Unlocking new verticals to empower embedded insurance 2.0
w/ Paul Prendergast
For this Talking Edge session, we were joined by Paul Prendergast, CEO at Kayna. Paul is a serial entrepreneur and former winner of the Deloitte Fast 50 for the fastest growing technology company in Ireland. He co-founded Kayna with Peter Bermingham in October 2021. Their previous venture, Blink, founded in 2016 and acquired by CPP Group (AIM CPP) in March 2017 delivered the world’s first real-time resolution flight cancellation insurance product and was the only Insurtech as part of the first cohort of the FCA’s sandbox ‘safeplace to innovate’ programme. Paul led the company to make TheINSURTECH100 for 2019 & 2020, an annual list of the worlds’ most innovative Insurtech companies and was selected for the fifth cohort of the prestigious Lloyd’s Lab innovation accelerator programme in 2020 focusing on parametric Business Interruption insurance solutions.
We’ll be discussing about:
- The Kayna journey (how it came about, key milestones, key learnings)
- The democratization of insurance through embedded insurance 2.0
- The future of insurance in the economic context
- …and more
[00:00:11] Prit: Hello. Good afternoon and welcome to Talking Edge, a podcast about the companies that revolutionized the financial services sector from within. I’m your host Pritesh, chief executive at Assure Edge. As a reminder, Talking Edge is a spinoff from our previous podcast, Talking Hedge, where we focused our conversations towards those involved in the hedging space.
We’ve moved to a broader topic as a company in that we’re now interviewing the founders and leaders of those companies that are also democratizing financial services and making them available for any business or individual. We hope that they give us some insight and share stories from the early beginnings for the successful companies that they are building or have become.
For today’s episode, I’m very lucky to be joined by Paul. He’s the co-founder and CEO of Kayna. Kayna works within the really interesting embedded insurance space, and is one of the largest opportunities as we know within the whole sector of embedded finance. It’s not his first rodeo. Paul is a serial entrepreneur and former winner of the Deloitte Fast 50 for the fastest growing technology companies in Ireland. He founded Kayna with his partner Peter back in October 21. Their previous venture, Blink, was founded in 2016, and was acquired successfully by CPP Group back in March 2017. It was really interesting because it delivered the world’s first real-time resolution in terms of a flight cancellation insurance product, and it was really the only insurance tech product as part of the first cohort of the FCA’s sandbox in terms of a safe place to innovate programs, which Assure Hedge was part of itself.
Paul led that company to make TheINSURTECH100 for 2019 and 2020. That’s an annual list of the world’s most innovative companies within the InsurTech space. He was selected for the fifth cohort of the prestigious Lloyds Lab Innovation Accelerated Program in 2020, focusing on the business interruption insurance solution.
Paul, thanks for joining us. Maybe to get started, it’d be great to hear about the early beginnings of Kayna. I know it’s still a new stage company, but it’d be great to hear why you started it, what the inspiration was for this business.
[00:02:35] Paul: It’s quite interesting. Myself and Peter, this is our third InsurTech. We’ve been working together for 17 years now in the InsurTech space, and it’s interesting how it’s evolved over time. As you mentioned, Blink we started in 2016, it was a parametric business based around parametrics old, data driven. One piece of data, if that happens, you get paid. There’s no third-party administrator involved. We built some very interesting small business insurance products, parametric products. When we finished up after CPP Group, we had had some exposure in small business insurance and we thought that was a really tough nut to crack. Our job as entrepreneurs is not to run away from the fire, but to run towards the fire to try to fix something fairly material. That’s what we’ve set of Kayna to do.
Some really interesting stats when we started to understand it a bit more, if you take the US market, 40% of small businesses have no insurance, and 75% of the rest are massively underinsured. The frightening term we hear day in, day out is they’re unknowingly underinsured. They don’t know they have the wrong insurance, and they only find out when they make a claim. You’ve got to remember, when we were thinking about the next business, COVID was at its height and the issues around business interruption.
