CGN InsurTech Report
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Cologne has strengths that could support becoming an InsurTech hub, including its large insurance industry presence, universities providing skilled talent, and startup infrastructure like co-working spaces. However, its InsurTech ecosystem is currently fragmented with disconnects between startups and insurers. While some large insurers actively engage with startups, others do not. Additionally, though the city expresses political support for InsurTech, its initiatives like Digital Hub Cologne have low recognition and impact. Overall, Cologne has the ingredients to become a hub but needs to better connect actors and strengthen engagement between startups and insurers.
CGN InsurTech Report
- 1. 1 CGN INSURTECH HUB Study and recommendations for strengthening Cologne’s InsurTech ecosystem
- 2. 2 CONTENT 1. 9 KEY FACTORS FOR BECOMING AN INSURTECH HUB .…………………………………………………… P.05 0. BACKGROUND AND AIM OF THE REPORT ..………………………………………………………………… P.03 2. STRENGTHS AND CHALLENGES OF COLOGNE’S INSURTECH ECOSYSTEM ………………………………… P.07 2.1 Description of key strengths 2.2 Description of challenges 3. WHAT NEEDS TO BE DONE - RECOMMENDATIONS ………………………………………………………… P.15 3.1 Prioritisations related to enhancing the entire ecosystem 3.2 Collaborating across the sector and building on top of existing projects 3.3 Funding and estimated costs
- 3. 3 BACKGROUND AND AIM OF THE REPORT InsurTech – Insurance Technologies – has become a new rising star in the global start- up ecosystem. Previously, regarded as a FinTech sub-category, InsurTech has now taken tenure of its own separate category. Seizing the challenges of traditional insurance companies such as changing customer demands1 , high competition, low interest rates, shrinking profitability and legacy IT issues, InsurTech start-ups are striving to reshape the insurance landscape by disrupting traditional players, products and brokers2 - much like digital technologies have reshaped other industries like publishing, music and media in recent years. In 2015, the investments in InsurTech took a massive leap attracting 2.5 billion dollars of venture capital investment – a vast surge compared to the previous 4 years. Though diminished by the post-Brexit uncertainty, the trend is continuing in 2016, where both traditional venture capital funds and funds set up by traditional insurance corporates seek to invest in InsurTech start-ups3 . Another strong indication of the surge in Investment ($M) Figure 1: InsurTech Investment Activity VC-Backed Companies, Q3’15 - Q3’16 Metromile $50M // Corporate Minority Cyence $40M // Series A FinanceFox $28M // Series A Deals Q3’15 Q4’15 Source: The Pulse of Fintech, Q3 2016. Global Analysis of Fintech Venture Funding. KPMG International and CB Insights (data provided by CB insights) November 16th, 2016 Q1’16 Q2’16 Q3’16 $325 $274 $767 $387 $204 19 22 30 19 22 TOPDEALS United States 10 Deals // $104,7M Germany 4 Deals // $47,2M Top Countries
- 4. 4 investments is the numerous programmes, insurance corporates have set up in order to engage with start-ups4 . While US and UK are attracting most of the investments, other countries and cities are also competing to position themselves as InsurTech hubs in the global ecosystem. On that background, the City of Cologne and InsurTech.vc have commissioned this study investigating Cologne’s potential for becoming an InsurTech hub attracting new start-ups, capital and growth. The study maps and assesses the strengths and challenges of Cologne’s InsurTech ecosystem deducing why Cologne is not positioned as an InsurTech hub today. The underlying reasons for Cologne’s fragmented InsurTech ecosystem and the mismatch between a pre-mature InsurTech start-up scene and a mature traditional insurance industry are explored. With an outset in this incongruity, the study provides a series of recommendations on how to unlock the potential to position Cologne as an InsurTech hub. The study has been carried out by Rainmaking Innovation from October to December 2016. The analysis is based on a combination of international literature review and 35+ in depth interviews with both international InsurTech experts and relevant stakeholders in and around Cologne’s InsurTech ecosystem (see appendix for specific outline). The interviews have been categorised, assessed and subsequently led to identification of main gaps. The report outlines the most central findings and recommendations according to the following structure: 1. Framework 9 key factors for becoming an InsurTech hub 2. Evaluation Strengths and challenges of Cologne’s InsurTech ecosystem 3. Recommendations What needs to be done “As insurers realise that there are new means to facilitate their digital transformation, they gradually turn their heads to the InsurTech start-ups able to develop, digitise and distribute new product and service offerings, optimise business processes and design new business models to win the heats and minds of existing and new segments of customers in very short periods of time. Often viewed as innovators, these InsurTechs are gradually becoming disruptors in the way they help incumbent players embed a culture of innovation within their business.” Sabine VanderLinden, MD, Startupbootcamp InsurTech
