Israel is one of the most technology-driven economies in the world, with innovation at the heart of its business culture, and it is poised to become the global hub for insurtech innovation. Intelligent Insurer investigates.
The global risk transfer landscape has always revolved around key geographical hubs, with London, Bermuda, New York, Zurich, and Singapore creating a critical mass of talent and capacity.
As the industry has developed in recent years with new capital pouring in, these same domiciles, for the most part, have adjusted, developed and becomes specialists in some of the innovations taking place. Bermuda, for example, dominates the insurance-linked securities (ILS) space, although the others are trying to catch up.
When it comes to the insurtech revolution, therefore, it is natural that these same domiciles play a central role. The technology will naturally follow the capacity and the decision-makers in the market. London, in particular, is booming with insurtech ideas and investment.
There could, however, be a new kid on the block very soon, which could lead the world when it comes to developing technologies to revolutionise the risk transfer space in general and insurers, reinsurers and brokers specifically. The hub set to shake up the status quo is Tel Aviv, Israel.
“There is no better place to see what the cutting edge looks like than Israel.” David Clamp
“Tel Aviv is already the insurtech capital of the world, and that will only become more apparent over time,” says David Clamp, founder and managing director of Merlin Digital Consulting and former head of IT at Hiscox.
“You have a very entrepreneurial city that produces a lot of tech startups now turning its attention to the opportunity in the insurance industry. I believe the industry is on the brink of rapid and fundamental change globally, and companies from Tel Aviv will play an important role in that.”
So certain is Clamp of the pivotal role Tel Aviv will play, he has started organising trade missions to the city for executives in the industry keen to engage with cutting-edge insurtechs first-hand.
His next Tel Aviv Study Tour will take place in September and tie in with attending the DLD Tel Aviv Innovation Festival, Israel’s largest technology festival and one of the biggest of its kind in the world.
A thriving tech hub
It is estimated that there are already more than 400 insurtech companies based in Tel Aviv, but there could be a lot more. According to Start-Up Nation Central, an online resource managed by a non-governmental organisation dedicated to documenting the journey of startup technology companies and investors in Israel, there are more than 6,000 such fitech companies in the country.
More than 400 of them could be working on projects that could ultimately be applied to the risk transfer industry, but even 400 represents growth of more than 50 percent compared with 2015 and it seems that international financial services corporations are also expanding their involvement in Israel’s fintech/insurtech sector.
A report by Start-Up Nation Central examining the fintech ecosystem in 2018 suggested that some 40 multinational financial services companies are operating in Israel, many of them investing a significant amount in the sector.
The report estimates that some 73 percent of all venture capital-backed investment in Israel’s fintech sector since the beginning of 2018 involved foreign money, a trend that has been steadily increasing since 2016. The report showed that record numbers and investments were made in the first half of 2018, including more than $400 million raised in 45 deals.
The report also notes that at least 16 global financial service firms, including Visa, Mastercard, and AmTrust, have increased engagement with the Israeli fintech sector over the past 18 months, while corporations such as Citi, Barclays, and JP Morgan have established R&D hubs, innovation labs, accelerators, and incubators in Israel.
Innovation as a core value
To understand why such activity is taking place in a relatively small country and financial services hub, knowledge of the wider context of the Israeli economy and the reasons underpinning the fact that the country has always been good at technology is required.
The country’s entire ecosystem has been developed over time with innovation as a founding principal and driving concept. Its schools, universities, government agencies, infrastructure and financial institutions are all geared to driving forward innovation and entrepreneurship.
This strategy has worked. Reports estimate that high-tech industries provide about one-third of Israel’s employment and contribute more than half of the country’s GDP. Among the high-tech companies listed on the Nasdaq, the total number of Israeli companies ranks second, after the US.
Clamp, who is a seasoned visitor to Israel and very familiar with its thriving insurtech sector, says that innovation is now embedded in every aspect of the country’s culture and mentality. Companies operate in a very different way there, but the net result can be remarkable when it comes to developing new products and concepts.
“Innovation is embedded in every aspect of the corporate culture and they are leading the world because of that,” he says.
“They have a very flat structure in most companies with no real hierarchies. There are no committees or project management teams—if they feel something is right, they try it and do it quickly. If they fail, they learn and move on.
“That is very refreshing compared with what you see in most countries. It can look pretty disorganised from the outside but from chaos can come brilliance.
“It is a special thing and unique to Israeli culture. Perhaps part of it comes from the military mentality there, as everyone serves at some point. The Israeli army has a saying that they organise as they go.
That allows them to be very fluid, adaptable and opportunistic—great qualities when it comes to innovation,” he explains.
Change the world
As a consultant and innovator himself, Clamp is involved in the insurtech revolution in all parts of the world. He is well positioned to compare what is going on in Israel with the rest of the world and also to predict the revolution now looming for the insurance industry.
He believes that technologies such as machine learning, artificial intelligence, analytics and the internet of things, combined with the increasingly sophistication of the way data is used, will profoundly change the risk transfer industry.
“This industry does not yet appreciate just how fundamental a change these technologies will trigger over the next five years,” he says.
“The fact is that companies need to understand and embrace this change or be left behind. There is no better place to see what the cutting edge looks like than Israel.”
The trips to Israel Clamp runs are suited to executives from the industry who are keen to gain an appreciation of the type of technologies coming down the pipeline, or who want to experience this type of innovation-based culture first-hand for their own organisations.
“You need to be there to get a real sense of the benefits of the style of innovation and the culture—you will not get that in London,” he says.
He adds that, while the innovation is taking place in Israel, the startups themselves are reaching out to all parts of the world for investment and clients.
“However, Israel will remain the hub—where the really cutting-edge stuff will be devised and developed. It is a remarkable place and definitely somewhere insurers should consider visiting if they want to keep pace with change,” he says.
For more on the next Tel Aviv study tour visit the LinkedIn page.
Risk Transfer, ILS, Insurtech, Technology, Israel