Valerie Hayter and Isaac Chindotana: Lireas Holdings
The Innovation decision
Innovation is not just about the introduction of technology but includes the creation, development and implementation of new products, processes, services or business models with the aim of improving efficiency, effectiveness, competitive advantage or producing new profits or growth for the organisation.
This was achieved in Lireas’s case when they introduced the UMA and insurtech business models to the Hannover Re group in 1988 and 2016 respectively. The importance of group wide open innovation such as Hannover Re’s Journey re completion in 2016 was highlighted as being a strong promoter and facilitator of innovation. Organisational culture and the “people factor” also contribute immensely to the success of innovation within organisations.
Drivers of Innovation
Traditional Insurers have been very slow to innovate compared to the upcoming insurtech start-ups which move at a fast pace and bring about many changes that are creating efficiencies, solving problems, creating better customer journeys, connecting people, introducing new platforms and distribution channels. Various real life examples of such insurtech companies namely InvestSure, Inqaku and LifeQ were utilised to explain various innovations. Collaborative strategies were not utilised much as a means to innovate by traditional insurers in the past but this is now on the rise. Examples of collaboration between OMI & Pineapple, Hollard & Lumkani as well as Compass Insure and InvestSure were utilised to illustrate such collaborations in the market.
Closed vs Open Innovation
Open Innovation was promoted as more effective than closed innovation with respect to the quantity and quality of outputs as it facilitated the generation of more and better ideas from within and outside the organisation and is the more effective innovation strategy.
Entrepreneurship as a means to support innovation
The complementary nature of contributions by incumbents and start-ups in collaborative entrepreneurship was highlighted. It was noted that incumbents (insurance companies) benefit from the creativity, structural flexibility, agility & speed, customer orientation and entrepreneurial mindset of start-ups (insurtechs) whereas insurtechs benefit from the established brand, legitimacy, resources, networks as well as distribution/customer base that the incumbents bring to the table.
Cultural differences between traditional insurance companies and insurtechs were highlighted as well. In addition, asymmetries between Incumbents and Start-ups were discussed in areas such as corporate governance, regulatory knowhow, flexibility, appetite to experiment and silo mentalities of traditional organisations. Executive support and corporate venture capital (CVC) firms like Lireas in bridging the asymmetry and cultural gaps as well as mentorship are critical for the success of the partnership between incumbents and start-ups. It is critical that innovation gets support from the highest levels within an organisation to develop a culture of innovation in the company.
Important considerations in evaluating innovation, entrepreneurship and collaboration opportunities were grouped into 3 key elements being People, The Idea and Commercialisation. Under People it was highlighted that track record and cultural fit of the entrepreneurs were key considerations. For the idea, consideration is given to important questions such as what problem will the idea solve and what change will it bring. Lastly, the commercialisation considerations should consider size of the market (as well as total addressable) for the envisaged product as well as the effectiveness and efficiency of the distribution channels that will be used to sell the product.
This was the last section of the presentation and highlighted how innovations are funded. Internal funding tends to be limited and competes with other imperatives of the organisation.
External funding at the very start of an idea generally comes from the entrepreneurs own savings as well as Friends, Family & Fools (3Fs!) who take a leap of faith in the entrepreneur and the idea until it gains traction and becomes investment ‘ready’ to allow the entrepreneur to approach VCs and CVCs. VCs tend to invest for short periods of time with desired exit multiples as well as pre -defined exit horizons. CVCs like Lireas invest long term as they invest to support certain strategic outcomes and objectives of their corporate parent (Hannover Re Africa group in Lireas’ case).
In closing it was highlighted that innovation is key to continued existence and sustainability of the insurance industry amidst rapid change, needed to solve
problems and bring about efficiencies as well as addressing the demands and expectations from consumers.