- 5. 5 1. 9 KEY FACTORS FOR BECOMING AN INSURTECH HUB An InsurTech hub is a regional and international epicentre for growth in the InsurTech industry. A place where all parts of the ecosystem - meaning the entire network of actors that make the InsurTech sector interact and thrive. It is built on the notion that start-ups, established insurance corporates, business angels and venture capitalists, research and educational institutions as well as governmental authorities are interconnected and affect each other, creating a constantly evolving relationship. Our empirical data supported by recent literature and our consultation of leading InsurTech experts and companies point towards 9 key factors for becoming an InsurTech hub: 1. An embedded ecosystem infrastructure It is important that the ecosystem is accessible so both regional and international players can easily tap in to it. Crucial landmarks are co-working-, open hangout- and event space as well as events and links to regional and global start-up ecosystems. 2. A vibrant InsurTech start-up community At the grass root level, there need to be a lot of events and activities going on, which can help the establishment and growth of start- ups. 3. Active established players It is crucial that insurance corporates invest in innovation and in leveraging the InsurTech potential - since it is within the intersection of start-ups and established companies that a lot of innovation, and not least growth, can happen. 4. Access to risk capital and funding The access to risk capital is critical to fund the establishment and growth of innovative companies. 5. Political support and ‘friendly’ business environment Central public bodies need to support the InsurTech scene and announce their support publicly as well as foster positive framework conditions for businesses. The support increases awareness and can start an upward spiral. Embedded ecosystem infrastructure A vibrant InsurTech start-up community Active established players Access to risk capital and funding Political support and ‘friendly’ business environment Access to talent Visible role models & access to mentorship Entrepreneurial mind-set and culture ƃ ɐ BRAND AS AN INSURTECH HUB ƱFigure 2: 9 Key factors for a thriving InsurTech hub
- 6. 6 6. Access to talent InsurTech is a knowledge intensive sector highly dependent on access to skilled specialised labour. 7. Visible role models & access to mentorship Visible role models act as an inspiration for aspiring entrepreneurs – and mentors can help guide the way. 8. Entrepreneurial mind-set and culture An entrepreneurial culture in general catalyses a flow of start-ups and critical mass to develop verticals as InsurTech. 9. Brand as an InsurTech hub The brand as an InsurTech hub is an outcome of the combined factors mentioned above. To attract international talent, investors, businesses, etc. it is imperative that these factors synergise a clear-cut value proposition as an InsurTech hub – and that this value proposition is communicated strongly. Throughout this report we have applied these 9 key factors to both evaluate the strengths and challenges of Cologne’s InsurTech ecosystem and as categories for our recommendations.
- 7. 7 2. STRENGTHS AND CHALLENGES OF COLOGNE’S INSURTECH ECOSYSTEM Looking at the 9 key factors for becoming an InsurTech hub, we have assessed the strengths and challenges of Cologne’s InsurTech ecosystem. The study helps understand which strengths can be leveraged in the development of an InsurTech hub in Cologne. At the same time, identifying the challenges help us pinpoint where action is needed. 2.1 DESCRIPTION OF KEY STRENGTHS Cologne has some essential ingredients to leverage from in establishing and building an InsurTech hub. The most important factors include: Cologne houses the region’s North Rhine-Westphalia start-up centre with a smaller scene of around 300+ start-ups and 25+ co-working spaces such as Startplatz (co-working/incubator), Solutionspace, Clusterhaus, Headquarters and Wertheim to name a few. An active start-up scene is important to attract new and aspiring entrepreneurs as it act as an indicator of access to skills, mentors, like-minded and investors. The last year a few dedicated InsurTech events have emerged as well. Rest 248 Cologne 70 Munich 67 Figure 3: Insurance companies and branches in Germany Hamburg 53 Hannover 35 Stuttgart 33 Düsseldorf 31 Frankfurt 31 Wiesbaden 26 Berlin 24 Nürenberg 18 Dortmund 14 Source: BAFin-Datenbank
- 8. 8 Cologne is one of Germany’s main insurance centres. Approximately 70 insurers5 that employ a workforce in excess of 26.000 are domiciled in Cologne. This translates into a market share of nearly 20% of the total German insurance sector6 . Cologne is thus one of Germany’s leading insurance locations. Among the insurance companies based in Cologne are AXA, DKV (Deutsche Krankenversicherung), HDI Gerling, Gothaer and Zurich Insurance Group as well as reinsurance companies such as Gen Re and the specialist insurance associations such as the Association of Private Health Insurers (Verband der privaten Krankenversicherung), to name a few. In a global perspective, Germany is assessed to be the 6th largest insurance market in the world corresponding to almost 5 % of total world premiums7 . Thus, Cologne’s position as an important insurance centre in one of the world’s biggest insurance markets, gives Cologne a unique advantage. The established insurance players seek to engage with InsurTech start-ups. However, their engagements differ according to their available resources. Some of the applied methods include corporate incubators or accelerator programmes, internal labs, partnerships, ventures or direct investments: • The biggest insurance companies drive their own incubator or accelerator programmes (e.g. AXA-Innovation- Campus), internal labs (e.g. Allianz X), internal innovation teams (e.g. AXA has engaged with one of the biggest incubators and co-working spaces in Cologne, “Startplatz” running internal innovation bootcamps) and dedicated venture funds (e.g. AXA Strategic Ventures and Allianz Ventures). • Some of the progressive medium sized and smaller insurance companies pool their resources and seek to collaborate: A good example is