Startups: Centers of Expertise
Centers of Expertise
Though insurtech hubs can be found around the world, certain places are known for a particular type of talent or a particular type of startup.
In the computer labs of the University of Toronto, Professor Geoffrey Hinton spent decades investigating neural networks. He worked in relative anonymity for years, until one of his doctoral students took his research and ran with it.
Alex Krizhevsky, a Ph.D. candidate Hinton advised, built on his mentor's work, creating an artificial neural network that was able to classify images and objects. Krizhevsky's algorithm won the 2012 ImageNet challenge, a prestigious competition in the field of artificial intelligence, and earned him a job at Google.
His work, and that of Hinton, also put Toronto on the map as a hotbed for artificial intelligence.
“In November of 2012, the snowball started rolling down the hill and Google became really interested in Toronto,” said Stephen Piron, who studied at the University of Toronto and is co-founder and CEO of Toronto-based AI insurtech Dessa. “Toronto has gone from a sleepy little town to the white-hot center of modern AI.”
Technology has no geographical boundaries. Great minds and great insurtech startups can be found around the world.
But certain cities and countries have become known for a particular expertise. In Toronto, as well as a few other cities, it's AI. In Israel, it's cybersecurity. France is known to be strong in machine learning and big data. London is known for building aggregators and new business models. Germany has a reputation for producing digital managing general agents.
“I would say there are definitely patterns, but not rules, in geographic centers of insurtech excellence,” Martha Notaras, partner at venture fund XL Innovate, said.
To be sure, quality startups of every ilk can be found around the world. As can insurtech hubs. But pockets of technical expertise are slightly different. While cities like London and Tel Aviv are indeed insurtech hubs in the broader sense—they have startup-friendly environments, accelerator programs, a concentration of insurtechs, etc.—they also are hubs for a particular type of talent or a particular type of startup.
“There are global peculiarities,” Andrew Johnston, global head of insurtech for Willis Re, said. “Mainly they are a reflection of the society that existed beforehand.”
Peppered across the globe, these centers of specialization have developed in response to a number of factors. It could be a reflection of local culture, market dynamics, university systems or broader technology trends. And their insurtech communities tend to reflect those dynamics.
Nathan Eusko, who oversees business development for Insurtech Hartford, said it makes sense for insurtechs to follow that lead.
“Insurtechs,” he said, “are marrying and matching insurance with the folks and technologies that are moving the world forward.”
The Toronto-Waterloo corridor is an example of expertise spurred by local universities. The University of Waterloo, like the University of Toronto, is churning out top talent in the fields of math, computer science and artificial intelligence.
“Waterloo is about an hour and a half outside Toronto, and it's got some of the best computer science and mathematics universities in the world,” said Joseph D'Souza, founder of AI startup ProNavigator.
BlackBerry, once the gold standard of business communication devices, was founded in Waterloo. And the brand's decline spurred the rise of Waterloo's tech scene.
“When BlackBerry started letting off a lot of their staff, team members from BlackBerry started branching out and starting their own companies,” D'Souza said. “So there is an ecosystem now of at least 300 technology companies in the Waterloo area.
“Google has an office here. Square has an office here. A lot of American companies that are coming into Canada look at this as a space for talent. We very much like to say it's the Toronto-Waterloo corridor, where these neighboring cities are building up the Canadian ecosystem in terms of the tech scene. And it's driven by the quality of talent coming out of universities.”
Toronto has gone from a sleepy little town to the white-hot center of modern AI.
That glut of talent prompted D'Souza to base his company in the area. He brought on Pascal Poupart, a University of Waterloo professor of artificial intelligence and machine learning, as a technical adviser at ProNavigator. “That helps us recruit talent,” D'Souza said.
Poupart, who earned his Ph.D. in computer science from the University of Toronto, is also a researcher for the Vector Institute, a Toronto-based AI research facility. Hinton, who went on to become a vice president at Google, is the chief scientific adviser of the Vector Institute.
For insurtechs like Dessa, having access to the great minds of AI is priceless.
“Because it's built as a brain trust of excellence in AI, the Vector Institute attracts the top AI researchers,” Piron said. “That's great for us because what they're doing is cutting-edge stuff. They're pushing the theoretical envelope. We're far more applied.
“We can fold their innovations back into the practical work we're doing. Their research is public and available to anyone, but it helps that we can walk down the street and talk to the researcher who did the research.”
The depth and breadth of Ontario's AI expertise has trickled into the insurtech space. A search on Innovator's Edge, a platform that tracks tech startups, revealed more than 60 Ontario-based insurtechs working with AI—including Piron's Dessa, for which Krizhevsky is now a technical adviser.
“There's a nice critical mass here, where you go to a coffee shop and people are wearing T-shirts from competing AI startups and AI companies,” Piron said. “It's good. In order to be an AI center of excellence, you need that kind of critical mass. You need people with competing ideas and competing companies so you have a bit of competition.”
