Blue Zebra proudly touts itself as a plucky, digital-native ‘insurtech’ readily snapping up market share from Australia’s lumbering insurance behemoths. However, its lineage has deep roots in the world of the incumbents, enhanced through the rich experience and insights of its diverse leadership team – a team that well understands the workings and machinations of Australia’s big-name, and seemingly immovable, insurers.
Colin Fagen, Managing Director and Co-Founder of Blue Zebra, and a 30-year veteran of Australia’s insurance industry, embodies BZ’s mix of relentless dynamism with a true appreciation and understanding of established insurers’ operations, capabilities and heritage.
Fagen speaks with FST on Blue Zebra’s digital-first, PaaS-led proposition to market, why the prospect of greater service personalisation and AI service advancement may be hitting a brick wall, and BZ’s ambitions to take operations global.
FST Media: Tracking the insurance industry across your more than 30-year, highly credentialed career, do you feel today’s insurers are necessarily better, more efficient service providers than their antecedents?
Fagen: There is, I feel, more of a service ethic and more of a want to meet consumers’ needs.
My observation over a 30-year evolution of agencies, insurers and participants is that they do find ways to try to pay claims. You hear of the negative examples, but they’re a small percentage of an extremely large number. And quite often they’ve emanated from specific times – for instance, in response to catastrophes, where the increased workload exacerbates timeliness; this can upset the relationship between the claimant, or the person who’s had a loss, and the insurer.
You’re going to find individual examples at times, but they get exacerbated and used for political purposes. I think it’s improved a lot over that time.
Insurance has an important role to play in society and we should be finding ways to pay valid claims, because that’s what it’s there for.
FST Media: Bigtechs and insurtechs – both at different ends of the spectrum in terms of capability and resources – have promised much in reshaping the traditional insurance sector and challenging incumbents. So, who do you feel has the edge today?
Fagen: Each has different advantages and different opportunities; however, the opportunity pool is there. Big incumbent insurers have advantages through their access to a lot of historical data and information from their own portfolios. With access also to external data, they have something to correlate this historical data against. While some of the newer players may have invented new ways to measure risk, and perhaps new ways to use data to help with risk selection, do they know how to price it properly when bringing in this new information that may not have been used before? It might be extremely relevant and very real in helping with selection and such, but there’s still a question of what the appropriate price is, and particularly with changing covers and evolving exposure.
The big, traditional players also have that advantage of size and history – although this ‘history’ may be decreasing in value as society rapidly changes. The question is, how long will that history be of value? Most big players shrink over time, they go into acquisition mode, then go back into incremental shrink mode.
Smaller organisations – the ‘new tech’ – are much faster and more dynamic.
“These [new techs] don’t have that ‘frozen middle’ typical of larger organisations that slows strategy and the implementation of strategy, and blocks decisions and information going upwards.”
Then you have all the politics of the middle of the organisation not typically found in those mid-sized or smaller organisations.
Equally, though, when those smaller ones all of a sudden grow into billion-dollar companies and build in that infrastructure, they’re often heading in the same direction creating that ‘frozen middle’ that impedes success.
FST Media: Absolutely. And I presume it’s why you see a lot of fintechs and insurtechs being absorbed into or grown separately from a bigger business, essentially siloed and acting as their ‘skunkworks’ or pure innovation ecosystem.
Fagen: That model of a ‘newco’ up the side of a large organisation is, as I see it, the way to progress. You need to keep it isolated from the current organisation otherwise that ability to change and adapt gets squashed by middle management.
I wouldn’t have said this 10 years ago, but I see a ‘newco’ model as a better model for adapting and changing than trying to change an organisation that’s slow-moving and full of legacy systems.
FST Media: Take us through a bit of Blue Zebra’s current proposition to market. Being there at the company’s inception, what inspired its founding?