the Insurance Innovation Lab by Startklar in Leipzig co-financed by 5-6 smaller and mid-size insurance companies. The Laboratory functions as a co-working space aiming to stimulate the collaboration between insurance companies, different institutions, such as the University of Leipzig, start-ups and other service providers. The collaboration is used to fast track idea-generation, product development and to discuss relevant subjects such as IoT, Big Data, Artificial Intelligence, start-up tools etc. See insurelab.de for more information. • Many of the less progressive insurance companies limit their effort to monitoring the global InsurTech start-up scene looking for acquisitions to internalise competencies. The universities in and around Cologne offer the insurance industry access to highly skilled human capital. The city houses 12 universities of which several institutions offer specialised insurance degrees or other relevant degrees with focus at computer sciences, programming, Artificial Intelligence etc. Some of the most relevant institutions includes: • University of Cologne (Universität zu Köln), which is the oldest and largest university in Germany with around 50.000 students and a specialised Institute of Insurance Economics. Together with 10 other German universities the University of Cologne has been chosen by German Federal Ministry of Education and Research as a Centre of Excellence. In 2015 the university in collaboration with 9 universities totalling 20 partners, initiated Gateway to improve the start-up infrastructure for students. Gateway is functioning as a pre-seed incubator helping students validate their business idea and apply
- 9. 9 for start-up grants. Currently, Gateway resides 9-12 start-ups, but none of them is InsurTech related. • Cologne University of Applied Sciences (TH Köln), which holds around 25,000 students and houses the Institute of Insurance and Actuarial Sciences with 16 professors and more than 1.300 students. • Cologne Business School (CBS), which is a private business school with around 1.500 enrolled students. Less than 100 kilometers from Cologne you find: • RWTH Aachen (Rheinisch-Westfälische Technische Hochschule Aachen), which is the largest and one of the most renowned technical universities in the country with more than 40.000 students enrolled. The university has also been chosen as a centre of excellence with 10 other German universities. • The University of Bonn, which is considered to be one of Germany’s and Europe’s most important institutes of higher education. The university was founded more than 200 years ago and has more than 34.000 students enrolled. • Hochschule Bonn-Rhein-Sieg at Sankt Augustin, which holds around 3.000 students and is well-known for their Computer Science department and Centre of Entrepreneurship. Many of the insurance companies seek to interact with the universities by providing guest lecturers and collaborating on master thesis and PhD. – but according to our assessment the interaction between the insurance corporates and academia could benefit from further strengthening (see section 3.1 for further elaboration). Cologne is known as Germany’s media capital, and thus, holds a scene of skilled capabilities within customer interactions and front-end solutions. Leveraging this strength, Cologne could provide an edge to the global InsurTech ecosystem by connecting the interface between media, customer interactions and InsurTech. The City of Cologne expresses political commitment to support the development of an InsurTech hub. As an example, the City of Cologne has initiated to engage the city’s insurance industry by the means of a letter of intent with for example AXA and Zurich. Additionally, Cologne’s Mayor Henriette Reker is starting to visibly support the InsurTech scene. Likewise, The Chamber “I am aware that the digitalisation affects all of us. This is of particular relevance for the insurance industry, which is currently being steamrollered by a digitalisation wave. Insurtech start-ups not only produce innovations and cause changes; they also attack traditional business operations. Nearly every large insurer has meanwhile set up or is in the process of creating their own specialised software developer units. This is laudable, because they have no time, to continue mulling over the risks posed by the relentless digitalisation. The only response is to consequently exploit the opportunities and prospects that result from this global development. And if we in Cologne don’t do it, someone else will.” Mayor of Cologne, Henriette Reker at InsurHack by Zurich, 15/11-2016, Cologne
- 10. 10 of Commerce is actively trying (either financially or by leveraging network) to support the organisation of events within the InsurTech ecosystem. Together the City of Cologne, the Chamber of Commerce and the University of Cologne is the driving the initiative Digital Hub Cologne, a platform intending to connect start-ups and industry. The Digital Hub is one out of 6 in the state of North Rhine-Westphalia. The others include Aachen, Bonn, Düsseldorf, Münster and Ruhr8 . However, our findings show that the recognition and the impact of this initiative is still very small. Additionally, Cologne is perceived as a liveable city to live in with accessible cost of living9 , a vibrant and animated event scene centred around the Carnival and qua its Central-European location a pulsing business scene hosting numerous trade fairs such as: • Europe’s largest gaming conference Gamescom (gamescom-cologne.com) • The digital exposition and conference Dmexco (dmexco.com) • The world’s leading trade fair for photo and video Photokina (photokina.com) • The start-up conference StartupCon (startupCon.de) To sum up, Cologne’s large insurance