Israel is also known for its expertise in artificial intelligence, but it's more widely known for its cyber expertise. Both skill sets trace their roots to the country's military.
Shalom Bublil, co-founder and chief risk officer of Tel Aviv-based Kovrr, said his career path is common among Israel's cyberexperts.
He started his career in Unit 8200, a well-known intelligence group within the Israeli Army. The group leverages technology to solve some of the challenges Israel faces as a nation—security, acts of terrorism, instability of the region.
For four years Bublil's focus was on cyber, and when he completed his military service, he joined a cyber startup founded by former members of his intelligence unit. Then, just over two years ago, he launched Kovrr, a cyber insurtech, with Yakir Golan and Avi Bashan, also former members of the intelligence unit.
“Like most people who are part of the Israeli cyber ecosystem of startups, I started off in the Israeli Intelligence forces,” Bublil said. “You keep hearing the same story here. Someone started in one of the intelligence units, either 8200 or another unit, and moved on to a startup with friends who had left the Army before them.”
There are more than 300 cybersecurity companies in Israel, according to Startup Nation Central, a nonprofit serving the Israeli innovation ecosystem. And the Israeli Defense Forces are a main talent pipeline for these companies, training soldiers who then move on to the private sector and often become entrepreneurs.
“There is defense cyber and attack cyber,” Kobi Bendelak, CEO of investment fund InsurTech Israel, said. “These entrepreneurs have knowledge about both segments from their experience in the Army's intelligence unit, and they use that to develop commercial ideas. This includes cyber insurance.”
Kovrr, for instance, developed a predictive cyberrisk model. Startups such as Cyberwrite, which earned a spot on Gartner's 2018 list of Cool Vendors in Insurance, and InnoSec also are working to help the industry better understand cyberrisk and exposure.
“Tel Aviv is an ongoing source of a number of interesting insurtechs in the cyber space,” Notaras said. “We have met many entrepreneurs with experience in the 8200 unit of the Israeli army. These entrepreneurs start with a useful depth of understanding of cybersecurity.
“I would broaden the insurtech center of excellence in Tel Aviv to include artificial intelligence, including machine learning,” Notaras added. All three of XL Innovate's Tel Aviv-linked portfolio companies—Lemonade, GeoQuant and Windward—are active in developing AI and ML solutions.
This is what a lot of people like about the Israeli ecosystem—the entrepreneurs are mature. It’s the culture, it’s the army, it’s the way people live here. We are surrounded by enemies. There’s something in our mindset that drives you to be independent, to depend on yourself.
Israel's expertise in these realms has earned it global attention. Tom Van den Brulle, the global head of innovation for Munich Re, said the country's cyberintelligence is “huge and unmatched.”
“Probably only Silicon Valley can keep up with it,” Van den Brulle said. “But for cyber problems, you would go to Tel Aviv.”
The country's prowess is so well known that it has created a sort of “startup tourism.”
“A lot of companies will actually organize trips to Israel to meet with startups,” said Sabine VanderLinden, CEO of Startupbootcamp InsurTech. “There is startup tourism because of their reputation.”
Johnston said Israel's military conscription has given it some “competitive advantages in terms of their understanding of cybersecurity.”
With a concentration of young talent, a large budget and interesting challenges, the military is “a great playground for starting a cybersecurity career,” Bublil said. But the competitive advantages don't end upon discharge. The shared military background leads to a strong network.
“During my time in 8200, in addition to gaining experience, I gained connections,” Bublil said. “It's a tight unit. Most of the people in the cyber space in Tel Aviv know each other, served with each other and or know someone who served with the people they work with, so there is a strong element of trust.”
There is also an element of collaboration that stems from military service.
“If you spent two, three, four years with someone, working on a challenge, even if they become quite successful, they will probably remember you and will do their best to help you,” Bublil said. “It creates a really strong network, even in small numbers.
“The talent pool is not huge. It's not like the Israeli ecosystem is based on millions of people in the cyber space. It's tens of thousands of people overall, but it's a really concentrated space.”
Bendelak said Israeli's culture gives its entrepreneurs another advantage—maturity.
“This is what a lot of people like about the Israeli ecosystem—the entrepreneurs are mature,” he said. “It's the culture, it's the army, it's the way people live here. We are surrounded by enemies. There's something in our mindset that drives you to be independent, to depend on yourself. And we are not conservative. We adopt innovation immediately. If there's something new, we take it, we think about it, we see it from other sides. We think out of the box.”
London and Germany have distinct reputations that stem largely from the market structures that have long existed in their countries.
“What's distinct about the insurtech coming out of Germany is how many have taken the broker route to market,” Notaras said.
Indeed, Germany has produced a long list of successful digital brokers—Friendsurance, Simplesurance, Wefox, Knip and Clark, to name a few. Johnston links that to the industry's strong historical ties with banks and shops.