You aall these huge media stories, these small businesses going, we thought we had the right cover, nobody told us, and we now know we didn’t. That was the core idea for Kayna. I come from a long line of small business people and entrepreneurs, and it’s a really tough space. If Kayna can help in any way to ensure that they’ve got the right insurance, and make it better for brokers and insurers, and make it better for the whole ecosystem, we’d be very happy at the end of this particular project.
[00:04:37] Prit: That’s interesting. Some of those stats are pretty crazy when you think about it. What is Kayna doing in simple terms? Or what is embedded insurance, even for those joining, what is this?
[00:04:51] Paul: There’s your traditional embedded insurance. Like if you go onto Rhino Air, the embedded insurance 1.0, you go onto Rhino Air, you’re buying your flight, and then up pops, would you like to buy insurance? That’s the first wave. It’s been there a while and a lot of companies have got a product and they’re looking for digital platforms to sell it through, whether that’s Amazon or Rhino or e-commerce platforms or whatever that may be. That’s been somewhat successful.
I think Kayna and a number of others are pushing embedded insurance the next wave. That is about taking data from the platform. The platform of course it’s distribution, but it’s much more than distribution. It’s unique data, and that’s who we work with. The sector we work with is called vertical SaaS platforms. The days of a small business using six or seven bits of software to run their business, one in marketing, one in finance, one in inventory, et cetera, that’s going. It’s being replaced by pieces of software that are really comprehensive for very narrow verticals. For example, Glofox, fantastic Irish company, all they do is build software for gyms. They were sold for a couple of hundred million dollars in the last couple of months, wmazing business. Then you’ve got the likes of Cleo, all they do is write software for lawyers. Then you’ve got the likes of Toast. This is happening at only the last 5, 6, 7 years has vertical SaaS.
With our insurance hat on is, all the data that we need. Because if you say all we need is more data, just ask the small business for data. They’re too busy trying to survive. Our approach is, where’s the data today? They start, say with Toast, if you’re running a restaurant, do you open your restaurant at 9:00 AM in the morning, getting ready for the launch trades? You acquire customers, manage staff, manage inventory, get payments, et cetera. The whole financial and operations are done on that platform. Then you are able to use that data to ensure that the restaurant has the right insurance, day one.
Then right now you’ve got static insurance and you’ve got an ever-changing business. If you embed it directly into the software platform, you hire 20 more people, you need more workers’ comp insurance. Your turnover has dropped, we can save you on insurance. But it doesn’t work in the current model because it’s too expensive to ring your broker. Nobody thinks about it, the broker can’t reach out. They just don’t make enough money to have that level of engagement with the small businesses. Whereas the software platform has all the data we need to ensure that you have the right insurance, day one, but also your insurance equals your business over time. That’s it in a nutshell.
[00:07:57] Prit: Is that what Kayna does different?
[00:08:03] Paul: Yeah. That is the big difference, is that we are the only InsurTech business that’s 100% focused on vertical SaaS platforms. They haven’t taken over the world yet, but that’s where the hokey pokey is going. Our job is to build 100% optimized InsurTech for vertical SaaS that allows them to leverage their data to provide their customers better insurance.
[00:08:30] Prit: It sounds like a very clear vision for the business, which is always key. You mentioned Wave 1.0 and things like this, but if I call this Wave 2.0 you might correctly say it’s Wave 7.0.
[00:08:47] Paul: No, 2.0 is good.
[00:08:48] Prit: Let’s say it’s Wave 2.0., and this being your third InsurTech business, is it the data play that is different? Why is it gonna work now?
[00:08:58] Paul: That’s a great question. It’s all about the data. Every InsurTech we’ve built, it’s all been about data, and that’s evolved over time. We’re not going to be a regulated entity. We have very different view than a lot of other InsurTechs. A lot of InsurTech said, we’re going to disrupt all aspects of insurance and take over the world. We like working with incumbent insurers. We love working with brokers and we’re working with all those folks at the moment. They know the insurance of all these different verticals.
