Welcome to the fourth #FintechInterview, a new format launched by Bocconi Students FinTech Society where we interview the most relevant leaders in the industry. This time we had the pleasure to talk with Alberto Garuccio, Innovation Leader at Reale Lab and Insurtech Thought Leader at Techstars, a worldwide network that helps entrepreneurs succeed.
Thank you for being here, it is a true honor and pleasure to have a chat with you about the FinTech ecosystem. We have a big audience of young readers that are full of ideas and could learn a lot from a mentor like you. The first question we want to ask is about the elements necessary for a Fintech/Insurtech startup to grow? What are they?
Thank you, guys! It is a true pleasure. I believe that two fundamental elements are teamwork and the change of pace at the right time. By saying this I mean that, between the developing of the idea and its launch to market, both the company and its interlocutors have to evolve. It is at this precise moment that the CEO must demonstrate his ability and maturity on constructing and leading the team on the right path. I believe that the team should be composed of the right members that share a vision and own the competences to let the firm evolve at the right time. Entrepreneurs should have the ability to follow this parable of change otherwise they risk going out of business, but this is exactly the moment when several Italian startups fail, mainly because our ecosystem is not able to support them at this turning point.
About that, what are the next steps that a startup needs to follow to expand itself in foreign markets?
It is still about the skills that you must acquire in order to embrace this path and the mindset you must develop to think globally starting from the beginning a new venture. Nevertheless, if you want to scale your company and gain traction in other countries, it is important to have this clear in mind since the beginning, you can’t suddenly change otherwise the path wouldn’t be coherent.
Moreover, it’s hard to go international without expanding the team, especially in the Fintech/Insurtech sector where regulations open ways to undertake this kind of path. It happens also when leading Fintechs such as N26 and Revolut or Insurtechs such as the Wefox group landend in Italy, selecting a native country manager even if sometimes they are not based in our country.
When growing it is physiological to start thinking about what to do next with your company. Numerous ask if it is more economically sustainable for InsurTech startups to keep going their way independently or being englobed by big traditional players to exploit their potentialities at their best. What are your thoughts on this subject?
First, here we have to make a distinction between firms with a B2B (business to business) or B2C (business to customers) business model. The former ones exist by creating collaborations with established Insurance companies by delivering services. What they offer may be either front-end or back-end.
In the first case, their goal is to improve customer relationships or the efficiency of the services delivery channels for traditional Insurance companies while, in the latter case, they focus is on the production of algorithms or improvements of data analysis processes and software.
Being the possible clients limited, just a few B2B InsurTech startups can serve them while the others finish off being acquired, most of the time, by the clients they were working for.
B2C InsurTech startups, instead, hold greater possibilities to remain independent even in the medium run. Notwithstanding this, to achieve independence it is extremely important to keep a continuous service evolution and approach the market in the right way. Anyway, it is important to notice that often, in particular startups offering lending related services, seem to be Digital Insurance companies, while instead they are just acting as intermediaries, using the funds provided by other Insurance companies, and making themselves digital distributors of these latter ones.
Moreover, I would like to highlight the always more important role of Reinsurance companies, meaning Insurers of Insurers. These are companies providing risk-transfer and risk-sharing among financial and insurance institutions with enormous volumes and that enjoy incredibly large economies of scale. For them being able, thanks to startups, to have more efficient digital channels is a very interesting opportunity. To give you a perspective, there are very relevant investments by reinsurers like Swiss Re, alongside big insurance players, like Allianz, Axa, and Generali, that aim at fostering the InsurTech because, in turn, they will enjoy great benefits from collaborations with more digitally and culturally technological startups.
Being you the InsurTech Thought Leader at Techstars we must ask you a question about this worldwide network for entrepreneurs. The numbers speak for themselves and we want to highlight them for those readers that do not know this reality. Techstars has supported more than 2200 startups and it has financed them for an amount surpassing $10B. Moreover, 84% of these startups are still competitive or have been acquired. What do you think is the main reason for these results?
As of now, I am working for Techstars in the Insurtech field managing an informative digest for the associates, the alumni, and anyone who is involved in this community. I define Techstars as a “family” because it aggregates users with different background and different seniority from all over the world and incentives the collaboration and reciprocal support among all members. That is why we launched the hashtag #givefirst, which reflects our ideal of helping with no expectation of getting anything back.
Lately the needs of people have changed, and insurance has evolved with them. How is the demand/offer of the insurance products changing and what are the most innovative and requested products?
We can analyze this topic by looking at it from two different levels: the Italian market and the European one. In Italy, especially in the retail sector, we observe a very “under-insured market” and, while some insurance contracts are mandatory ( such as car insurance which are also the most established), we also see increasingly low margins due to strong competition. That is why the product innovation concerns the processes linked to the product, rather than the product itself. Anyway, this does not mean that we have not created innovative products, an example of which are systems able to give a more accurate rate to drivers. This sector in Italy has a strong IoT component and, in terms of progress made, we are not behind other nations. Unfortunately, some innovative products that have thrived in other countries, like for instance the peer-to-peer insurance for cars, have not worked here.
