Nick: Hi, everyone. Welcome back to yet another episode of Reinventing Finance with my lovely co-host Tom. Tom, how are you?

Tom: I'm very fine this morning, Nick. Looking forward to our conversation.

Nick: Likewise. And as usual, we're not all by ourselves. We were able to convince David to join us. David, welcome in our virtual abode. I hope you're also well this fine morning.

David: Yeah, I'm very fine. Thank you for having me.

Nick: Awesome. David, maybe for those of our viewers, listeners who don't know you yet, could you just briefly introduce yourself? Who are you and what do you do?

David: Okay. Although I'm a biochemist by background, I'm an insurance animal. I started at the Max Planck Institute, but that's like 30 years ago. But for the last 25 to 30 years, I've been in insurance with several of the big players and some of the smaller players. Most of my time I have spent on this edge between insurance and technology. So I have been with the Munich Re Ergo Group. I've been with the Royal Bank of Scotland. That is a direct line group in UK. And I've been with the Generali Group. There I was CEO of Cosmos Direct and the broker business Dialogue. And most recently, I've been with Wefox as a group COO. And for the last few months, I'm actually consulting a lot of insurance players, I can say around Europe, because I'm starting an insurer in Romania right now and do some market entries to the DACH region. And all of that is in between the tech area and the established players. So a lot about partnerships, market entries, new technologies. So that's what I do.

Nick: So if you were to kind of look back, both at your time, more in like established functions or attackers within a group or attackers, you know, with more kind of VC backed, what key learnings would you take? And if you wanted to make it differentiated, what that means for insurance executives or maybe for insurTech executives, but what did you learn? And ideally, some non-obvious learnings, but we'll take the obvious learnings as well.

David: Okay, perfect. I think one of the basic things is that we're actually digital in the wrong way. Which means we always make things black or white. So there's always this differentiator between there is incumbents and start-ups, or there is direct insurers and service insurers. And then we do this with people that use technology or not. Or right now, the discussion we have about Chat GPT and learning algorithms, it's solving all the problems, it's destroying the world. And I think this is one of the fundamental failures that you see, especially dealing with technology and in the insurance world. If you see all the times that we have said, you know, this will change in the next 10 years, and the market will be totally different.

I remember that we had an article in the 90s that direct insurers would take over the market by the year 2000. And it doesn't happen. The world is always in the middle. It's not as negative as we think, and it's not as positive as we think. And I think this is one of my most important key takeaways. And maybe there, I have the help that I'm a natural scientist, I always look at things and say like, well, they're not good, they're not bad. They're just the way they are. And they're normally somewhere in the middle and they balance out. And I think a lot of managers get that wrong. It's too extreme on the positions. And you see that on both sides.

Nick: And so if you were to, if I tried to play that back, would that mean, do you see more of an overinvestment in technology or in the wrong parts? Or do you, or let me, let me just play back something. So I think there was this saying, everyone needs to become a technology company. So let me ask you, do insurance companies need to build their own technology or rather in which points would it make more sense? And in which parts might it make less sense? So we are not also falling into the same trap of black and white, make or buy, vendor dependency or having legacy dependency or whatever, where would you draw the line there?

David: Okay. It's a big field. Maybe I start back in 15 years ago; I was introducing myself at the GDV, the insurance association. And I was telling in the beginning of the presentation that I am a CEO of a tech company with a small ejected insurance. And everybody was laughing. Today, I think nobody would laugh anymore. So it's not that you have to become a technology company, but today I would say, if you want to become the CEO of an insurance company, you have to understand technology in a totally different way than it used to be like 15, 20 years ago. And coming to your question about make or buy, as I said, it's not this one thing. It's not make or buy. It's where do you really make the difference? And this is, by the way, the, and I've worked with like a dozen market entries and start-ups in the last 12 months. And it's always the main first question, where are you really better as your competitors? So where do you want to make a difference? And that's probably the area where you want to make things, because that's where you drive competition.