But the bit that we bring is the ability to build a strong technology product that makes it really easy for vertical SaaS platforms, and to leverage all that data. We’re that embedded orchestration layer between the brokers/insurers, and the vertical SaaS. Our last integration with the vertical SaaS platform took four hours. With the insurer broker, they don’t have to start any technical project at all. It can be as manual as they want it to be, or if they’re somewhat sophisticated. That’s music to their ears. But they focus then on what they’re really good at, whether that’s underwriting and really understanding the customers and the sector. We’re that enabling layer, if you like.
That’s a very different approach. You see a lot of InsurTechs going really narrow and really deep. That’s where Kayna started, and over time as we saw the opportunity, we said, no, we’re going to go wide and across all various different vertical SaaS platforms and be that enabling layer, which is so far so good.
[00:10:36] Prit: Interesting. Our office is in Liberal Street near the city, and last week I met with some advisors who are helping us with a fundraise next year. One comment I got when asked how business was, they said, “there’s one part of the city behind me, which is the insurance sector, which is absolutely booming with what’s happening with the interest rate.” there’s so much growth, it’d be really interesting to see a tech platform like yours captures that growth. It’d be great to see that. In terms of what Kayna is doing to maybe democratize embedded insurance for the SMB sector, what is that? It’d be great if you could take us through that.
[00:11:13] Paul: Sure. If you look at providing insurance to a very large enterprise, Coca-Cola or a large couple hundred million company, you’re going to have risk managers and a lot of insurance professionals spending a huge amount of time understanding that business. The reason is very simple, there’s enough money in that deal to spend a lot of time. Whereas if you are a restaurateur or a Solano owner leads, the commission is very small. What we’re doing is all the data they have in these software platforms, we’re able to give them a personalization and bespoke level of insurance driven by their data on the software platform, which is very similar to what the big guys get, but that’s done through lots of people going in and ripping apart all the data and getting all the information.
Right now you’ve got a situation where if you’re a small business, you say, I want this insurance policy, there’s your one-size-fits-all. Like gyms, perfect example, there’s 30 types of gyms but there’s one insurance policy. ‘Sorry, but that’s what you’re getting, would you want it or not?’ Whereas with this type of approach, you’ll be able to personalize a lot more, and you could do that because it’s data driven, it’s technology driven, and the numbers stack up to start segmenting and personalizing. You’re able to the actual insurance that you need. Then over the lifetime of your policy, if your business changes you don’t have to think about it. We’ll be able to prompt you and say, “Hey, you’re after hiring eight more people, you need to spend 50 quid more this month just to make sure you’re covered.”
Yu’re going to have the same level of insurance personalization, bespoke level that the big guys have. I suppose that would democratize it, I would imagine.
[00:13:13] Prit: I can see how that would be hugely appealing for a customer. Even our own experience, we’re a FinTech that’s doubled, going through recently we need to do this and this, it hard.
[00:13:24] Paul: Yeah. Painful. That’s typically the research, they just go, it’s a pain. When it comes to renewal, from a broker point of view, and the brokers are great people but when they ring up their customers for renewal, they just go, how is business in the last year? It’s not a great place to be. Whereas with this if they’re selling this through this platform, they know exactly. If they’ve got 1000 customers in a certain line of business, they’re able to say, well, 930, it’s steady It’s block and tackle. No major changes, that’s fine. Renewal letters can go out. With these small over here, massive changes. Good God, we need to get people down to understand what the changes are, to make sure they have the right insurance et cetera.
Then from a broker point of view, if this small business then decides, I don’t want to change my insurance, that’s fine, but they’re doing it and they’re making a conscious decision. From a conduct risk point of view for brokers and insurers, that puts them in a much stronger position.
[00:14:33] Prit: Is this a major trend you’re seeing in embedded insurance? You mentioned though there’s not a lot. Is this something you’re seeing, or are there other main trends that other people are tackling?