Fagen: The idea behind its creation emanated from our extensive insights into the large players’ strengths and weaknesses. Indeed, most of our senior managers had come from large insurers and understood the strengths and weaknesses of those organisations, as well as the maximum speed they could go at versus the maximum speed we could.
We respect them and we see both sides.
We believe that the weaknesses [in incumbent insurers] are there to be attacked and their strengths may not stand the test of time.
And, again, a small organisation growing within a $60-$70 billion industry is a decimal point in their equation, so it enables us to be fairly flexible and to move quickly.
We’ve been able to grow our business rapidly; we should turn over around $250 million in premiums this year. We’re very much focused on the intermediary market and we believe in the advice model – that’s important with the level of financial literacy in our community. It’s about ensuring people have the right coverage. We don’t write policies trying to find ways to exclude covers; we prefer to have the right policies in place that pay the right claims at the right times.
We also see an opportunity to help brokers/intermediaries protect and grow their personal lines portfolios, which is about half the Australian market, and from there also cross-sell into the SME market, where they already have a strong foothold. We want to help them cross-sell back into the personal lines areas and grow their portfolios and look after that customer relationship through all the different products that their customers may be buying.
FST Media: You have a unique digital-first, Platform as a Service (PaaS)-led foundation. How has BZ’s technology base supported its growth objectives?
Fagen: We’ve built our own systems. We feel very comfortable that our systems are much more efficient than [established] insurers and we’re able to interact with intermediaries in an efficient and effective way.
We know that our referral rates and the number of policies that a human has to touch in our portfolios are far fewer because of how we’ve created our systems. We make extensive use of external data to match our pricing, for instance. And we believe that we can help intermediaries innovate. A simple example is when we first started and introduced our household policies, we had a Home Business Extension policy for a home business. All of a sudden, this became an issue over the last 12 months and we’ve had that policy in place for around five years now.
It’s easy for us to evolve and build that front-end because we’re fast and efficient – we’re able to make decisions and changes quickly.
Our $250 million business, we manage that with approximately 40 people.
We’re able to evolve quickly and continue to expand the business. The average level of industry and technological experience in our team is very high.
FST Media: Blue Zebra proudly touts itself as an ‘insurtech’. Being a tech-led proposition, how do you feel insurtechs are driving the creation of a better insurance sector?
Fagen: I would turn that statement around. It’s probably because of our heritage as an insurer first.
We’ve all come from billion-dollar businesses, so we’re not frightened of large businesses and scale. We created Blue Zebra using the old Covey statement: Start with the end in mind. We want a business that will turn over a billion dollars with 40 to 50 people.
You build systems for scale and you make decisions very early on, because if your middle managers are thinking they can throw people at issues to fix them, they make the build of the system for that level of scale and inefficiency. That’s difficult to retrofit into a large organisation, because middle managers don’t like letting go of their kingdoms.
We started with this model and we see it as a huge opportunity to be more efficient and more effective. In time, this feeds into your pricing. If you have an expense ratio materially less than your competitors, that assists with the overall pricing regime. Taking that insurance experience to that level of scale and building the systems – and not people in huge numbers – to cater for it, means that we’re able to scale up quickly.
We’ve built a whole policy administration system. We know the system does the roles of multiples of people in large companies.
We can build new products in 30 to 60 days, bring in underwriting rules and changes overnight, and come in with pricing changes every day of the week if we need to.
That ability to move at speed is important, and that’s where we see a big opportunity to evolve and continue to be dynamic.
Our system is usable by insurers if they wanted to buy or lease the system; if they’re running a billion-dollar organisation, they’d find that their efficiency gains would be quite material. The organisations that have looked at the system as a whole and worked with us to meet their needs will make more headway. Those who have tried to segment with micro-innovation, they’ll have trouble competing, because the innovation gets buried in the middle of their organisation. It gets lost in the overall value chain and gets difficult to measure.
Again, in big organisations, middle managers tend not to adopt innovation very well. That’s the reality of the culture of the larger players: it’s the strength for financial stability; it’s a negative for innovation.