And the funny thing is, if you ask start-ups, where in the value chain you're better, the tendency is close to 90%. They say everywhere. And that's not true. I've never seen a company that is in all the value creation better than other companies. And the funny thing is, if you talk to incumbents and you ask them, where are you better? They actually often tell you nowhere. Again, it's this black and white feeling and getting clear, where is my competitive advantage? Where do I make a difference? That's the first and utmost important step. And a lot of companies are not really clear where they are better. And then you invest there and all the rest, you actually better buy in because somebody else by your own definition is doing that better than yourself.

Nick: Do you have some examples? So if we get from the abstract to the concrete and does it, I don't know, we can go for direct insurer or a broker insurer or whatever categorisation you feel makes sense to make that a little bit more concrete.

David: Maybe I can talk about an older case because it's not talking about the direct line at that time when I was there, we were actually in all the years in a row, and we were the fastest growing PNC Company in Germany. And our competitive advantage was speed. And we were very clear about everything we do, we do faster, we do more iterations than anybody else in the market. We designed our IT systems so we have a responsive time of less than 24 hours, which is important if you play in the direct. And that also meant that in a lot of other things, we actually bought in things that others wouldn't have bought in. For example, call centre capacities. Are we a better handler of calls? No, we're not. We don't have it. So there are others that do that. The IT also, where we outsource everything that has to do with the bookkeeping and stuff. We're not. We're not SRP. SRP does it better than we do. So that was a clear logic where a company in that sense, OK, it's small, it's easier. I'm really focused on what you're doing better than others and all the rest.

But it takes a different approach to management because you need some skills which are not that often found in insurance companies. It's actually managing cooperations and managing partnerships, working together with other companies. Traditionally, insurance companies have not been good in this area because they have done everything by themselves. There's nearly no other industry that has programmed nearly all the code themselves, did all the customer interactions by themselves, and so on and so forth. No automotive industry player would have the same value creation throughout the value chain than any insurance company. By the way, I did a calculation about that on the external value creation. So the partnership value creation in insurance companies is less than 20 percent. In automotive, it's 80 percent. In utilities, it's 70 percent, and so on and so forth. They do a lot of their things not by their own. They find the one on this planet who does it the best and then use them. But you need different management skills for that.

Nick: And if you kind of listen to it, it's almost very intuitive, right? It kind of makes sense. Why wouldn't you focus on... Why would you go black and white when we all know that the world is grey? Why would you invest in parts that don't differentiate? Why wouldn't you try to buy whatever is better in the market? And even if it's a differentiator and if someone else is better, you might still buy it and just buy it fast. So if you're just kind of listening to that, it all sounds intuitively correct. So how come that doesn't happen? Because I don't see anyone raising their hand. No, I want to go opposite to everything you've just said. Tom?

Tom: I would raise my hand for the sake of the discussion. And I would just hold against it. It depends on the playing field where you are. So if you are a stock listed company and you have to focus on your dividends and if you have to deliver to your shareholders, you're totally right. But just for the sake of the discussion, if you take, for instance, in Germany, Hermann Siemon and Hidden Champions. So about the, I would say, companies who are specialised in a certain field, they do the opposite. So a very famous example are, let's say, family-owned businesses with a long-term perspective, which even produce their own machinery. So one of the examples, which also always mentioned, for instance, if you make this Ferrero chocolate eggs, nobody can produce them because there's this toys inside and they produce their own machinery or something, this kind of stuff. So it depends on the field you would act on. So this whole idea of Vettejongstiefel.

Now we can also take Tesla, where in the car and automotive industry, they do exactly the opposite. They also insource, they get rid of the insurers, they do their own sales, et cetera, et cetera. So I would say also there, just to take your starting point, it's not black and white.

It depends on which field you are, which timeframe, what competitive environment you have, stock owner situation, et cetera. If you're a family-owned business and you can plan for the long-term, then it's a totally different game than if you are stock listed, then your shareholders say, now we want a dividend next quarter. So, but I mean, I understand the point you make.