[00:14:45] Paul: Yeah, there’s some really interesting embedded insurance 2.0, we call them, companies. Anansi is one. We just finished the Lloyd’s lab Last week. Anansi are a great company, they do embedded insurance into supply chain. They’re a regulated entity, they’ve got very narrow and very deep, taking data from the platforms. It’s all integrated. They’re not just one-size-fits-all, would you like to buy, and it’s a good way to buy it through this platform. They’re actually taking data. Nimblair are another fantastic company in the credit insurance space. Again, they’re embedded into platforms, taking data from that platform.
It’s great to see it. There are definitely a number of very specific players. Our play is quite different in that we’re going across lots of different, we’re not competing with brokers and insurance, we’re actually enabling them. A lot of the people we talk to are brilliant at what they do, but the technology piece is the little bit that they’re missing. We’re literally helping them getting new distribution, et cetera.
There’s people seeing this opportunity and taking different approaches to it. It’s not a zero sum game. This is all good for the whole industry, good for small businesses, so it’s a very positive thing.
[00:16:09] Prit: It sounds like that that trend then is consistent even in the different spec, like people are trying to make use of the data that’s out there and need technology to get access to it and make better decisions. You mentioned there’s not many people that go so proper, is there a competitive landscape for you at the moment? Do you see that developing as you start to build a footprint?
[00:16:28] Paul: Yeah. 100% that’s going to happen. If we talk in a years’ time, I expect to be lots of competitors out there. That’s a good thing. It’s a huge, huge market. Embedded insurance is going to, they reckon by 2030 it’s going to be 500 billion pounds. This is not a small market. The SMB space, they’re reckon by 2030, 60% of small businesses will be getting their insurance via embedded distribution, which is fascinating.
There’s a lot to be done. There’s going to be a lot of niche players, a lot of infrastructure players. Yeah, huge shift in the market. On purpose we’ve taken a very particular niche approach in the vertical SaaS space, and there’s going to be loads of people doing bits and pieces and different approaches. Competition is a good thing. It’s a huge marketer there.
[00:17:25] Prit: You mentioned 60% in 2030. What would you estimate that number is now?
[00:17:32] Paul: That’s hundreds of billions. It’s just enormous, it really is. I think the interesting part, if you look at it, 40% have no insurance. A lot of that is down to I didn’t realize, or I don’t really trust it. Whereas if you are embedding it into an insurance or a software platform they trust, and you’re able to automate the quoting process, they don’t even have to think about, I must get an insurance quote someday and fill a form. We were able to say, your restaurant insurance is $3,000 as you running your business every day.
We reckon we can reduce that protection gap. But also, 75% of small businesses who are underinsured, There’s a massive opportunity to increase revenue for the insurance business, but ensure that they’ve got the right insurance as well. We reckon there’s a great opportunity to make that market much bigger as well.
[00:18:29] Prit: Where do you see the frictions in embedding insurance services? Is it in the customer journey, the tech, the commercial strategy? Or even you touched on rates?
[00:18:40] Paul: I think regulation is going to be interesting. What we find is an awful of vertical SaaS platforms that we talk to, there’s a real cultural difference between a traditional insurance company and a vertical SaaS platform. They’re used to, just give me another microservice, let me plug it in and let me get going.
Obviously, insurance is highly regulated. There’s certain ways of doing things. A lot of software platforms are just very anxious and we sit in that. We’re techstar of folks doing insurance. That cultural piece is number one.
Second is regulation. Regulation is going to be very interesting how that evolves over time. There’s an awful lot of regulation that has built up over the years. But what level, if any, of regulation does a software platform have to go through? That’s something that people are very anxious about as well. I think that will evolve as the regulator looks at this and goes, this is really positive for the small business. They’ll get the right insurance, they’ll be prompted to get the right insurance if their business changes. Trying to make it accessible for the vertical SaaS or the software platforms to sell insurance, but sell it in the right way and give them the right product, et cetera. I think that will evolve over time. But I think as the initial wave of embedded insurance 2.0 goes out, it’ll be interesting to see how the regulator tweaks their requirements. Regulation is a big thing.