“The really good startups coming out of Germany are typically digital MGAs or broker portals,” Johnston said. “You have a lot of MGAs with plug-and-sell products for larger carriers, banks or shops. For example, massUP.”
The U.K., experts say, is known for creating aggregators and new business models.
“In the U.K., we have a long history of buying insurance online, and it's extremely price sensitive,” Johnston said. “So if you want to build an aggregator, you'd probably go to the U.K.”
VanderLinden said London is also on the forefront of developing new business models.
“The largest market for insurtech after the U.S. is the U.K.,” she said. “When you look at what sort of innovation they are doing, some are trying to solve problems by collaborating with insurance companies, but you're also seeing many of them trying to be more disruptive by developing different business models.”
Companies such as Laka and Brolly fall into that bucket. The former doesn't collect premiums, but rather spreads the true cost of claims across its policyholders. The latter, which was founded by former Aviva underwriter Phoebe Hugh, is a personal insurance assistant.
“Even though Brolly is a distribution platform, it's a concierge service,” VanderLinden said. “It's a challenger to comparison websites, trying to drive more transparency for clients.”
There are global peculiarities. Mainly they are a reflection of the society that existed beforehand.
Like the U.K., France has a lot of price comparison websites; they account for 10% of the country's 131 insurtechs, according to Oliver Wyman's InsurTech Radar 2018. And like Germany, France also has a good number of digital brokers, with one in five of its insurtechs falling into that category.
But VanderLinden thinks of France's expertise as being around technology—big data, machine learning and APIs, in particular—as opposed to being around the types of startups it produces.
“When you look at France, our core competency is in mathematics,” VanderLinden, a native of France, said. “While Germany is known for engineering, in France it's about math. A lot of the startups which are coming out in France are doing things involving machine learning.”
Though insurtech in Asia is less well evolved than in North America and Europe, according to Inzsure CEO Steve Tunstall, the region contains some “standout, world-beating examples of innovation.”
Shanghai-born Zhong An, an online-only insurer that raised $1.5 billion in its 2017 IPO, is one of them.
“Zhong An is likely the world's biggest and most successful insurtech,” said Tunstall, who is a Pan-Asia Ambassador for the International Insurance Society. “By comparison Lemonade insurance is tiny. I love the fact that they [Zhong An] target millennials and younger, they issue literally billions of policies every year and are totally tech-focused.”
Because it has very little insurance infrastructure, China is a blank slate compared to more developed markets. Zhong An is a product of those market conditions.
“Insurtechs do not have to consider legacy integration, but can focus on creating modern insurance solutions, and a whole insurance ecosystem, from scratch,” Notaras said. “I think it is very possible that the truly disruptive solutions will start in China, because there is little inertia to disrupt. Then the question will be whether those disruptive solutions can be transported to additional markets.”
While it may seem odd that the United States—the largest insurtech and insurance market in the world—isn't known for a particular expertise, Notaras offered a simple explanation.
“I would characterize the U.S. as the all-around athlete,” she said.
The country is dotted with insurtech hubs—from Boston and New York on the East Coast to Columbus and Des Moines in the Midwest to the San Francisco Bay area out West.
“We see such a variety of insurtechs within the U.S., that I have not identified a pattern as to a center of excellence,” Notaras said.
With its proximity to both the great tech minds of Stanford and the deep pockets of Sand Hill Road investors, Silicon Valley could be viewed as the natural leader of insurtech hubs. But it's not an easy place to start a company because it's so expensive.
“Unless you have a very generous family member or personal connection,” Johnston said, “it's pretty hard to bootstrap a business.”
The startup communities of the United States, therefore, are geographically dispersed, and often thrive in small cities likes Des Moines.
“Big cities will dominate a discussion on this topic, but my bias lies with the smaller communities, where it is easier to network and get things done,” said Brian Hemesath, managing director of the Global Insurance Accelerator in Des Moines.
When VanderLinden looks at the U.S. insurtech landscape, she sees it as being distinguished not by any one city or type of technology, but by many dollars.
“The advantage in the U.S. is that they can get massive investments,” she said. “Startups can raise so much money that they don't have to work with insurance companies. So you see disruptive insurers, like Lemonade and Trov, Ladder Life and Oscar Health.
“Because they can raise massive amounts of money, they don't need to work with another insurer to be successful. They can do it themselves.”
Insurtechs that don't want to go it alone often focus on operational efficiencies and innovative broker-agent tools—a nod to the existing market.
“The U.S. has an agent-driven distribution model that insurers don't want to cannibalize,” VanderLinden said. “The only way the startup can help, then, is through operational efficiency. Taking cost out. Claims, distribution, maybe a bit of policy innovation and cybersecurity.
“But if you want to disrupt the market, the likes of Trov and Lemonade can do that because they're able to raise massive amounts of money.”