David: Yeah, first, maybe very simple answer. I have actually not much clue about other industries. There are not that many family-owned insurance players, which is very simple due to the, there's ARAG in Germany. There are some, but really, if you come to the, want to be a significant player in insurance, the capital intensity of this industry is very much in favour of either Versicherungsverein or mutual or stock-traded companies. And I agree with you, if you are very niche in a certain thing, and that's what you were referring to. It's this excellent German Mittelstands organisations that actually their skill is that they do a very specific thing, the whole value chain. That's also one thing where they concentrate on.

Tom: But you could also do this in insurance, especially if it's about, for instance, client relationships in long-term wealth management and so on, and so on, especially if trust plays a big role. There are examples where you could just state the opposite. I mean, I understand the point you make, but I just think that also in this discussion, it's all about differentiation. And this whole idea of hidden champions is that this niche, especially if you become a global player, is huge. And you also can take a tech industry like Tron with laser technology, or, I mean, there are so enormous amount of examples.

David: But there's not a single example of that in insurance in that sense, because you don't have global niches there. And you have, like in Germany, niche players and in the different markets, but it's extremely hard for a German niche player, which you have, like Hook, one could argue, you know, they're big, they're extremely good, but it's extremely hard for them to go outside Germany with that. And there you also see, and this is maybe the answer to your starting question, Nikolaus, insurance has quite a different setup from the business logic. If you take a normal student from the university, a lot of the things he learns, an MBA student is not valid in insurance, because it simply works in different ways. We make money on the active and the passive side of the balance sheet. Normally, you can't even read a balance sheet of an insurer when you're educated from university, because what you learn is Handelsbilanz, so that's, you know, industry stuff. The P&L doesn't work that way and so on.

So you train everybody in the understanding of the insurance industry. And that's where it comes from. That's why insurance companies have the tendency to do everything on their own. Because for hundreds of years, and literally hundreds of years, everybody they took in, they had to train in the specific ways of insurance. Because the whole dynamic is different from any other insurance that you have. You might switch from automotive to machinery, from pharmaceuticals to chemicals or whatever. You never nearly see that in the insurance industry. And this is the historic driver why this setup has come. And it made a lot of sense, probably, for the last 200 years.

What you see right now is, given with the driver of technology, there are specialists, there are these niche players that actually are very good in one thing. And you see it, that people are coming together. As you said in the beginning, like the Zurich group, buying in companies like Dentolo, which are specifically good in one thing, in pet insurance. If a big player like Zurich wants to be good in every niche product, it's extremely tricky. So they take in some parts where they are very good at and they take the parts, Dentolo is a good example, because Dentolo is an MGA, they don't have their own balance sheet. They're extremely good in doing the marketing size, selling pet insurance, taking care about the customers. That's where they go. And the Zurich group provides the balance sheet, the capital management and all that stuff behind. And you will see that more and more because that makes sense.

Nick: So again, I follow the logic to say, if my industry is so specific and I need to explain it to everyone, rather than explaining to SAP on how they now need to rework their entire tech stack to make it work for insurance, I might as well kind of do it myself. I see that logic. Plus, there is obviously not being able to expense VATS. VATS also has a strong impetus on extra efficiency that kind of comes from that. What do you think has changed to your tact? Do you feel that the way you can piece together technology with the advent of APIs, with the advent of micro services, that the level of interconnectivity rather than the functional depth of each service, however you want to slice them, has allowed a better mix and match? Because let's say, I think we all agree, insurance does not specifically need a specific digital signature tool. That is probably across the board.

We probably agree the way products work and the way contracts permeate through something is actually quite unique. Having the same stack as Netflix, great company won't be able to run your insurance subscription. But is that a driver? Do you think that also because of venture capital over the last, let's say, 10 years almost, that we've built more vertical stacks and see what they can do in action that insurers can now pick up? So what has changed in your view that insurance executives should take note of rather than signing up to a technology 101 or technology for dummies course?

David: Yeah. I think the first part, I 100% agree. It's the connectivity really, really has become better and better over the last decade or decades even. When I started in insurance, technology-wise, it wasn't possible to actually run a Microsoft product on an Apple. We don't remember that anymore. But in all our lives, the technological barriers between systems were huge. When most of the insurance systems were built, most of the insurance systems come out of a time where you couldn't simply take a photo from your Microsoft computer to your MacBook. So they're coming from a totally different technology background. And that has significantly changed. Today, most of the software that is developed is easily plucked together with other types of software. You have to take some things into account, but generally that works. So that's a huge advantage for that.