Then you’ve trying to get the right insurance. We’re very lucky with some of our insurance partners and broker partners, very innovative. But a lot of not all insurers are like that. A lot of insurers maybe have a more traditional view and they’re going, business is fine, why would I bother trying to do this? There’s getting the right insurance partners, getting the regulations set up, convincing the software platforms that this is doable and it’s not going to be an absolute nightmare from a regulatory point of view. There’s a lot of Lego blocks to put together, and that’s how we see ourselves as enabling all that to happen.
[00:20:55] Prit: Do you you think the economic outlook will change the market for Kayna?
[00:20:59] Paul: Yeah. Unfortunately as things get tougher, people tend to assess and want to manage their downside. If things go wrong and you make an insurance claim, you have the wrong insurance and you don’t get paid that 50 grand, tt’s tough to trade over that if you don’t get that 50 grand. The chance of going out of business in a tough economic environment is much higher than when things are flying and you can just manage your way out of that.
I think a lot of small businesses will probably pause when they get that renewal, and say, okay, we really need to make sure we’re fully covered here? How do we do this, and actually going through the platform that we trust and they have all our data, that’s going to be a really interesting way of doing it.
I think people of course, will want better value. But they’ll want to make sure if something goes wrong, they are fully covered. I don’t think they’ll rush it as much as previous when times were good, where they’d just scribble together the renewal and got the thing and put it away, and it’ll be fine. I think they go, if this goes wrong, things can be quite bad.
[00:22:14] Prit: We all know the problem of trying to buy house insurance when your house is on fire.
[00:22:18] Paul: Yes, that’s an interesting one.
[00:22:27] Prit: We’ve got a few questions. Do big companies and brands that seek to embed insurance into their offer have clarity on the strategy they want or need to apply.
[00:22:35] Paul: Yeah, they do. For the software platforms that we work with, they have a very different view. They’re trying to solve a real problem. In some cases the distribution partners can be quite mercery and say, I want all the margin. We’ve all heard that. Then the insurer gets very little to put into the product, and the product is bad. It’s a bad story.
Whereas the vertical SaaS platform, they want a decades long relationship with their customers. The ones that are going to win are the ones that are going to solve real problems, and insurance is that. That’s the number one thing they’re trying. Because if they can really solve that insurance problem, use the data on their platform, then the small business will be much more unlikely ever to leave the platform or go to their competitors.
Of course, they want to make margin. Everybody does. But the first thing is they want to solve that problem. That’s their main strategic objective, is solving problems for their customers, which is great and we’re very much aligned with that.
[00:23:40] Prit: Great. Do you think that there’s a risk that vertical SaaS platforms will internalize insurance over time?
[00:23:44] Paul: Oh, that’s a great question. To be honest, there are customers, so that’s okay. Right now we’ve seen a number of them build the whole infrastructure themselves because of the frustration with what’s out there in the market. We’re hoping to change that, that they’re able to say, we’re going to work with Kayna then we’re going to work with the right insurer or broker. Kayna will allow us to keep the experience on the platform, et cetera.
There won’t have a bigger reason to internalize it completely and spend millions of dollars. It’ll just be another service like Stripe for payments. But I think if us or similar people like us aren’t emerging, more vertical SaaS will have to spend millions of dollars billing their own infrastructure and their own insurance team. Because what’s out there right now they’re just not happy with.
[00:24:39] Prit: Yeah, that’s a great answer. Are they sometimes challenges in ensuring that the data that you are collecting meets requirements, and how do you overcome this?
[00:24:50] Paul: Great question. Absolutely great question. I was speaking to one of our partners this morning about this. The interesting part is people aren’t putting the data in the platform to get insurance. That’s the key thing here. They’re putting the data into the platform to run their business on a day-to-day basis, whether that’s booking staff in for their restaurant, booking customers in, having inventory. For them to game the system it’s quite a complicated thing.
The second piece of the puzzle is, just as if you go online to buy insurance or give data to your broker, part of what we do is we’ll say, here’s all the data you’ve given us, just confirm that this is all correct and we’ll buy the insurance. There’ll be certain data points that the vertical SaaS platform will never have, that as part of our process we pick up, whether that’s claims or bankruptcy or whatever the insurer or the broker requires. We can pick all that up via our processes, which is embedded into the vertical SaaS platform.
