Bitesize InsurTech: XL Catlin

July 21, 2017 Greg Brown

Businesses have debated for decades whether it is better to nurture innovation in the core business or to set up a separate team – or ‘Skunk Works’ to use the phrase trademarked by Lockheed Martin. Readers of this blog will note that our first two profiles – Euler Hermes Digital Agency and Aviva Digital Garage – both favoured the Skunk Works approach.

This week we are covering XL Catlin and focusing on Accelerate which has taken the alternative approach.

XL Innovate

Firstly, however, a brief note on XL Innovate, XL Catlin’s other dedicated innovation vehicle.

XL Innovate was set up in 2015 as a corporate venture capital (VC) business. To date it has made 7 investments including Lemonade and Slice (disruptive innovation) and Cape Analytics and Notion (data & analytics).

There is also an ‘internal’ startup, New Energy Risk. This was created around a team which was separated from the core business and tasked with building a new business model.

Accelerate

Accelerate was founded in November 2016 to make innovation happen faster. Vincent Branch, previously Global Chief Underwriting Officer of Personal Lines at Zurich, is its Chief Executive.

The idea for Accelerate was conceived from lessons learnt with XL Innovate. As Vincent says: “XL Innovate was building good relationships on the investment side, but we realised that there was an opportunity to create deeper commercial partnerships with startups”. Mike McGavick, Group CEO, also had a deeply held view that innovation is the responsibility of every employee; Accelerate created the opportunity to embed a culture of innovation into the business units (BUs).

One of Accelerate’s central tasks is to identify startup partners suitable for the business and to help create commercial relationships with them. Apart from origination, the team supports with proof of concept (POC) design and helps define propositions.

The emphasis is on BUs owning and running the projects with support from the Accelerate team. The belief is that BU ownership will create a more sustainable approach to innovation. Vincent says: “if we put ourselves out of a job in the next 2-3 years because the business units are innovating successfully without us, then we have succeeded”.

The team is building a broad portfolio of experiments covering new propositions, distribution (including accessing new segments), and step changes in technical capabilities. Vincent comments: “whilst we are currently focused on delivering small experiments, they all have a clear line of sight to scale. We won’t set up an experiment without a strong belief in the long-term opportunity.”

One example is the DRIVEN consortium, a collaboration with Oxbotica, which was spun out of Oxford University’s robotics department and provides software to control autonomous vehicles. It is the intention of the consortium to be testing autonomous cars on UK public roads by 2019. XL Catlin is the insurance partner and is helping map out the risks associated with autonomous cars. For example, it is important to understand how you might vary the level of vehicle autonomy depending on road conditions.

A second example is their relationship with B3i, the industry blockchain initiative. Accelerate has also run several internal experiments with blockchain startups. (The team are unable to share more details on this due to current commercial sensitivities.)

Storytelling

The team sees storytelling as a very important part of their effort to embed innovation in the organisation. They believe you need to show people what success might look like to create action at scale across the business. These ‘stories’ demonstrate the value that is placed on innovation by the business and hence build excitement and momentum to spend time on innovation-related activities.

This approach is not easy. “We need to ensure that everyone is aligned with the approach”, says Vincent. “Innovation is everybody’s job and getting colleagues on board is key, but we strongly believe that working with the business creates a much more sustainable and ‘sticky’ approach to innovation in the long term”.

The Oxbow Partners view

It’s hard to measure real progress at this stage given that details of the experiments and results are not public. In addition, working with BUs will likely increase the time taken to deliver results compared to, say, investing in a startup. However, if the ambition is to embed innovation across a whole business, then investment in things such as cultural transformation is required and we look forward to seeing the case studies when they become public.

One piece that is missing for us is how they enable truly disruptive innovation. The team would argue that their projects cover both core business innovation and disruptive innovation. However, core teams are always going to struggle with tackling disruptive problems that risk cannibalising existing business. First, individual incentives in these BUs are typically aligned to traditional revenue streams; second it distracts teams from building the core, something (re)insurers can ill afford in the current market. In a recent blog post we argued that (re)insurers need to separate disruptive innovation from the core.