And the second thing, yes and no. Probably there is another thing that adds to it. Yes, more verticals have developed. So there are more established or specialised players in certain parts of your value creation. And we have seen that over the last decade as well. Coming up, people that are extremely good in one thing and doing it better than the rest of the industry. And there is one thing on top of that. All the big ones have also extremely good worked on their connectivity as well. So when I'm looking back like five to 10 years, there were no teams that actually were there for the integration of external parts and software. And now you have that. You have the technologically capabilities within insurance companies. And with that changes also the management attitude and the attitude of people within the companies. Because as I said, technology is one thing, management skill is another thing. And all that coming together, I think we see that more and more. We see this combination of different players much more.

Nick: Okay, makes sense. So technology is more interoperable. There it's also has become more vertical, but equally and probably most importantly, insurers have started to develop some of the orchestration capabilities to then manage that mix and match.

Tom: Don't you think that it also has to do with, let's say the status of regulation or also tech systems. So my opinion would be that the globalisation of the whole insurance industry is not there yet because of different regulation and taxation. On the one hand you have global brands, but they are national companies which are just bound together in a kind of global entity, but it's not a global company. So let's say producing cars and selling them everywhere. That's just the kind of business which this could take off for globalisation much earlier. So as long as we don't have, let's say more harmonisation on regulation and taxation, it will be pretty complicated. I mean, you can do it with let's say nowadays with also combining a lot of software, et cetera.

But I just think that where globalisation starts in the financial sector is on the one hand, let's say M&A for since a long time and then you see the NEO banks, but insurance is so much more complicated than Revolut or N26, et cetera. So it will just take time. But once you would have this possibility, then I will guess you will have the same development you see everywhere that you will have global brands which specialise on a certain niche and also have a possibility of, let's say dealing with the whole, let's say all different markets. So I don't know if you would have taken as an example, niches Markel is active in, or you would have, let's say insurance for shipping, et cetera, then it's probably a certain niche where you have specialised companies. And if they would have a long-term strategy and focussing on this, I think there will be more competitive and much, much better than a kind of global Zurich or AXA which tries to compete in a certain area. So I just think it's a matter of time.

David: Yeah, you just made the WeFox pitch case. It's exactly the logic where WeFox entered into making this connectivity possible so that actually even within big conglomerates, the different parts, the different countries could seamlessly work together. And I totally agree. Whoever cracks that nut is opening up a multi-billion dollar market. Because if you look at it, we need, what, 20 automotive companies on the world to provide 8 billion people with cars. Roundabout, plus or minus. We have 300 insurance companies in Germany alone for 18 million people. So there is an extremely misbalance in this industry compared to probably any other industry. And it's due to, one thing is regulation. Yes, there's a technology part. And yes, there's also tax and financial regimes which are different. But it's extremely, because it's one of the biggest industries on this planet with $5.7 trillion, I think right now. They're three times bigger than the automotive industry. But nevertheless, no big American player manages to really get a foothold in Europe. And no big European is really taking over in the US like you would have in any other industry. So there must be very strong barriers to do so. And technology is one of the real strong barriers to build an adaptable connected technology between different markets. That would be, as I said, worth billions probably.

Tom: But do you think it's already one market or not?

David: Well, actually in other industries, the market is not really totally one as well. But at least for Europe, I would say the markets are close enough that you are able to do the insurance part from one country and really distribute it throughout Europe. By the way, WeFox does it with one insurer in Liechtenstein distributing, I think, to eight different countries right now. And some others doing it as well. But if you take a big one, if you go to the Allianz, AXA, Zurich, Generalis, they actually run, I don't know, 20-25 factories throughout Europe to provide insurance for the European market. If you would go to Volkswagen and tell them, hey, please build the cars for Poland in Warsaw, for Belgium in Brussels, for Germany in Wolfsburg, and so on, the managers would probably look at you in a very strange way.

