Innovation as Risk Transfer for Business Models

Dan White is managing partner at Ninety, an innovation consultancy for insurance. It helps carriers and reinsurers in two ways: taking new insurance ideas to market in 60 days, and helping them become better innovators through training, operating model design, innovation funding and setting up innovation functions. Ninety has been voted consultancy of the year by the sector two years running and works with most of the large European carriers, many in North America and increasingly in Asia Pacific.

About Dan White

Dan White is managing partner at Ninety and a co-founder of Alchemy Crew. The name Ninety reflects the company’s model: it is for-profit but also for purpose, giving 90 percent of its profits to charitable causes that help reduce the risks faced by the poorest people in developing countries, such as health care, education and access to funding for micro businesses.

What Counts as Innovation

Dan defines innovation as a change, however big, executed at scale and not just an idea, that makes a positive difference to the business, its customers or its staff. A cleaner changing how coffee cups are stacked is a tiny innovation. Gilad framed insurance as the safety net that lets entrepreneurs jump, going back to the merchants of Venice before Lloyd’s.

The 2020 Innovation Dan Loves Most

Dan’s favorite innovation of 2020 started with a request from AXA XL’s London office, before COVID: could Ninety find a way to underwrite the last portion of the vaccine supply chain in developing countries? Insurers can cover vaccine research, production, refrigerated trucks and shipping to a port. But once a container is opened and boxes are put on motorbikes to clinics in remote villages, no one knows whether the vaccines stayed cold and effective. There is a humanitarian challenge and a business one, since insurers couldn’t underwrite that stage.

Ninety worked with the Gates Foundation, Gavi, an IoT temperature-sensor scale-up and other organizations in a co-innovation process, and a colleague texted that they had the breakthrough: an idea none of them would have reached alone. Nine months later it launched at Lloyd’s as a new syndicate, the Global Health Risk Facility, which provides an underwriting mechanism for that final stage and makes it affordable to put a sensor in the box and track the vaccine’s efficacy. It is now being used to distribute and protect COVID-19 vaccines to the world’s poorest. For Dan it shows that insurance addresses big problems and innovation is the best technique for solving them.

Bet 1: Digital Micro Insurance

Ninety tracks the world’s top 250 insurers and publishes an annual report, the Idea Pulse, with five bets for the coming year. The first Dan discussed is digital micro insurance. Micro insurance in developing countries is typically health or clinical care products, and has big successes: he recalled MicroEnsure’s founder, Richard Leftley, describing a launch in India that sold a million policies, so fast the team was adding hard drives to servers. Because there is no human contact when you sell a policy for a few cents a month, micro insurers built highly automated straight-through processing, more sophisticated and at higher scale than Western insurers manage for far larger premiums.

Dan’s bet is that developed-market insurers will take those techniques back home, perhaps through embedded policies, citing ZhongAn in China, which has sold tens of billions of tiny policies, often as an add-on to an online purchase. He also made a point about innovation: necessity is the mother of invention, and scarcity drives focus, experimentation and data-led decisions, which is why developing economies have out-innovated richer ones here.

Bet 2: Intangible Assets

The second is the insurance of intangible assets. Dan cited a quote from Lloyd’s CEO John Neal that the balance sheets of S&P 500 companies have flipped from mostly tangible assets to mostly intangible ones such as brand, reputation, intellectual property and data, worth trillions of dollars, which can’t be wrapped in a P&C policy. Lloyd’s and some specialty carriers are looking at how to understand and quantify risk around intangibles, and in many cases the old actuarial and underwriting mechanics don’t work. Cyber is the closest to solving it.

He offered a deliberately crazy idea: if insurance transfers perils from physical assets, innovation as a methodology transfers risk from business models. Could you insure business model exploration, or innovation itself? Experts at Lloyd’s tell him it’s impossible, though today venture capitalists act as the underwriters of that risk, arguably better than insurers do. He extended the thought to life insurance: if business reputation can be underwritten, why not personal reputation or legacy? Gilad connected it to the American pursuit of happiness.

Bet 3: Sustainability and ESG

For Dan, sustainability and ESG is the big one. He is clear that it isn’t about corporate image or turning off the lights, but about how insurers create socially responsible impact beyond their own businesses, such as how a carrier with five to ten million motor customers could influence vehicle and fuel choices.

He gave a stark data point. Until about June of the prior year, Ninety had never had a sustainability project among its clients’ initiatives, apart from the vaccine work, and then suddenly 40 percent of its work had an ESG or climate focus. Examples without names included products for the renewable energy industry; a service for construction using 100-year climate models to show the climate risk to a project site; and a directors and officers product that would protect directors in the future from the climate and ESG consequences of decisions they take now. He cited Ping An with more than 500 sustainable insurance products in P&C, and Zurich’s risk engineering unit turning its climate know-how into a service charged to clients. The pace is greater among continental European insurers such as AXA, Allianz, Swiss Re, Zurich and Generali than among American carriers, though he expects the US to follow. Ninety was about to publish a free white paper on sustainability and insurance.

Alchemy Crew

Alchemy Crew is a joint venture involving Ninety, Sabine VanderLinden (who set up Startupbootcamp InsurTech) and Minh Tran, known for his investment and venture capital background at AXA and beyond. The founders came together about a year earlier, combining Ninety’s capabilities in helping insurers solve innovation problems, Sabine’s venturing pedigree, and Minh’s corporate venture capital experience. Its mission is to de-risk venturing for insurers, with Sabine as managing partner.

At its heart is a four-month process called the Reinvention Engine: take a big insurance problem, go to the venture market to find a mature venture, not necessarily an insurtech and possibly from any tech sector, that could partner, take investment, be acquired by or take capacity from the incumbent, then connect it through a commercialization sprint. Some projects were already underway, at least one in sustainability.

Advice: Beyond the Idea

For his recommendation, Dan was cheeky: a book he hasn’t read himself but knows is good. Ninety keeps a library of innovation books for staff and clients, and the one he recommended was Beyond the Idea: How to Execute Innovation in Any Organization by Vijay Govindarajan and Chris Trimble, which has helped people think about how they manage a portfolio of ideas through a convoluted process in a traditional organization.

Key Takeaways

• The Global Health Risk Facility, a Lloyd’s syndicate born from Ninety, AXA XL, Gavi, the Gates Foundation and an IoT sensor company, underwrites the last mile of vaccine distribution.
• Digital micro insurance bets that Western insurers will adopt the straight-through, zero-human-touch methods developed for policies that cost cents a month.
• Intangible assets now dominate corporate balance sheets, but insurance can’t yet underwrite them well; cyber is closest.
• In mid-2020, sustainability and ESG went from none of Ninety’s client work to about 40 percent.
• Scarcity drives better innovation than big budgets.
• Alchemy Crew’s Reinvention Engine pairs insurers with mature ventures from any tech sector in a four-month process.