sector, renowned academia scene, political support and existing start-up scene are essential ingredients in building an InsurTech hub. 2.2 DESCRIPTION OF CHALLENGES Despite the strengths mentioned above, Cologne does not hold a clear cut value proposition for InsurTech start-ups or potential business partners. This is due to the following underlying challenges: The InsurTech start-up scene is very premature and very scattered. Currently, the scene is limited to around 5 InsurTech start-ups10 and a few recently established events and gatherings. At the same time, there is no centre of gravity and no physical hub for InsurTech start-ups, thus there is no actual embedded infrastructure, which the start-ups can tap into. Established insurance companies are not sufficiently active in driving external or internal innovation. Some of the most progressive insurance companies have acknowledged the structural changes the industry faces coming from disruptive and innovative start-ups as well as the need to react upon it – and are actively pursuing to engage with start-ups through internal accelerator or incubator programmes, internal labs, ventures etc. According to our findings these companies have a global outlook and do not see Cologne as an interesting location due to the lack of start- ups. At the other end of the spectre, many insurance corporates are still limiting their activities to monitoring the trends. According to our experience, the majority of the insurance companies do not sufficiently engage actively in open or internal innovation in order to adapt to the structural changes. Thus, there is a need for a general cultural change in the industry in order to recognise the impact of the transition the industry is facing. Cologne’s educational institutions’ focus at and interaction with the entrepreneurial scene is very pre-mature. The academic scene holds a long tradition in providing human capital to the traditional corporates. Recently, it has been decided to implement entrepreneurial themes in the curricular. However, the educational focus at entrepreneurship is still very limited in Cologne.
- 11. 11 The access to risk capital is more or less limited to enclosed networks. While the investments surge in the global InsurTech ecosystem, the access to capital in Cologne’s InsurTech start-up scene is very dependent on connecting to a relatively enclosed network. In general, many private investors are interested in investing, but lack of awareness of Cologne’s InsurTech scene encumbers the connection between start-ups and investors. As a consequence, the Cologne InsurTech start-up scene experiences challenges to access funding – especially, in the seed stage as well as in the stage between business angel investments and venture capital investments. A high level of regulation is a barrier for InsurTech start-ups. Many InsurTech start-ups find the regulatory framework established to target traditional insurance corporates as well as the data protection law out of sync with the scene’s innovative business models. Thus, many express a need for governmental authorities to be more proactive in helping start-ups navigate in the bureaucratic regulative landscape. Though the City of Cologne expresses support to build an InsurTech hub – no real actions have been implemented yet. Other InsurTech hubs are providing free co-working space, specialised programmes and grants as well as a regulator open for concrete dialogue. This means the competition to position Cologne as an InsurTech hub is fierce. Some of the cities in Germany are actively pursuing to position themselves as an InsurTech hub include: Munich is striving to leverage on the density of insurance companies (as well as the amount of headquarters situated in the city) and their academic scene by injecting aggressive political commitment and visibility to the InsurTech start-up scene. Thus, the city holds a slightly more mature distributed infrastructure where stakeholders can embed in; e.g.: • Werk1, incubator, co-working and event space has initiated Forward InsurTech Accelerator together with leading insurance companies. • InsurTech Rising Conference from 14- 16 November 2016 (US Europe’s largest InsurTech event). • Allianz Digital Factory and Allianz X Frankfurt is trying to leverage their strong position as a financial centre and FinTech scene and benefit from the location of EIOPA. Berlin holds a mature and vibrant start-up scene. Though the city does not house many established financial or insurance corporates, the city holds clusters of expertise and a strong distributed infrastructure attracting many start-ups, including successful InsurTech start-ups such as Friendsurance, Clark and FinanceFox, which earlier this year respectively raised 15,3 million dollars, 14,7 million dollars and 28 million dollars. The competition is further intensifying in a global perspective, where cities like London, San Francisco and Tel Aviv hold strong InsurTech ecosystems with obvious value propositions attracting players from all over the world. To sum up, Cologne’s greatest challenge is that the city does not have a value proposition attracting the attention of national or international InsurTech ecosystem at the moment. Though Cologne holds a high density of insurance corporates, numerous relevant universities, an early start-up scene, interested investors and governmental entities willing to support the growth of an InsurTech scene, these players tend to be working in isolated entities. So far there has not been a concerted effort to join forces and create an actual InsurTech hub with a centre of gravity to meet and interact. This means that InsurTech start-ups, investors and insurance corporate point their attention to other established or emerging hubs.
