Liberty Mutual Insurance is a global insurance company that embraces innovation, with a strong track record of building successful partnerships with technology companies.
Matthew talks to Brendan Smyth, SVP, Global Risk Solutions Innovation, and Premal Gohil, Head of Innovation Partnerships & Investments, to understand how Liberty approaches innovation projects and works with third parties to understand new insurance trends.
The episode also includes advice for start-ups on how to approach insurers with new ideas and what Liberty is looking for from potential data and technology partners.
Talking points include:
- How to create a culture of innovation
- Balancing innovation projects with day-to-day business
- Building successful commercial partnerships
- The importance of ecosystems and efficient integration
- Comparing insurance innovation - differences between the US and Europe
Premal’s article, 5 Tips for ensuring Startup-Corporate collaboration success, is available to read on LinkedIn.
More information on Liberty Mutual Insurance is available on the company’s InsTech London member profile page.
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The Learning Objectives for this podcast are:
- Identify some of the impacts of innovation and its importance in the future of the insurance industry
- Discern the roles required for successful innovation partnerships
- Understand how incumbents and start-ups can work together and learn from each other
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Embracing innovation - lessons from a global insurer - Episode 161 highlights
Matthew: Brendan, what does your role as Senior Vice President of Global Risk Solutions Innovation involve?
Brendan: Liberty Mutual Global Risk Solutions is part of the Liberty Mutual Group, a global property and casualty insurer. We sell reinsurance and specialty products to mid-sized and large clients. My team examines emerging trends to create new risk solutions through partnerships, investing, building and making acquisitions.
We can partner with start-ups, MGAs, reinsurers and brokers. Where it fits, we may invest to accelerate that partnership or for our long-term strategic agenda. We have a ‘build’ arm thatwhich brings together teams from across the business to build specific solutions with technology and advanced analytics. We can also make acquisitions to bring in new capabilities.
Matthew: Premal, what does your role as Head of Innovation Partnerships and Investments involve?
Premal: I lead a team that meets with start-ups, venture capital firms and technology and data providers. This gives us a better understanding of the trends in insurance and innovation. It also shows us who are the players we might want to work with. We then consider whether those trends or players could solve pain points in the core Liberty Mutual business or meet unmet client needs.
We work on partnerships, starting with pilots, proofs of concept and experimentation, some of which will lead to full-scale production contracts, investment or acquisition.
Matthew: Brendan, creating a culture of innovation is challenging at an insurance company. How do you make it work?
Brendan: Innovation is a leadership priority at Liberty. We have strong support at the top of the business. We have established an innovation council, made up of leaders from across the business, to focus on strategy, portfolio and culture.
Matthew: What lenses do you look at innovation through?
Brendan: We have a broad innovation thesis: the intersection of three lenses.
- The future of risk, where macro trends are changing, and the risk landscape is growing and shifting.
- The future of industry, where our clients’ needs are evolving with those risks. Our clients may be creating new businesses to harness those trends.
- The future of insurance and reinsurance, where our business model must evolve to meet our clients’ needs today and tomorrow.
Those lenses translate into strategic focus areas for us, which are defined by their scope and scale, both to the world and to our businesses.
Some are industry verticals such as mobility, construction, financial services and energy. Some are industry horizontals that cut across and sit underneath these verticals, such as cyber and reputation risk. Others are insurance business models like insurtech, value chain enhancement and disruption, parametric, advisory services and IoT (Internet of Things).
Matthew: What balance do you strike between investing in the new and making current processes more efficient?
Brendan: Creating efficiencies within the existing business can often fund more disruptive activities. If a particular line of business or industry is being disrupted more quickly, we might lean more towards disruption over evolution. The balance can vary. It is important to bring back and test all the options with leadership.
Matthew: What is your view on climate risk modelling: balancing models that use historic loss data with future views of climate risk?
Brendan: As statistician George Box said, “All models are wrong, but some are useful.” The solution is an augmentation of existing catastrophe models, which are tuned to the insurance industry and have served us well historically. But there is no silver bullet: with current catastrophe models, insurers add their own view of risk on top.
The frequency and severity of climate events are changing. We use third-party providers such as Jupiter Intelligence for climate scenarios and have partnerships with climate economic modelling vendors to meet evolving climate regulations.
Matthew: Premal, a lot of start-ups find it hard to work with insurance companies. Have you found a sweet spot for commercial partnerships?
Premal: Traditionally it has been difficult for incumbents and start-ups to work together. The situation has improved compared to five or six years ago, with more venture capital and the proliferation of insurtechs and others working with incumbents.
Success depends on what the company is looking to achieve. Aligning expectations upfront is critical. It is amazing how many partnerships begin without knowing what both sides get out of the partnership, who will lead and pay for it, what the timescales are and what success looks like to both sides. Those partnerships can end in disaster.
We have learnt that at Liberty through trial and error and we have improved. It is tempting to jump in with both feet but doing that work upfront pays dividends.
Failure is part of the process of innovation and experimentation. It is how you learn, and then iterate in a loop. What is not acceptable is failure caused by inadequate work upfront. That wastes time, effort and money.
Matthew: Can you give an example of partnerships working well?
REIN (featured in InsTech London’s report on embedded insurance), one of our portfolio companies, is an MGA we partnered with several years ago. REIN was focused on one specific use case: underwriting drone insurance. Liberty Mutual was not active in that space but we were interested in getting involved, particularly in the US.