Nick: What other barriers do you see for, you know, one global insurance, truly global insurance, let's just call it brand, because I think branding is feasible, if you wanted with the caveats of that branding, but like an insurance factory or, you know, tech enabled operations, is it just what other barriers do you see? Because it wasn't for lack of trying. And at least from the outside in some non-inconsiderable investments. It wasn't that someone said, let's build this factory for 50k, you know, people were burning shareholder or policyholder money and then cancelling the projects. And there were smart people involved and, you know, at Allianz, at AXA, in various start-ups. So what else is missing, you feel?

David: Yeah, the first part I'm not going into is that technology that we still haven't cracked enough to move technology from A to B. The second one is regulation. And it's probably a bit on purpose. I'm always saying that regulation, looking from a European perspective, is a disadvantage and an advantage in itself. And by the way, the same is true for the US, because the US is not a single ruling regulation. You go state by state, which actually makes it extremely troublesome to enter the US market. Yeah.

And there is, in insurance, something start-ups also underestimate, as I said, as you need very huge operations and a lot of capital, and especially you gain a lot of advantage having a lot of capital backing you up. Entering a market is extremely tricky for newcomers, if you want to play against very big established companies. And that's, as I said, the balance sheet works on both sides. We always tend to forget that in these discussions. We always talk about the insurance side, the passive side. No one really, in all the start-up scenes I've ever talked to, talked about their active side. They don't do it because they don't have money. But if you then take the big players like the Allianz and the AXA, they have a huge active side. They earn huge amounts of monies on their active side, which they can use to build technology, build systems, set up customer services, and so on and so forth. And, you know, want to play against a player that has thousands of billions of euros invested, that's extremely tricky.

Nick: Go ahead, Tom.

Tom: This is also something which I don't find very often in discussions. So if you would keep it very simple and say, OK, what's the amount of money you have to invest to acquire one insurance policy? And when will you get it back? And what's, for instance, your combined ratio, et cetera? You could only see, if you just take one client, how difficult this is. And then on the one hand, it's very difficult to get into these markets because you need an enormous amount of money, which is totally different from other, let's say, sectors. And the other side, you have big incumbents, which have built this kind of portfolios over a hundred of years, sometimes, more than a hundred years, et cetera. So which takes an enormous amount of time before they will lose those market shares.

David: Yeah it's exactly the same. And growing too fast is, again, a very dangerous thing for an insurance company.

Tom: You can't finance it. Yeah. Or you have to do a finance round. But then, I mean, that's also the WeFox case.

Nick: And I think that's probably where it's different than selling cars, is you probably understand your unit economics quite reasonably well. You don't need more capital. But also, there's a tipping point of more business usually means worse loss ratios. I mean, as soon as you stop being... It's very hard in insurance to aggressively grow profitably at the same time, just the way underwriting works, because each unit... And loan books are similar, which is just a little bit differently than as long as I earn my contribution margin, I'll just chuck more at it. With insurance, this can kind of turn sour. What my key learning from observing all of this was actually not so much about technology, regulation. OK, funding I get. It came really down to trust. The reason why it's so hard to internationalise is flowing back from the customer. It's about trust. And the trust is actually very rarely with the insurance brand. In Germany, maybe Allianz, Hook, they are insurance brands, if you ask some people. But it's really about the intermediaries that hold that customer trust.

It's the distribution channels that build that trust. That's, you know, Tom with MLP, where it's on personal connexions, etc. And these are really difficult to misplant, to uproot somewhere. And they have a huge impact on what type of business they push your way, whether the business is good. And so I always thought that was one of the key barriers to scaling that you... It's really expensive to build up your own sales force and gain that trust. And you need lots and lots of patience. And if you're just plugging yourself into an existing independent agent or independent broker network, these guys know how to play that game. And they’ll come renewal cycle. So I always thought that that was one of the key barriers for truly scaling an insurance company. Just out of interest, why wasn't this like top of your list?

David: I think it's a very important point, because I would like to elaborate a bit, because what you were just telling is, actually a lot of the value creation of an insurance policy actually stays with the sales function. Let me call it that way.