- 12. 12 Table 1: Strengths and potential challenges of Cologne’s InsurTech ecosystem Strengths Challenges 1. An embedded ecosystem infrastructure: Co-working-, open hangout-, event space and links to regional & global start-up ecosystems make the ecosystem accessible. • Cologne houses 25+ co-working spaces with hangout- and event space for the general start-up scene • Cologne and Tel Aviv have been sister cities since 1979. In 2016 the cities initiated an additional digital partnership in order to leverage Tel Aviv’s start- up scene and Cologne’s corporate scene • The City of Cologne is further working to establish a similar partnership with London • There is no dedicated co-working space or community space for the InsurTech scene in Cologne 2. A vibrant community with events, meetups and programmes: Activities that can help the establishment and growth of start-ups. • Cologne’s InsurTech event scene is budding with a few relevant events: - EXECInsurTech (execinsurtech.com) - InsurHack by Zurich (zurich.de/de-de/insurhack) - EBAN E-xcelerator InsurTech Investor Day: (eban.org/event/e-xcelerator-insurtech-investor-day) - Campfire on InsurTech by EXECinsurtech and Pirate Summit (startplatz.de/event/campfire-insurtech/) - Innovario (vers-leipzig.de/index.php/leistungen/innovario) - DKM (die-leitmesse.de) • Some of Cologne’s general co-working spaces such as Startplatz offer incubator programmes and host start-up events • A few of the general co-working spaces have held joint events • Currently, Cologne’s InsurTech community is very premature and characterised by a few recently established events 3. Active established players: Corporates engaging in internal and external innovation and leveraging their resources are important to a thriving ecosystem. • Cologne houses around 70 insurance companies. This makes the city one of the top insurance centres of Germany • Many of the insurance companies express interest to engage with start-ups – and several pursue an actual engagement • Some of the medium sized insurance companies express and show interest in further engaging in the InsurTech ecosystem • The biggest traditional insurance corporates initiate engagements with the start-up scene on their own – and express no real interest in a joint collaboration • Corporate players look at the global start-up ecosystem – and their attention is not drawn towards Cologne • There is a big group of insurance corporates that not sufficiently engage active in innovation Following, table 1 summarises the most important strengths and potential challenges.
- 13. 13 4. Access to skills and talent: Relevant competencies are key to succeed in this knowledge intensive sector. • The human capital is very strong in Cologne. The region houses several acknowledged institutions ensuring graduates with relevant competencies • Cologne’s educational institutions have a long tradition providing a pipeline of talent to the established insurance companies • Furthermore, the many insurance companies located in Cologne hold a big group of experienced employees with relevant competencies • Universities and traditional insurance corporates are interacting and collaborating on lectures, thesis and Ph.D. assignments • In 2015 the University of Cologne initiated “Gateway”, a student pre-seed incubator and co-working space with around 35 seats • In 2002 the Cologne Scientific Table was initiated to foster collaboration between universities, private business schools and the Chamber of Commerce • The universities curricular are dominated by a focus at serving the traditional insurance sector with human capital • Universities are just starting to implement entrepreneurial themes in the curricular • Universities are not really interacting with the start- up scene • Some entrepreneurs within the InsurTech start- up scene express a shortage of people with competencies within data sciences 5. Access to risk capital and funding: Funding is crucial to establish and grow start-ups and scale- ups. • Globally, the awareness of the InsurTech scene among investors have been rising – and so has the flow of capital • It is very difficult to find funding in Cologne - especially in the seed stage • There exists a gap between business angel investments and venture capital investments • The investors have a national and international focus and their attention is drawn towards existing hubs such as Berlin that holds Germany’s biggest start-up scene 6. Political support and ‘friendly’ business environment: Ambitious and consistent support and positive framework conditions can start an upward spiral. • The City of Cologne expresses a big interest in supporting the development of the InsurTech scene • It is positive to see Cologne’s Mayor is opening and attending InsurTech events as it has a big effect in attracting spotlight to the scene and thus increase awareness • The City of Cologne does not financially support the InsurTech start-up scene through cheap co-working and event space, specialised programmes or grants • Additionally, the City of Cologne does not work actively to provide accessible guidance within the regulatory framework, which the InsurTech start-ups navigates in 7. Visible role models & access to mentorship: Role models and mentors act as important inspiration for aspiring entrepreneurs. • There are a few strong role models in Cologne’s InsurTech scene such as Control€xpert and Virado • Mehrdad Piroozram, owner of InsurTech.vc is a very active investor and mentor in Cologne’s InsurTech start-up scene • Cologne’s InsurTech scene is very pre-mature and the mentors and role models are limited
- 14. 14 8. Entrepreneurial mind-set and culture: A culture acknowledging entrepreneurs affects the development of start-ups positively. • The general culture in Cologne is very diverse and open-minded • The population is young and growing. Cologne’s population is projected to grow by 20% by the year 2040 • Cologne is the start-up centre of the region North Rhine-Westphalia • Cologne is a student city and has a big and vibrant student community • The entrepreneurial culture in Cologne is in general not very well-developed • The strong scene of established companies is dominating the career path of the students • Currently the overall start-up scene consists of 300+ start-ups and is at a relatively early stage. In comparison Berlin’s start-ups scene resides around 3000 start-ups (startup-ecosystem.compass.co/ ser2015/) 9. Brand as an InsurTech hub: A strong and communicated value proposition is imperative to attract national and international players. • Cologne is recognised for its density of traditional insurance corporates and the educational scene providing a pipeline of relevant competencies. • Cologne’s value proposition as an InsurTech hub is not acknowledged by international players.