In the healthcare sector the new trends show us how innovations are device-based or linked to the AI and machine learning evolution, looking to minimize costs and create an extended customer journey around the product rather than innovate the product coverage.
Furthermore, FAANG big tech companies have invested heavily in digital health initiatives like personal health monitoring and virtual care, and now they have been able to integrate these capabilities into health insurance offerings easily.
In a different perspective also investment sector and life insurance product show some interesting innovative initiatives. These initiatives are mainly focused on new distribution channels. What already happened with Robo-advisor solutions, seems could be applied also in our industry. In this case I hope that we will be able to find the right way to solve customers’ needs and allow better results than first wave of Robo-advisor did in the past.
Everyone is talking about AI but how can it create competitive advantage in the Insurtech industry?
The insurance business was born with actuarial logic, meaning decisions are made by using tons of historical data. The AI and data management evolution could allows us to mold insurances at a microlevel, meaning that we will eventually be able to give the right insurance at the right price for each and every individual. To make an example, these technologies allow us to extract data from a photo to give a valuation for a car accident.
In my point of view, we have seen little about AI and we can not even imagine what could be its potentialities in the next 10 years. For instance, making a more accurate rating of car drivers through AI cannot be an immediate transformation, first, there must be a social and cultural transformation and new and more efficient infrastructure could help to speed up this process. Another cool example could be made thinking about autopilot cars: the insurers would not insure the car driver anymore but the car producer or the autonomous driving software developer.
The introduction of AI has also introduced concerns regarding ethics. How do you think big Fintech and Insurtech firms are going to cope with it?
This is a delicate theme. I do not believe that technology has a positive or negative connotation. In general innovation should not be hindered but, at the same time, it is important to always use it properly. For example, technologies like AI should be managed with some precautions and I expect that in the medium term the awareness on the management of this tool is going to increase.
Another hot topic is blockchain and we know that last month RealeLab released digital sureties through this technology. What are the potentialities of this tool?
The advantage of the blockchain technology is to guarantee certainty during the signing of an insurance process as certified data are rapidly transferred and insert in a block following a check from the authorities. Anyway, experiments in the authorized regulatory sandboxes showed us a good potential but haven’t yet reached relevant results, even if many believe that we are close to a maturity phase. The aim is to create a public-private connection, assuring a high level of certainty. Blockchain is not that strong to spread all over the country and right now, it is often just an additional complexity.
A lot of people fear that technological transformation is going to take their job or anyway revolutionize it. Do you believe that InsurTech will conquer the entire Insurance industry?
We are witnessing an ongoing blurring of the lines dividing close but different industries and I personally do not believe that InsurTech startups will eventually be able to own the entire industry, especially considering numerous companies are slowly erasing the lines strictly confining them into a simple-to-define industry sector. Nevertheless, this is very dependent on whether traditional players will keep implementing new technology process into their business model, may this be due to collaborations with startups or thanks to their technological advancement.
I think that being able to enhance collaborations is a great step forward especially considering that, as of now, due to very severe customer acquisition costs, many firms remain unprofitable. A great leap towards profitability is to deliver additional services, likely coming from collaborations “inter-industry”. That is why, when I say that borders are getting blurred, I refer to the basic need for either most startups or established companies to provide more to their customers by enlarging their value chains.
What did prompt your interest in the Fintech industry?
It has been a path. When I started working in the banking sector, Fintech was not yet a well-defined sector. About my attitudes, I always tend to explore different environments where I can get challenged and this is what let me undertake a career without too many thoughts and evaluations, always following what I believed was right for me.
Fintech is a combination of finance and technology and having a solid background in both environments is almost impossible. Understand how to create a bridge between them is the main challenge to work in the fintech sector, even if I have always known “businessmen” and “technological men” and never someone with a homogeneous mix of competences. So I think it’s important understand who you are, constantly try to achieve new skills both in business and tech and do not think too much about what comes next.
Before concluding we would love to hear what are the skills that a person should develop to become a leader in this sector. Moreover, we would also like you to give a few advices to all those people in the process of starting a career in Fintech.
For what concerns the skill, we are talking about something that do not concern the technical sphere and that are not propaedeutical to the Fintech sector. The course of study assures a background that could be solid but, what is relevant, is to develop those soft skills that allow you to undertake and manage a career in a certain way. Some of these abilities are innate, others can be developed during the university or work experiences. The common aspect of these skills is that they all come from the desire of getting involved and explore stranger areas. Another indispensable element is the interior energy: it is a key factor to act in those sectors with a high rate of innovation. This is because economic results show up only in the long term thus a person should trust strongly on himself and be patient.
If I can give you a tip, do not build your career hoping to draw a clear path. Do everything you need to achieve your goals, but with the consciousness that the future remains unpredictable. Nowadays, more than the past, you must experiment more and more paths, focusing on a field is good for you, but do not be limited by it.
Bocconi Students Fintech Society