Nick: Yep, that's what I seem to be learning. And some private equity investors and stock markets seem to be, at least that's where the train is currently going, seems to be. So some people seem to agree.

David: Yeah, right now, there's a lot of money flowing in, especially the consolidation of sales power. And that's true throughout Europe. That's one of the hottest topics, because a lot of the, as I said, a lot of the value creation is actually kept by the sales function. And that makes tonnes of sense, as you said, because the trust is often there, the customer interaction is there. So it's probably good in that sense. Nevertheless, you have to have the other part. Yeah, even if you're the best salesperson, if you have no balance sheet to put your risk on, there's no business. So you have both like arrears, and the one that is moving faster is the sales arrear part. There you see different success stories, sales organisations coming up, developing, and so on and so forth. And there is the balance part.

As I said, it's this diversion, the different parts of insurance, which you have to manage if you're an insurance manager, which is quite different from other industries and has quite different timing issues and logics. So if you want to manage a balance sheet right, you probably have to have a view of decades more than quarters. If you want to manage sales right, you probably have a timing of better today than next week. And this makes it very tricky. That's why you often, and that's also very interesting and very underestimated, that's why you often have different organisations and different organisation types. And I had the discussion with some insurance CEOs. They were not happy with me saying that, is that insurance companies are generally not good in selling, in running sales organisations. If you take the most successful sales organisations in nearly all the markets, there are independently led. So let's say Generali and DVAG. Let's take the MLPs and so on and so forth. If I would make a ranking of the top sales powerhouses in most of the markets, most of them are not tight sales organisations of insurance companies.

Nick: And I think, I would tend to agree. Equally what's interesting, if you're at least in the German market, if you're looking at one of the key assets that insurers need to create in order to grow profitably, it seems to have your own tight agent organisation is one of the key assets. And if my conversations are in any way representative of where the current flavour in the market is, it is building out on this kind of, you mentioned it, direct insurer. I think it was your previous employer who was beating the drum on that quite heavily, direct insurer. And it kind of made sense, from an MBA perspective, it kind of made sense. Why do you need these tight agents? And especially on a fixed salary basis, let's verbalise everything. But that seems to be one of the key assets for insurers. And for me, a key learning, sure, work with independent organisations. Sure, if you can get a piece of the action and invest in DVAG, and that's a decent investment, great. But what that means is, you will not capture one of the bigger parts of the value creation. And it's not just the number of business is different; you'll get less profitable business. Because that's what these, isn't that what these channels...

David: Maybe a bit of difference, because exactly the case that you're making is what I said in the beginning of our talk. Generali and DVAG is an interesting example of actually partnering, outsourcing in a way, they're interconnected. Big part of the DVAG is actually owned by Generali, don't forget that. But it's nevertheless, it's an independently run organisation. It's one, and we probably can agree, it's one of the most successful sales organisations in Germany.

Nick: It seems to be like that, yep.

David: And Generali is, if you take the technical values, and that means like core and so on and so forth, the most profitable one of the big ones. So there you exactly see the logic, both sides concentrate on what they're good at. And in Generali, there's always been technical expertise.

Tom: I would also differentiate there. I mean, that's my field, sales. I would differentiate in; let's say Germany, and DVAG, which is to my point of view, all type of sales organisation. So it's much about motivation, bonus system, sales techniques, et cetera. That's the old world.

The modern world, to my point of view, would be more to Anglo-Saxon independent, independent financial advisor type of organisation, which also, let's say, take the example of the Netherlands. From a regulatory perspective, if you do mortgage advice, you are not allowed to be paid by the bank. Now you're paid by the client directly. It's fee-based advice. And if you then see the efficiency of the industry, the costs for the clients, but also the profitability of all those players in this value chain is also much higher. And that's to my point, much more interesting and also more future orientated.

So let's say if you have a lot of digitalisation or also new players like Amazon or Google, et cetera, then this old type of sales organisations, there will really a difficult new discussion going on. And also if you have difference in regulation where for instance, you have to show the clients what you earn or what I just explained that, for instance, in the Netherlands, you're not allowed as an advisor to get money from the one who provides the product. So I think it has to do on the one that has to do that you offer the whole market, then you have much more innovation and then you have standardisation of let's say the technical infrastructure in the value chain.