- 15. 15 3. WHAT NEEDS TO BE DONE - RECOMMENDATIONS As the study shows, Cologne has several strengths to enhance and leverage to become an InsurTech hub. However, the growth potential is far from unlocking itself. Despite a strong established insurance sector, renowned educational institutions ensuring access to relevant competencies, political support and an early budding event scene, the current InsurTech ecosystem is very pre-mature and scattered. Additionally, the City of Cologne is nationally in fierce competition with cities like Munich, Frankfurt and Berlin, which are pushing to position themselves as InsurTech hubs as well as international hubs such as London, Tel Aviv and San Francisco, which have taken the leading positions as InsurTech hubs. If Cologne does not take action now, the city will miss the opportunity to establish itself as a Central-European InsurTech hub. In order to succeed it is pivotal to establish a strong ambition and a stamina to execute. It is also essential that both private and public players join forces and all initiatives are built on existing initiatives and platforms. As mentioned in section 1 we have identified 9 key factors for developing Cologne as an InsurTech hub. Within these 9 key enablers we have identified 8 concrete recommendations to establish and build an InsurTech ecosystem. These recommendations are based on our findings, best practices and our wide experience with building international hubs. In addition, these recommendations aim to address the strengths and challenges of Cologne identified in this report. In order to develop and establish Cologne as an InsurTech hub, the study shows that mainly two factors need to be strengthened: The InsurTech start- up scene and the interaction between the existing players in the ecosystem. From this outset, the majority of the recommendations are targeted at developing of a strong embedded infrastructure eligible to attract local, regional and international players. 3.1 PRIORITISATIONS RELATED TO ENHANCING THE ENTIRE ECOSYSTEM To strengthen the entire ecosystem, it is paramount to establish an embedded infrastructure, stakeholders can tap into. In order to do this, it is recommended to prioritise the following concrete actions: 1. Establish a centre of gravity where the InsurTech value chain and stakeholders in the ecosystem can meet. The InsurTech community needs a physical place where InsurTech start-ups can work from, where InsurTech related events can take place and where established players can meet and interact with start-ups and each other. This should take form as co-working and event space. To ensure a vibrant ambiance the co-working space should be open to both tenants as well as people and organisations wanting to engage with the community. The space should be minimum 800-1,000m2 to ensure it can accommodate a critical mass of start-ups (in both early and later stages) and activities. It is important the co-working space have an event space to at least host smaller events like training, smaller hackathons and meetups. To ensure ownership and engagement of the established insurance companies the initiative should be financed through partnerships. In return the partners should receive a strong value proposition of access to interaction with start-ups, students, events, expert knowledge etc. The above model is recognised in places like Werk1 in Munich, the Insurance Innovation Lab in Leipzig and the Camp, which Rainmaking is operating in collaboration with Tryg in Ballerup. The impact of such
- 16. 16 a home is that it brings the community together, fosters collaboration, knowledge sharing and quality networking. It is important that a co-working space like the above is done by an independent operator with experience on how to maximise the value for the InsurTech community. 2. Launch multiple events to facilitate people and stakeholders in the ecosystem in getting together, interact and find ways to collaborate. Examples of events based on a three-step model include: • 1: A lot of big, free and open events creating magnetism and hype in the ecosystem; e.g. hackathons, meetups, connect investors and start-ups, joint events with existing co-working spaces and incubators etc. • 2: Smaller number of events with experts with global audience: e.g. Expert talks from stakeholders of the InsurTech value chain and panel debates on popular topics in the InsurTech scene • 3: High quality global InsurTech events; e.g. attracting high profile InsurTech events to Cologne The Camp opened in 2016 as a focused InsurTech co-working and event space with 300 seats located in the Scandinavian insurance corporate Tryg’s headquarter in Ballerup, just outside Denmark’s capital. Tryg has established the initiative to get closer to start-ups, initiate new partnerships and tap in the the toolbox of the startups. See: http://thecamp.io/ “The dynamics are simple: The more events you organise, the more you attract” Florian Graillot, AXA Strategic Ventures 1/12 2016 3. Hight profile global InsurTech events 1. Numereous free and open events 2. Expert events with global audience Figure 4: Launch events to strengthe Cologne’s InsurTech ecosystem
- 17. 17 3. Increase communication to strengthen the community and brand the value proposition. It is recommended to launch a website promoting Cologne as an InsurTech hub locally, regionally and globally. The website shall act as the gateway for anyone interested in InsurTech in Cologne – being it start-ups, established players, investors etc. To begin with the content will be limited due to the premature ecosystem. However, as the ecosystem strengthens and mature, the content will develop as well. The website should: • Provide an overview of the InsurTech ecosystem landscape: who are the start-ups, who are the investors, which established players are active and open for conversations as well as links to existing overviews of the general start-up ecosystem such as http://www.droid- boy.de/coworking-koeln/. • Showcase success cases - A calendar with all InsurTech related activities - News - Press - Latest research - Go to places for first time entrepreneurs • In addition, social media should be used to ensure constant engagement of the community: - Twitter, Facebook, LinkedIn and other social media - Suggested hashtag: #CGNINSURTECH - Collaboration with Start-up Digest and other relevant newsletters and initiatives A full time resource should be dedicated setting up and maintaining the website, creating content, conducting social media noise and act as connector across the ecosystem. 