We worked on building rapport between Liberty Mutual and the founders of the company, ensuring alignment of expectations. The upfront work was substantial. Parts of the process were painful; we learnt and iterated and tested and failed and kept going. But it has now translated from a proof of concept into a more substantial partnership. REIN is now one of our venture capital portfolio companies and we have supported it with funding over several rounds. It is now moving into other mobility areas including trucking, for which it has Volvo as a partner in the US, connected insurance and e-trading platforms.
Matthew: How does the idea of an executive sponsor for each partnership work at Liberty?
Premal: The support of a key decision-maker is crucial to a partnership. An executive sponsor is vital for aligning resources, providing air cover when needed, offering time and ensuring there is sufficient visibility.
An executive sponsor and their team can help inform us what they are looking for when we are meeting start-ups and others. That is an important part of building relationships between the core Liberty Mutual business and the innovation team. When we are planning our innovation strategy, we also consider who we need to work with within Liberty to unlock what we want to achieve. It works both ways.
When working with internal teams, there is a ‘push versus pull’ model. When I started this role, I was guilty of finding interesting companies and pushing them onto my colleagues. Naturally, there is resistance to that approach. Having learnt from that experience, we have become one of the best-connected teams within the Liberty Mutual business. We have built deep, trusting relationships with executive leaders and their teams to learn about what is important to them and their clients. Then we go out into the ecosystem informed. When we bring back potential partners, it is a two-way dialogue.
This process also means that when we choose to form partnerships, the executive sponsor is already bought into it.
Matthew: How does Liberty allow for executive sponsors to take time out of their day job to support these partnerships?
Premal: When we talk to executive sponsors and their teams, we tell them to expect a time commitment. If they are passionate about innovation, they will make the time and find the resources.
There will be pockets in the business that are always prepared to look at new things. Certain people are wired that way, and they are great to work with. There are people at the opposite end of the spectrum who have no interest in it. It is the people in the middle who tend to form the core group. It is important to understand their needs and build those relationships.
Matthew: What about the roles of project or programme managers and IT people in facilitating innovation and partnerships?
Premal: Programme managers can be very helpful to support the structuring of a pilot or proof of concept, with proper milestones, accountability and making sure the sponsors are in place. They can create a good mechanism for measuring the results against expectations.
In innovation, process is your friend. It helps to structure things clearly and understand when things are working or not working. Having people with that mindset around helps when partnering with companies.
On the technology side, efficiently integrating with existing systems is vital. Liberty is 109 years old and, like other incumbent insurers, has lots of legacy systems. Being able to integrate with partner companies via APIs is particularly helpful. Looking further out, ecosystems will be a massive trend in the insurance industry. Having effective working relationships with the IT teams is vital to enable these new trends.
Matthew: Brendan, how would you compare insurance innovation in the US to Europe?
Brendan: There are commonalities. The low-interest-rate environment is driving capital into venture. There is enthusiasm in all stages of capital raising. The prices of insurtech stocks are dropping after reaching all-time highs in the first quarter of this year.
The US still has 51% of global insurtech funding. The rest of the world is catching up year on year. EU insurtech funding has grown by $1 billion from 2020 to 2021. The US has a mix of distribution-related start-ups and AI-related risk selection companies. Across the pond in Europe, the Future at Lloyd’s, the Lloyd’s Lab and the Product Innovation Facility are facilitating innovation. On the ESG front, European insurers are also leading the way over the US.
Matthew: Liberty is working with companies including REIN, Jupiter Intelligence, Praedicat and Polecat. Are there others you would like to call out?
Premal: Liberty has a number of companies within our venture capital portfolio. In addition to the companies mentioned, there are a few others we are working with.
Edge Case Research is in our venture capital portfolio. The company assesses the safety systems of autonomous vehicles. Liberty writes a lot of motor insurance in the US. This is a venture bet on the disruption which autonomous vehicles will cause to that market.
Cyber is another key area for us. We are a key participant in CyberAcuView, which is a cyber consortium bringing together the top eight writers of cyber insurance in the US to form more rigorous data and regulatory standards around cyber risk.
Liberty Mutual’s investment arm invested in NYDIG, the New York Digital Investment Group. NYDIG is focused on supporting institutional clients to get into crypto assets.
We have also invested in APOLLO Insurance, which will support our Canadian business in reaching small-medium enterprise clients by connecting retail brokers with risk capital.
Matthew: Premal, you host Liberty’s internal podcast, how is that doing?
Premal: Matthew, thank you for joining us as a guest on the internal podcast. The interview went so well that we released it in two separate parts. It has been one of our most popular episodes.
We launched the internal podcast, In Touch at Liberty, three years ago and we have done nearly 50 episodes. We interview internal people, executive leadership and external guests. We have had nearly 20,000 downloads with all corners of the world tuning in.
Podcasting is a great experience and a lot of fun, but it is also hard work. Kudos to you and the InsTech London team for continuing for all these years.
Matthew: Any final words?
Brendan: We joined InsTech London because we believe a rising tide lifts all ships. InsTech helps us and helps the industry.
Premal: InsTech London has been an excellent community to bring together corporates, start-ups, venture capitalists and companies doing interesting things in insurance. We need communities like this to continue to push on the forefront of innovation within our sector.
It has been great for me to listen to the podcast, join your events and make new connections within the ecosystem. I use it to triangulate our own position on trends happening in the market. We look forward to continuing to be part of it.