Yesterday I wrote of three unicorns that represent a huge tipping point for incumbent insurers including pet insurer Bought by Many in Three insurtechs, three unicorns and three disrupters

• Bought by Many valued at more than $2bn
• wejo goes the SPAC route and is valued at $1.1bn. with its focus on the connected car.
• Wefox valued at $3bn and launching 20 products in 2021

Add to this it is only recently that ZEGO announced its unicorn status. Starting with insuring Gig workers it has expanded product coverage and geographic markets.

"Zego offers commercial motor insurance for businesses, from self-employed drivers and riders to fleets of vehicles, spanning pay-as-you-go insurance to annual policies. It combines tech with multiple data sources to offer insurance products that it claims save time and are more cost-effective. It earned its own insurance license in 2019, enabling it to build and sell its own policies, in addition to working alongside other insurers.

Technical/data integrations include those with companies in the ride-hailing space, such as Uber, Ola and Bolt, and in the delivery space, such as Deliveroo, Uber Eats and Just Eat. More recently, Zego has become a key partner in the U.K.’s burgeoning e-scooter rental market, partnering with companies like Tier, Voi and Dott.

Next up, the insurtech is betting big on offering insurance for fleets. “Over the past couple of years, Zego’s focus on powering opportunities for businesses has expanded to include not just self-employed drivers and riders, but also entire fleets of vehicles,” Sten Saar, CEO and co-founder of Zego, tells me, noting that 80% of new vehicles are now sold to commercial customers.

“This has been both a natural progression for the company, with the only real difference being distribution, as well as a focused effort, as Zego aims to capitalise on an ever-growing market currently underserved by the insurance sector”. 

Steve O'Hear in Tech Crunch 10th March 2021

Read more in Zego, Unicorns, Mobility Services and what it means for incumbent carriers

 Scale matters … to an extent: Playing the scale game in insurance

All four full-stack insurtechs are scaling successfully so it is a timely moment fir McKinsey to publish a paper

The sting in the McKinsey report's tail is that  large P&C insurers are not enjoying the economies of scale.

"Yet, there is a puzzling lack of scale advantage captured in the insurance industry. This holds particularly true in property and casualty (P&C) insurance. In life insurance, in the past few years some players have been able to realize economies of scale in sales, operations, IT, and support. Contributing factors have included the use of technology to improve productivity and a new focus on cost reduction in the face of declining premiums in many lines of business—which have only sharpened in the midst of the COVID-19 pandemic. In this evolving market environment, effective and efficient back-office processes are becoming a necessary precondition for success more than ever before.

Furthermore, while scale effects can be substantial, our research has found that they tend to eventually taper off—for example, beyond $1.5 billion to $2.5 billion of gross written premiums (GWP) for life insurers. This tapering at a relatively small size, given total GWP of leading players, is primarily due to the underlying complexity of these large organizations. "

Incumbent insurers have not managing complexity well though the article does evidence change for the better. The four unicorns above are unencumbered by legacy systems inherited over decades of M&A activity and the resulting multiple and incompatible technology stacks. They also have a focus on products for this new decade rather than a legacy culture and product portfolio.

Ron Arnold MD of 11eight posed questions to ask if an insurer does not achieve the benefits of scale.

"Scale in personal lines #insurance - does it make a difference? Many large incumbents believe they have advantages thanks to their scale and ability spread their costs and investment spend.

However, according to a recent study by McKinsey (see ref in comments), the scale benefits in P&C are very limited. Certainly, a very important insight that insurance leaders should be factoring into their dialogue. Some possible questions:

• Is the idea we have scale advantage a toxic assumption?
• Are we doing enough to access early stage businesses who offer alternate, more contemporary ways to solve customer & business problems? eg #insurtech
• Are we moving quickly enough on replacing our legacy systems with modern & dynamic platforms?
• Are we challenging ourselves about what #digital, #data, #automation and #AI might do for our business?
• Is our partnering strategy right and should we be doing more with digital & data leaders eg google?
• Are we making enough use of emerging tech eg IoT? 
• Is our business model still right?
• Are we innovative enough?" "  

The unicorns have successfully scaled beyond the early adopter phase, crossed the Geffrey Moore chasm to create viable bridgeheads in new markets and are now scaling up successfully. Which incumbent insurers will combine economies of scale with the innovation and market penetration of these and other unicorns?