4. Identify and list a pool of relevant InsurTech mentors including successful entrepreneurs, subject experts and industry professionals in order to support start-ups as well as to connect the InsurTech ecosystem. The list of mentors should be invited to quarterly mentor events at the InsurTech co-working- and event space to stimulate and activate the network further. The right type of mentors is willing to give back to the community for free and there should therefore not be any cost implications of this recommendation. 5. Engage established insurance corporates with start-ups through an Applied Tech Lab. An Applied Tech Lab is a 12 months programme helping insurance corporates to establish commercial engagements (outsourced applied R&D) with globally sourced growth-stage start-ups. The lab identifies, accelerates and increases the chance of success of Proof of Concepts (POCs), mini partnerships or mini pilots, within areas of strategic interest. An Applied Tech Lab is a proven tool to increase the interaction between corporates and start-ups, attract aspiring growth-stage start-ups to the city, create success stories of new partnerships and create increased awareness of the ecosystem. The established insurance sector could further benefit from leveraging existing collaboration with academia, and to bigger degree engage with students to enhance the value of applied science and cutting-edge solutions. 6. The political environment needs to assertively support the InsurTech ecosystem through visible presence, marketing and resources. It is recommended that the Mayor continuously support the InsurTech scene through
- 18. 18 presence at InsurTech events to ensure spotlight and increase awareness of the scene. Furthermore, the City of Cologne should provide cheap rental space for a focused co-working and event space to kick-start the development of the scene. Another effective tool is to set up InsurTech start-up grants attracting international quality InsurTech start-ups from the global ecosystem. Finally, the City of Cologne should further leverage on the initiated partnerships with London and Tel Aviv. Structured start- up exchanges subsidised by free office space and grants could provide valuable experience, knowledge and skills sharing as well as pave the way for new partnerships. Such support of the city sends a strong signal of commitment at a regional and international level potentially starting an upward spiral. FinTech hubs such as London and Singapore are proven examples that strong political commitment can create an attractive environment for funding and talent, thus boosting the cities’ brands as hubs. 7. As the InsurTech ecosystem matures the next step is to establish an InsurTech start- up accelerator. For now, the InsurTech ecosystem is too premature to generate critical mass for an accelerator. However, when a focused InsurTech co-working and event space has been implemented strengthening the ecosystem, the next natural step is to establish an InsurTech start-up accelerator. A start-up accelerator is a proven tool to catalyse and fast track the growth of start-ups while simultaneously significantly increase the awareness of the ecosystem. An accelerator is typically run as a 3-6 month full time programme where a cohort of 8-12 start-ups are provided with intense support helping them grow their “There is only one recipe for success in the accelerator space. Working with great corporates committed to work with start-ups, a great investor ecosystem, a government and a legal structure that ease the access to capital, and start-ups that can see their business growth and scale within that market.” Sabine VanderLinden, MD, Startupbootcamp InsurTech
- 19. 19 businesses with the assistance of a core team of proven entrepreneurs plus a pool of 30+ mentors. The start-ups are typically given free office space and some cash to cover their living costs during the program. In return the start- ups typically give up 6-10% of their company. An accelerator also has a huge symbolic value and follow-on impact in the ecosystem (as seen with Startupbootcamp’s InsurTech accelerator in London), since it can increase awareness of the hub, and thus, function as a great tool to attract and connect foreign start-ups, investors and established players. If it is decided to establish an InsurTech accelerator in Cologne, it should be recognised that it will take time to mature Cologne’s brand as an InsurTech hub enough to attract the very best international InsurTech start-ups. The above initiatives have been chosen, because international best practice and experience have shown that these are the critical initial building blocks for a successful ecosystem. In addition, these are initiatives, which can be acted upon now and which are not too expensive. Following, table 3.1 summarises the recommended prioritised initiatives for 2017. PRIORITIZED INITIATIVES FOR 2017 The impact and synergies are closely linked across the recommendations. However, we have listed the recommendations below in a prioritized order by taking the most effective tools to boost the InsurTech ecosystem into consideration. Thus, as an outset Cologne InsurTech should focus on implementing the following 6 initiatives in 2017: 1. Establish an InsurTech co-working space in the centre of Cologne to ensure a centre of gravity where InsurTech start-ups, investors, established players and other stakeholders in the ecosystem can meet. 2. Run multiple events like hackathons, meet ups, etc. to facilitate people and stakeholders in the ecosystem getting together, sharing ideas and information and finding ways to collaborate. 3. Set up a website providing an overview of Cologne’s InsurTech ecosystem to coordinate and engage the ecosystem as well as promote Cologne as an InsurTech hub at a national and international level. 4. Identify and establish a pool of relevant InsurTech mentors including successful entrepreneurs, subject experts and industry professionals to support new start-ups with their experience and network and host a quarterly mentor event at the InsurTech co-working- and event space. 5. Engage established insurance corporates through an Applied Tech Lab with a dedicated programme for exploring partnerships between national and international growth-stage start-ups and insurance corporates. 6. Increase political support to create a thriving business environment for the InsurTech scene through visible support, resources and help to navigate the regulatory landscape.
