From Cambodia to Cucumbers to Reinsurtech

Andrew Johnston’s path into insurance is one of the least conventional on the show. He began with economics and Japanese, graduated into the 2008 crash when no one was hiring, and went back for a master’s in Southeast Asian development economics. A thin literature on 1970s Cambodia led him to a PhD on political violence, specifically the Khmer Rouge genocide, and he moved to Cambodia for a few years.

After that he started working with a friend’s alpaca and llama shearing business, touring Germany and then the US. At the end of a tour in Pasadena, a man who ran a sea cucumber farm in Indonesia asked what he did for a living and then invited him to farm sea cucumbers, so Andrew spent six months in Indonesia. During that time the UN, which was running a tribunal in Cambodia, contacted him to buy his PhD, because its data bore on a case file, and a law firm then hired him as a historical consultant. When the case ended in early 2016, he moved back to the UK, having had, in his words, enough genocide for a lifetime.

About Andrew Johnston

Andrew Johnston is Global Head of InsurTech at Willis Re, the reinsurance brokerage within Willis Towers Watson, and the author of the WTW Quarterly InsurTech Briefing.

How Willis Re InsurTech Started

Willis Towers Watson is a global risk consultant of roughly 45,000 people, with a benefits business, a corporate risk and broking business, and Willis Re, the reinsurance broker of about 2,000 to 3,000 people. In 2016, Willis Re’s then CEO wanted someone without an insurance or reinsurance bias to run alternative research into emerging risks and opportunities, someone who would ask why things were done the way they were. Buzzwords such as blockchain, fintech, cyber and the sharing economy were everywhere, and insurtech was gathering momentum, but the firm had no function speaking to it.

A colleague suggested he go to the first InsureTech Connect in Las Vegas in October 2016. There, Andrew had a light-bulb moment: there were people with great ideas, markets and investors with money, and people lacking insurance DNA. Willis Re was an intermediary in the market for so many other things, so why not here, matching risk with capital and finding expertise for classes of business? He pitched a department integrated through every part of Willis Re, and launched Willis Re InsurTech in January 2017.

At the time, clients were nervous about being disrupted or disintermediated. The way to answer them was to ask insurtechs directly, and most didn’t think of disruption in the traditional sense: they wanted to work with insurers, to enrich and enable what they were doing. That became the genesis of the department.

Today he leads a team of about 30 people across North America, Europe, Asia and Australia, looking for best-in-class insurtechs: bringing technology to the traditional client base through partnerships, supporting insurtechs that originate risk (the fastest-growing pillar, as risk originators mature and need to capitalize their balance sheets more efficiently), and sometimes becoming a client of a technology provider. He is best known for the quarterly briefing, started in 2017 so the firm could share its learnings at scale; to date the team had vetted about 1,500 insurtechs.

Is the Term “InsurTech” Stretching Too Far?

Andrew’s main concern is definition. Gilad cited the numbers from the report: $7.1 billion invested in 2020 across roughly 380 deals. Andrew said investors have different exit logics, from corporate venture arms investing to support businesses whose technology fits their model, to more speculative investors in earlier rounds who want a return from a burgeoning business and inflated valuations. His worry in the prior year was an over-acceleration toward the IPO route that was overheating businesses with strong long-term foundations, rushed to go public for someone else’s benefit.

This is why he was glad to see internal M&A, like the combination of Bold Penguin and Risk Genius: it showed there are many ways to succeed, not just an overvalued late round followed by an IPO. Other deals he cited in 2020 included Hippo buying Spinnaker and Buckle buying Gateway from Atlas, which show an insurtech or incumbent balance sheet acquiring.

As the definition widens, he said, any new initiative will be technology-powered, and the industry is becoming synonymous with technology, so the term is less useful. He plans to carve out a category in his research to say what 2016 would have called an insurtech and see how much it has been inflated. He is also tired of the reinsurance industry being criticized as slow to adopt: nearly every insurer in the world has a technology team now, and insurtechs have mostly been welcomed.

Disruption, Redefined

On whether a CVC or fund invests in competitors, Andrew said most of the firms that went public are risk originators, which can be disruptive by taking market share, but the insurtechs that will do best are those whose solutions can be licensed by multiple carriers. He described two forms of disruption: a positive, Schumpeterian one that woke the industry up to technology, and a competitive one in which one traditional insurer uses technology better than another. The limiting factor isn’t technology, he said; it is the community’s willingness to adopt it, and the industry is now awake.

COVID, Vitality and Behavioral Data

He called 2020 tumultuous, with paid losses of about $200 billion, markets performing poorly and operations remote simultaneously, and, importantly, with technology and technologists more available than ever. Anyone doubting the value of technology 12 months earlier probably isn’t anymore.

On the report’s use case on Discovery in South Africa, he described the Vitality program as revolutionary: it rewarded insureds who could show behavior better than the demographic average and became an ecosystem where insurance was almost the least interesting part. That is now close to table stakes, and wearables enable life, health and accident insurers to do the same. He is also seeing it in P&C, with smart home and car IoT. The underwriting hypothesis is which behavioral data are better indicators of risk than the demographics insurers have used for decades, balanced against the risk of over-rewarding low-risk people so that others become uninsured.

Predictions for 2021

Andrew expected more insurtech IPOs, continued M&A, more investment, and growing use of behavioral data for underwriting. He expects hybrid work models, a period of transition for travel insurance, continued gig economy and SME demand, and growing attention to climate, which many insurtechs are working on.

Advice: Two Books on Innovation in Medicine

He recommended two books, The Butchering Art and The Knife Man, about surgeons in the UK who were ahead of their time. One of them is Joseph Lister, who pioneered antiseptics. Their lesson for insurance, he said, is the cultural hurdle: the community you want to support has to accept your ideas rather than be offended by them. He told the sad story of Ignaz Semmelweis, who suggested surgeons wash their hands between operations and was so insulting to colleagues’ pride that they put him in a mental hospital. His own life advice: stay healthy, drink good wine, walk, and remember that life is as much about play as work.

Andrew had moved to Nashville in September from a small apartment in Jersey City, where his girlfriend, who worked in an ICU, lived through COVID firsthand.

Key Takeaways

• Willis Re InsurTech began after the first ITC in 2016 and launched in January 2017; it now has about 30 people and has vetted around 1,500 insurtechs.
• Andrew says most insurtechs didn’t see themselves as disruptors; they wanted to work with insurers.
• About $7.1 billion went into roughly 380 insurtech deals in 2020, and Andrew worried about over-pushing the IPO route.
• Bold Penguin and Risk Genius’ merger showed M&A is a legitimate path to success.
• The term insurtech risks being stretched to cover any technology-powered insurance company, and he wants to separate the original definition.
• Insurtechs whose technology can be licensed by many carriers create more macro value than single risk originators.
• Behavioral data may beat demographics for underwriting, but must be balanced so people don’t become uninsurable.