energy,” Wilcox says. “But their depth of insurance expertise varies. Obviously, what we can bring to the table is people who are experienced in business and have deep subject matter expertise as well as just an understanding of what’s required for a startup to scale and be a valuable partner to a large insurance company.”

GIA, for example, aims to foster innovation in the insurance industry by producing an annual, mentor-driven, 100-day program in which startups receive insurance-specific mentoring through one-on-one meetings with industry executives. The startups also receive basic business infrastructure assistance, coaching on garnering investments, and product-specific insights into strategies for increasing applicability to and feasibility for the insurance industry.

Will Dove, CEO of Extraordinary Re, says joining an accelerator provided entry to boardrooms faster than he thought possible. Extraordinary Re, which has created a platform to foster a new marketplace for trading insurance liabilities, went through Plug and Play’s 2017 insurtech accelerator.

“The biggest benefit is just being part of the Plug and Play ecosystem—being on the list that Plug and Play presents to corporate sponsors and investors,” Dove says. “We got dozens and dozens of meeting with some of the biggest insurers and reinsurers in the world, and those kind of relationships and activities continue to this day.

“I do have a lot of connections in the insurance and reinsurance industry, so the companies that we met through Plug and Play I think we could have gotten meetings with, but it would have taken us at least a year to get the number of meetings and the right people at each of the organizations instead of three months through Plug and Play. That’s the real value of an accelerator. You just get through a lot more a lot faster in that environment than you could on your own.”

At the end of the day, if GIA does not bring startups into the fold to the carriers to actually work with and do pilots and improve the industry, then we shouldn’t be doing this.
Brian Hemesath, managing director, Global Insurance Accelerator

Steve Sherlock, founder and CEO of Pablow, an Australia-based vacation rental insurance startup, says getting accepted into the Global Insurance Accelerator was transformative. “Since we didn’t understand the regulations that are required in the insurance industry in the U.S.,” Sherlock says, “going through the accelerator gave us access to people, like insurance commissioners, so we could understand what insurance regulations we need to meet.”

Ultimately, many accelerators aim to foster true investment in viable industry solutions that will benefit all stakeholders. “The ultimate goal is to enable startups with solutions relevant for corporates to find their first customers and then the investment required to grow and scale,” VanderLinden says.

Hemesath, from GIA, says investment opportunities arise when a carrier makes a seed investment in a startup and takes a deeper equity position. “At the end of the day, if GIA does not bring startups into the fold to the carriers to actually work with and do pilots and improve the industry, then we shouldn’t be doing this,” Hemesath says. “We hope that we find companies that otherwise are almost broke or don’t have very many prospects to break into this very hard industry to break into. And we hope that we give them the guidance to do those things and that, on the flip side, the industry is better off for it.”

Do They Deliver?

“I think the accelerators have largely delivered what they said they would deliver—the aggregation of innovative ideas and all that,” says Aon’s Mang. “But I think the real question is are the large organizations that are part of them—the partners—are we really getting the most out of it. Are we able to make the most out of that access? I think it’s too early to tell.

“I think the challenge is that getting access to ideas externally has no economic value. The real challenge is how it affects what an organization does to deliver to its own client base.

“[But] we’ve seen in recent months some very promising technologies built into new business models that are addressing real pain points in core insurance operations. I’m excited about innovations that help our industry dramatically improve operational processes that will ultimately provide clients with new, innovative solutions to tricky risk problems. For instance, we have already successfully piloted a machine learning claims management solution and have begun deploying it into the market. There are other core operation solutions being evaluated now and I anticipate this area will gain more attention in 2018.”
 

Incubating Healthcare Tech

Accelerators aren’t the only kind of early-stage investment organization out there. There are angel investors, seed-stage venture capitalists, even incubators. And somewhere among these organizations sits Matter, a three-year-old Chicago-based nonprofit focused on fostering innovation in healthcare. Most of its funding comes from 70 major corporate sponsors, including the American Medical Association, Blue Cross Blue Shield of Illinois, large pharmaceutical companies, device and diagnostic companies, hospitals, insurance companies and other parts of the healthcare industry.

Matter selects healthcare startups at different stages of development to mentor and coach. It offers classes, coaching, clinics and meetings with financial companies, as well as guidance from the mentor firms about what it takes to succeed in healthcare. Matter CEO Steve Collens says Matter’s 200-plus member companies have raised more than $500 million since their inception. The member companies generated more than $71 million in revenue in 2017 while raising $122 million.

Collens says healthcare can be a challenging field for startups to decipher. Matter allows entrepreneurs to work closely with the established industry to fine-tune their products into something the industry will buy.

“We work with the larger companies to understand the challenges they are facing,” Collens says. “What are the business problems that they are looking at? Where are the needs for innovation? How can we work with entrepreneurs and facilitate the collaborations that ultimately are going to get new solutions to market the fastest way possible?”

Matter combines a series of onsite workshops with talks from industry leaders and intensive mentoring from established customers in the healthcare industry to help foster innovation. Its curriculum includes advice on recruiting founders and employees, raising money, identifying and approaching customers, shortening sales cycles, building pipelines, and scaling up for success.

Entrepreneurs are also given access to investors and advice for building relationships with them because, Collens says, the challenges in healthcare are unique.

“Healthcare is particularly complex,” he says. “Unlike most industries—where, if you create a solution that solves a problem, you can expect there will be a way to generate money off it and create business—in healthcare it doesn’t work that way. You really need to understand the economics of healthcare and the workflow of healthcare to develop a business model that will work, in addition to a product that will work. That requires a deep amount of industry expertise.”

Mike Patten Contributing Writer Read More

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