- 20. 20 3.2 COLLABORATING ACROSS THE SECTOR AND BUILDING ON TOP OF EXISTING PROJECTS It is recommended that the entire sector come together to collaborate and help finance and implement the recommendations in this report. Cologne has a pre-mature InsurTech scene and to compete with other cities, there is a need to join forces and ensure that new initiatives build on top of existing initiatives. To ensure collaboration and coordination it is therefore encouraged that representatives from both public players such as the City of Cologne, Chamber of Commerce, industry bodies, universities and private players such as InsurTech investors, traditional insurance corporates and InsurTech start-ups. The network partners should commit to contributing to making Cologne an InsurTech Hub. Each partner should take action in relation to those recommendations where they have influence and can make an impact. It is recommended that the partners meet on a quarterly basis to coordinate and prioritise initiatives plus share experience from the preceding quarter. 3.3 FUNDING AND ESTIMATED COSTS Funding should be secured to run an InsurTech co-working space for at least the next 3 years. This is essential to ensure the project does not become a one off activity but gets the commitment and time to develop and establish Cologne as an InsurTech hub. It is estimated that the total costs of implementing a critical mass of activities in Cologne will be approximately €1 m p.a. depending on the exact ambition level. The costs would approximately be split as follows: • 10-15% would go to cover the expected costs of a co-working space (what cannot be covered by rent from tenants) • 60-70% would go to cover salaries of the implementation team plus experts who are brought in for selected activities • 5-10% would go to cover travel, catering, material and other out of pocket costs • 5-10% would go to building a website and running communication on a full time basis • 5% would go to cover admin, accounting, telephone, IT etc. 40% of the funding should come from a combination of public and private players. It is recommended that at least 50% of the funding come from private players. Assuming the City of Cologne for example would contribute with €250,000 p.a., then 6-10 private entities could each contribute with €100,000 p.a., which is similar to what corporates typically contribute with in comparable international projects. If the support programme for growth start-ups shall include an accelerator of international top quality, then the total costs would be closer to €2m p.a. The funding for an Applied Tech Lab will approximate a base program fee of € 380 K per partner and € 20-60 K per proof of concept (POC) cycles. The cost estimates are based on Rainmaking Innovation’s experience of implementing similar projects in more than 15 countries across Europe, Asia and US the last 5 years.
- 21. 21 1. businessinsider.com/axa-insurance-startup-trov-uk-millennials-insurtech-tinder-airbnb-2016-11 2. http://www.ey.com/Publication/vwLUAssets/ey-the-disruptive-potential-of-german-insurtech/$FILE/ey-the-disruptive-potential-of-german- insurtech.pdf 3. assets.kpmg.com/content/dam/kpmg/xx/pdf/2016/11/the-pulse-of-fintech-q3-report.pdf, 18.11 2016 4. oxbowpartners.co.uk/tag/insurtech/, 29.11 2016 5. BAFin-Datenbank, 17.10 2016 6. Speech by Mayor Henriette Reker, Zurich Insurhack, 18.11 2016 7. iii.org/publications/insurance-handbook/economic-and-financial-data/world-insurance-marketplace, 25.11 2016 8. digitalewirtschaft.nrw.de/2016/07/08/dwnrw-hubs-12-mio-gewinner/ 9. expatistan.com/cost-of-living/country/germany, 15.11 2016 10. tracxn.com/theme/ BIBLIOGRAPHY
- 22. 22 • Comma Soft • IBM • Gothaer • Bain & Company - Germany • Central Kranken / Generali Deutschland Informatik Services • ROLAND Rechtsschutz • AachenMünchener • AXA • AXA-Innovation-Campus • AXA Strategic Ventures • Liberty Speciality Markets • SCOR (Global P&C Deutschland) • GDV (German Insurance Association) • Pirate Summit • Startplatz • Solutionspace • Gateway • Technische Hochschule Köln • University of Cologne • Virado • widgetlabs • insurers.ai • Control€xpert • CombinePartner • Rotonda Business-Club • InsurTech.vc • Deutsche Telekom • Capnamic • SQS Software Quality Systems AG • EBAN • City of Cologne • Chamber of Commerce (IHK) • Deutsche Startups • Versicherungsmonitor • Startupbootcamp InsurTech • Startupbootcamp FinTech APPENDIX List of interviewed companies, organisations and institutions: