A Journey to the Future of Insurance with Alex Horvitz

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Interview Notes

Alex has a unique combination of global insurance and financial experience, from an executive and consultant viewpoint – coupled with exceptional intellect. Alex has Latin America roots, went to University in the US, occupied senior insurance, banking and consulting positions in Europe, the UK, US, and Latin America; and is now the CEO of a US fund that invests globally.

Discussing insurance with Alex is inspiring in quality, and like drinking from a firehose in quantity. Spanning the potential opportunities across the industry, including incumbent and new players to the core of the value chain. 

This is an exciting journey to the future of insurance, that only someone with Alex’s background can provide.

A Quote from Alex

“To exploit all these opportunities insurance companies will need to invest in innovation in ways that it has never done before.”


Interview

David Schapiro (DS): Tell us about yourself and your career.

Alex Horvitz (AH): Well, I think I have an unusual background and multiple careers and more importantly I have been very lucky. I was born in Chile, studied engineering in the US, but I lived and worked in Europe for the largest part of my life. I started as a manufacturing engineer, then became a researcher and a teaching assistant at the University of Lausanne business school worked at a Swiss bank in IT, then became a consultant for many years, to then become an executive in an insurance company and for the last 7 years I have been working in VC investing in tech companies. The common thread that I can recognize across all these experiences is my fascination with innovation, technology, and the financial industry.

DS: You have been involved in insurance to different degrees for over 25 years, how did your insurance journey begin?

AH: Until 1999 I had always worked in technology and banking, but as a young McKinsey consultant I was assigned to an insurance project at a large insurance company. I remember reading these endless documents out of the McKinsey library about everything you need to know about Insurance”. It was the equivalent of doing a postdoc in Insurance, you had to read thousands of pages and then the engagement manager would spend hours teaching you about all aspects of the business. I found insurance a fascinating industry, loved the math, the technical complexity, the operational challenges, and its role in society. I never realized until then that there are many areas of the economy that could not function without the insurance industry. Since then, I have never stopped working in insurance either as a consultant, as an executive, or as an investor.

DS: What kind of insight does this multi-perspective view provide you about the insurance industry?

AH: From the outside insurance seems simple, but from the inside insurance is extremely complex and difficult! Insurance is long term and long-tailed – during the duration there are black swans, 1/100 years events, you need in-depth math, there are regulations, and more. Insurance is so complex that sometimes when you are growing an insurance book for years, you are growing a book of “adverse risks” which means that the business is a long-term loss generator…

What is also true is that insurance has been a business for technical professionals and the client was just “data points”. If you go back and try to understand, why is it that insurance companies introduced the broker model (meaning outsourcing client development and distribution at large), it is mainly to avoid having to interact with individual clients. Insurers have always liked the math, the financial engineering behind it, but not the client interaction side. This is one of the many reasons that there is so much opportunity in digitalizing the business: client interaction, servicing processes, etc.

DS: How do you see the future of insurance?

AH: There are a few strong forces shaping the business:

  • Underwriting of every single product is changing, the math and the data are changing very fast. This is the first time probably since the introduction of computers that we are seeing a change of this magnitude in this area. That is, we can use advanced analytics and unimaginable amounts of data (internal, external, structured, unstructured, real-time, historical) not only to predict and price risk, but to avoid risks. We are going from a model of risk-takers towards a role of risk managers that take risks.
  • The way we interact with clients. It is obvious that clients and partners of an insurance company expect a very fluid and “intelligent” digital interaction, but what is less obvious is that the interaction also takes place in very new ways. For example, the emergence of ecosystems where a typical retail client can get different services, buy products, and receive many benefits. There are amazing examples of in-vehicle telematics, connected homes, wellness ecosystems, and many more to come. 

On the commercial side, the ecosystems are more of an integrated collaborative value chain. For instance, in cyber risk management, industrial companies are using risk management tools on top of the protection layers to then connect to a wide range of external data sources like the dark web, FBI, Interpol, national CERTs, and others. All this to identify very early on potential emerging cyber-attacks. Then all this information and insights are exchanged in a cyber protection ecosystem. Going forward, all these insights will be packaged in risk buckets to be traded in the ILS market. The latter is more and more needed given the magnitude of the risks that are absorbed by the insurance industry. This is not science fiction; it is happening right now. And, it is a new and very profound way of digitalizing client/insurer/investors interaction.