And these are the drivers. And I think the big question will be, are there, and that's your point more or less, are there players who have a technical focus who would, let's say them from other fields like Google enters into Google Pay and Apple, et cetera, will they move into the insurance space after they have moved into the banking space. And then Nick could be correct again that players like Amazon and Google, they have the whole value chain and they take also the sales margin at the end because their technical superiority is so advanced that people would perhaps buy a household insurance directly in their Amazon app. And then Nick would be right again.

David: Yeah, well, one of the things that you said, maybe two things I would like to say to that. First of all, I totally agree with the last part. And as of today, probably Google is one of the most profitable insurance players in Europe. If you think about out of the value creation of insurance who actually takes a huge chunk, a very profitable chunk, actually Google is one of the companies that takes out of the value creation of insurance one of the biggest chunks and one of the most profitable chunks. And that's throughout Europe, no matter where you go. It's one of their core business elements that's also a reason why they're actually not so easily going into insurance themselves because they're actually making tons of money out of it already. So that's true. And again, you see, you focus on one specific part of the value creation of insurance.

A company does that, Google. We're good in making this first search thing. And there you really distract a lot of value without having the hassle of the rest. That's one thing. And the second thing is this deviation of Europe. There is a line within Europe. So I'm over or easily simplifying it here. There is the Southern Catholic part and the Northern Protestant part. In the Northern Protestant part, as you said, UK, the Netherlands, and so on. You're not allowed to take money from the product provider. But there you have the same logics that building out. For example, in the Netherlands, there's Tufts that focusses on a specific thing.

Distribution is done in a different way. And they're extremely good and extremely efficient in what they do. And they take out a lot of the value creation. And that is my general thing. If I look at these different markets, no matter how the regulation is, there are these players that focus on what they're really doing well. As I said, from the DVAG, and that might be old school, but as of today, they are doing a fantastic job taking a lot of value creation.

Tom: Yeah. But I think Nick is right. Let's say for the simple products on the long run, let's say Amazon and Apple, they will just add insurance in there. For instance, Apple will just add an insurance app for the households in their Apple Pay accounts. That will be just one of the next steps. It just depends on what's easier and where can you earn more money. And if they earn in another field more money, then they will just keep it for as a future opportunity. And then the complicated stuff, and that's the thing I wanted to say about IFAs. If it's about wealth planning or financial planning is more complicated, then you have this Anglo-Saxon model of holistic advice.

So I would just make a bet on, depending on the innovation in the value chain, like Amazon and Apple, that also DVAG will have a difficult time in future. And let's say the very specialised IFA who is specialised on dentists or, I don't know, lawyers, et cetera, or a very specific topic, will have a much higher chance of surviving future developments.

David: Yeah. And again, there, I would say it's not this extremely black and white. I believe that, and future prognosis have, as I said, always been wrong. So I don't like to go into that.

But what you have seen so far is these developments are all true. And I also believe in embedded insurance. There will be future markets in embedded insurance, but there will still be markets for classical like tight agent logics. There will be independent advisors and all this different type of things. Because insurance is such a wide field. I remember when embedded insurance really came up and Allianz did something together with Volkswagen.

The perfect combination, the big player and the automotive industry taking over the total market of their automotives. They haven't done. Simply it's not happening.

And it never happened in any of these cases. And of course they're taking a big chunk of the market. And of course they're doing something good. And they're taking specific parts. But as I said, you will have more different players taking different parts of the value creation than the one thing that will happen and take over the whole market. Because it's such a wide field. And especially if you come to the technology big ones. There are one or two different things when I talk about or with the technology providers, the big ones. And I always ask them, you want to take care about long-term patient care if somebody is disabled in an accident. And they go like, no, we don't want, we can't. It doesn't fit on our balance sheet. We don't have the capabilities to do that.