But effectively the small business, like any other route of getting insurance, is basically standing over all the data that they’re providing.
[00:26:06] Prit: Great. We’ve got a really interesting question here as well. How do you reassure companies that are looking to embed insurance, that there isn’t a regulatory risk?
[00:26:15] Paul: Oh, that’s a whole other hour. A number of the insurers and the brokers we work with, this is what they do, they work with lots of partners. One that we’re working with has got hundreds of different types of partners. There are numerous different ways of providing permission from the core insurer, the broker, to the software platform. It can be very, very light, or it could be much more integrated.
The insurance companies we work with are very used to dealing with non-insurance people. Not all the responsibilities are taken for the software platform to insurer, but effectively the insurer is providing their permissions to the software platform in whatever level. They have to have a really close working relationship. There’s got to be a lot of trust there. A good solid insurer isn’t just going to give out their permissions willy-nilly. They really have to understand.
Look, it can start with a very low level of regulatory overhead on the platform, and then move to heavier as they get more comfortable. But like anything else, if you do the right thing by the customer and put the time and effort into it, everything should be fine.
[00:27:39] Prit: Yeah, that makes sense. Like you mentioned, there are lots of partners whose businesses insurance is a natural way for them to be extending commission. One last question, if you don’t mind. I’m conscious of taking up all your time. Can your model be applied outside of the insurance industry?
[00:27:56] Paul: Yes, it can. Like if you look at credit checking, payments, other financial services, absolutely. Look, we’re technology folks, it’s all about the data. We’ve certainly thought about outside. Yes, I suppose it would be the answer.
[00:28:15] Prit: Look, it’s been a real pleasure having you on Talking Edge this afternoon. Thanks a lot for your time, Paul.
[00:28:20] Paul: Thanks, Prit.
[00:28:21] Prit: Is there anything else you’d like to convey to the audience before we sign off?
[00:28:25] Paul: No. I’m wide open to talk to people. Paul Prendergast on LinkedIn, happy to chat to anybody in the whole wider FinTech space.
[00:28:36] Prit: Great. Our next Talking Edge will be in the new year on January 16th, where I’ll be joined by Dave Lewis, CEO of Ranks. the recording from today’s session will be available in next few days, stay tuned on all our social channels. Until then, wish you all a great rest of the week, and thank you for joining us today. Thanks, Paul.
[00:28:51] Paul: Thanks, Prit. Cheers.
High Risk Investment Notice
Trading in leveraged financial instruments such as Options or other financial derivatives, carries a high level of risk and may not be suitable for all investors. Investors who make use of these financial products run the risk of substantial capital losses which may exceed your initial deposit. Assure Hedge (UK) Limited makes no claim or warranty regarding either the appropriateness or suitability of these instruments for your purposes whether commercial or otherwise. Assure Hedge (UK) Limited may provide general commentary or educational material available on its website or otherwise, which is not intended as investment advice. You should carefully consider your financial situation and needs and seek independent advice from a duly authorised financial adviser. Assure Hedge (UK) Limited assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. You should read and understand Assure Hedge (UK) Limited’s Terms and Conditions prior to taking any further action.
Weaving frictionless financial services into every business w/ Alex Mifsud
We discussed the weavr journey (how it came about, key milestones, key learnings), the democratization of financial services, the future of financial services in the economic context and more.
Embedding finance into consumer channels: a $7trillion opportunity w/ Simon Torrance
We discussed Embedded Finance 101, the prerequisites for a brand to launch a successful embedded finance business, how many incumbent institutions are providing banking-as-a-service, and more…
Creating money management solutions for the creator economy w/ Michael Callas
Watch the first Talking Hedge of 2022 with Michael Callas, Senior Vice President of ElloU, by Talenthouse, a virtuoso in fintech and financial services with over 20 years’ experience leading and advising established businesses and start-ups across the globe.