  • The way we create and manage products and services. As we all know, creating products in insurance was a multi-year ordeal. In the new data and analytics-driven world, the data tells you what macro or micro product the market needs, the data also allows you to do continuous underwriting to expand and sharpen specific risk coverages. In summary, we are going towards an integrated risk management world where risks change shapes and forms, and therefore the underlying coverage products do the same.

To exploit all these opportunities insurance companies will need to invest in innovation in ways that it has never done before.

DS: As a result of this – what do you see as the opportunity in insurance?

AH: The combination of all these trends makes the potential for change huge. It’s like having thousands of insurance/insurtech experiments going on across the globe addressing insurance issues/challenges all at the same time. If only one in a thousand ever become a large player, then in the next five to ten years we will have six to seven huge and experienced technology-driven competitors operating around the world. Just think, what happened in the world of retail with Amazon (US), Alibaba (Asia), Mercado Libre (LatAm)…that is just three.

Another interesting aspect is the amount of capital going into insurtechs, in the first nine months of 2021, over $10B of VC money went into these companies. Even a huge company like Allianz, State Farm, or Ping Am could not deploy that much capital every year to innovate and change the insurance industry. 

In the future, we are likely to talk about large insurance groups that became fast and flexible digital players; Insurtechs that became large insurers and insurtechs, and insurers that didn’t grasp the complexity of the business or didn’t embark on digital transformations and are not around anymore!

DS: Is this an opportunity or threat for the traditional/incumbent insurance companies?

AH: For incumbent insurers, this is a great opportunity – they can leverage huge balance sheets, brands, and amazing technical know-how to become major digital players. To accelerate their transformation, they should think of “outsourcing” parts of their R&D or acquiring and adopting new technology development from outside of their company. The combination of internal innovation, external investments, partnerships, M&A are ways to substantially accelerate the transformation.

The only thing that is missing is a traditional insurer that has succeeded in deploying a new technology or offering in this way… We see a little evidence of this, but it is not the norm yet.

It could be that insurers should take an approach similar to what IBM did with the PC – in the 1980s IBM understood that the only way to innovate in PC was to create a separate team so it gave the mandate to Don Estridge. He created a small team of 12 engineers to create a new design and development team in Boca Raton Florida. They created the new PC in 12 months and partner with a very small and unknown company to create the operating system, enter Microsoft. So, in my opinion, it is only a matter of time until some of the incumbents/traditional insurance companies get this “portfolio-driven innovation” (internal, external, partner, buy) approach right.

There will also be Amazon-like winners, there will be many dead startups, and there will be certainly many traditional insurers that will thrive. But, more importantly, the insurance industry that we all love, will become a tremendous transformation engine for the rest of the economy.

DS: What is the magnitude of potential value increase in insurance, and how does it differ from other industries?

AH: In insurance, the product is an intangible financial mathematics concept therefore its digitalization is an obvious evolution. By digitizing the interaction with customers and partners digitizing the entire product manufacturing and servicing processes. Consequently – this changes the entire value chain of an insurance company making it more flexible, faster, and much more productive. Digital customer interaction in insurance turns into digital product manufacturing – directly from the factory to the customer. Examples can include digital underwriting via IoT, sensors in homes, cars, ships, etc. This is an entire change/upgrade of the value chain, an entirely different mindset.

What is also very interesting is that insurance (or risk management as I like to call it) is present in every aspect of a personal or economic aspect of our society. There are large parts of the economy that cannot function without the insurance industry. For instance, if insurance companies couldn’t/don’t want to underwrite coal mines, then the business would run out of capital. It is this power and positioning in the economy that makes the transformation of the insurance industry so powerful and full of tremendous opportunities

DS:  Any final thoughts would like to share with other insurance executives in these interesting times?

AH:  Yes, I think we are a generation of insurance executives and investors that are in front of a tremendous opportunity to transform our industry in a way that very few generations could have done before us. As in any big transformation, there will be winners and losers: there will be the leaders that became tech-driven-risk takers and others that shrank o disappeared. All this only depends on our abilities to see the future, adapt to the changes in the environment, and conquer the opportunities. As Darwin said: “It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change”

Alex Horvitz – Bio

Over 30 years of experience in M&A, VC, technology management, and organizational transformation. Focusing mainly on performance improvement by optimizing distribution networks, operations and leveraging technology: digital, machine learning, UX.

As CEO of HCS Capital, Alex leads the investments of HCS in Digital Disruption companies in FinTech, Insurtech, Cybersecurity, and Digital Health.

Alex’s specialties include: Digital transformations, performance management, delivery units, optimization of operations, outsourcing, offshoring, IT governance, IT architectures, Lean, 6 Sigma

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