And that's, for example, was also true always about the automotives. The automotives always say, we want to have everything that has to do with the car. And that makes sense for them. But everything that has to do with the human accident, the human part, they don't want. And it doesn't fit in their business model. So there's always this specialised logic on who does what this organisation can do the best. So taking care about the car, and Tesla shows this, might be better with a car manufacturer. But taking care about somebody who's bodily injured, that's probably something that will be staying very long with the insurance companies. And with household, it's the same. Yes, it makes sense if appliances break. And that's easily done by a technology company. Your computer breaks, you get a new computer. But if you have water in your house and you have to rebuild half of the construction side, and then the family has to move out, the furniture has to be stored, there has to be specialists coming in, that is something insurances are much better at, and will be much better for a long time than Amazon and Google.

Nick: Gentlemen, so as I predicted, we won't be able to finish our questions in 30 minutes. I was just looking at the questions that we've discussed. We're still at the first point. Okay. I guess we might have to invite you back, David.

David: Yeah. But I really enjoyed this discussion.

Nick: No, likewise.

David: That's exactly the type of discussion we should have.

Nick: Exactly. And at that time, we might, just for people; we're talking about product innovation. We want to talk about direct insurers, how price comparison sites work. Do they always have to be price sensitive? What projects are currently interested? So it's a long list of, and I don't think we'll manage to scram these in and give them justice in the last three minutes. One thing I was just, as I was listening to you both, would it be fair to say that from this, and it kind of comes back to it, one sensible bet from any insurance company is to invest in, as you've said, connectivity and orchestration, both on the distribution side, because we don't know how much Amazon is going to make. We don't know how much DVAG is going to make. We don't know. We just know that it's going to, very unlikely that it's one. It's just going to be one to rule them all.

And it's a lot about connectivity. And connectivity is not just about APIs. It's about services.

It's about differentiation. It's about customisation of these things to enable that connectivity. And likewise, on the technology and capability side, we ultimately don't really know how good a certain vertical CRM, we just don't know. What seems to be a dumb idea right now is placing exclusive 10-year bets that you can't get out of and focussing on what just works right now with a functional scope that you think, this time, I won't run into legacy problems. That just seems like a dumb idea. So on the tech side; it's focussing, what does that mean? Don't pick a vendor or partner that has more functionality than one. Pick the one that has more interconnectivity that has more low-code, which gets more iterations; even if it means you need to build up the functionality in the longer time, because you will have to absolutely replace parts of your value chain. And likewise, it's very unlikely that the distribution strategy that works today is just going to work in 10, five to 10 years' time right now. But it seems to be we need those timeframes in order to win over customers, to establish market share, because insurance doesn't seem to be a get-rich-quick scheme.

That's kind of what I've gotten from this. Is that fair?

David: Totally. I totally agree with that. I think one of the most important things, and there is an IBM study about this that you have to really incorporate as an insurance manager right now is don't think you know how the world will look in five to 10 years. Be very responsive and actually successful companies throughout the decades have been extremely responsive. And I have to smile as you were saying it, and I have to say that right now, think about what you just said in the light of the current political discussions we have in Germany about this is the right technology and this isn't the right technology. Nobody of us knows what will be the right technology in 10 years. So if you make a bet right now, the only thing you're sure is you probably will be wrong. That's what I absolutely agree.

So you have to, and maybe I add another point. That also means you have to be good at something where we're not good at right now is about screening technology. Being out there in the market, understanding a lot of the developments, having a lot of talks, having a specialised team maybe or whatever that actually screens markets for technology and their usage. What can we do with a specific part of the technology best? So it's not replacing everything.

Tom: Sounds like we need to follow up. Yeah.

Gentlemen, thank you.

David: Definitely would like to.

Nick: Yep, we'll organise it straight away. Thank you, David. Thank you so much. This was, it's a good thing that we were not able to get past the first question. That's what a great discussion is always about because we dug our teeth in. Thank you so much. I hope everyone listening, watching felt equally stimulated. That's what these discussions are for. And to both of you, thank you so much for your time. Have a lovely day. And well, we'll follow up on this. So see you soon.

David:  See you soon.

Tom: Thank you.

Nick: Bye.