FST Media: BZ’s PaaS offering, Blue Leopard, forms a key part of the company’s offering, with BZ investing in a major revamp of the platform in 2021.
Give us a taste of the power of the PaaS to improve and innovate BZ’s, and your partners’, front-line services.
Fagen: We did a material amount of work in 2021, but we’ve actually re-platformed totally this year – and we’re rolling this out in the next six months!
We do a lot of work with Steadfast on the SCTP platform for personal lines, commercial motor and a soon-to-be business package. We’ve therefore done that first and will then roll out the innovation in our own platform, Blue Leopard. The idea behind that is, again, to create more scalability and speed across both platforms.
We’ve built a multi-tenancy system. The whole idea of this is to cater for more external PaaS sales of the system to other organisations, which we’re looking at on a global level, not just in Australia. Again, our build is region-agnostic; it’s low-code programming, so you’re able to execute product delivery extremely quickly.
The API connectivity we’ve built is, we believe, as good as anyone’s in the market.
It’s a microservices architecture, so we and our customers can choose segments or change parts of the system quite independently if we or they need to. This doesn’t impede us from doing work in other parts of our system concurrently or having to leave other components alone so that delivery isn’t affected in any way.
We’ve expanded quickly while making a profit for our underwriters – we’ve got more than 100,000 customers with our 40 people, and we’re very comfortable working with high-volume, lower-value products.
FST Media: Looking more generally, what emerging technology do you feel is having the most impact on BZ’s operations?
Fagen: For us, it’s how we continue to build on the AI/ML aspects of our business and combine them with experienced human knowledge. We will develop to scale up and expand our risk appetite while reducing further referral underwriting. This will, in turn, enable Blue Zebra to progress into new parts of the community for underwriting different products.
We’re really looking to build a model of continuous automation, delivering incremental improvement in how we run our business.
It’s not just making step changes in specific areas, but continual efficiency gains; continuous automation creates that next level of scale, so that we can grow by, say, $50 million to $100 million in premiums per year.
FST Media: Do you feel BZ is well placed to adopt AI and ML ethically, avoiding certain biases that can come from incomplete or compromised datasets or dodgy algorithms?
Fagen: I’m a little on the fence with this [in terms of collecting personal data from customers]. Some people say that we shouldn’t be asking more questions, and that there should be stricter privacy management. But what gets lost in the debate is that, quite often, a proportion of the population wants to keep certain things private and normally they’ve been cross-subsidised by the majority of the population. These individuals are often a worse risk than average. If you don’t send the right price signal to them, they don’t make the right decisions or they continue to non-disclose. If that happens, the Pareto principle stacks up: 20 per cent of the negatives drive what happens to the other 80 per cent of the population.
As long as people say ‘No, you can’t ask those questions! You can’t use that information!’ somebody else is going to be paying more for it – literally, the majority of the population will pay more for it.
I’m not trying to take a political position in any way, shape, or form! However, let’s look at a simple example in Europe where the law prevents underwriters from splitting on gender – pretty much every statistic I’ve ever seen is that females are better drivers than males.
If you’re not allowed to use this data or price differently on gender, the simple mathematical outcome is that women must be comfortable being charged more than what they otherwise would have been charged and men can be charged less than what they would have otherwise been charged, as a rule of thumb – that’s economic logic.
They’re the fundamentals of insurance, unfortunately: a small part of the population at a point in time has claims versus the others. But, if it’s relatively predictable, and you continually do have these claims, I believe people making these claims should be charged for it.
FST Media: Looking more personally now, how would you define your leadership style and how do you seek to get the best out of your staff?
Fagen: I try very much to float around at a high level and let the team get on with doing their work.
My job is to guide, adjust and think of what we need to be doing in the long term. Again, I go back to the Covey statement and ask, ‘Where do we want to be in five or ten years?’
The very capable individuals I work with can get on with their day-to-day activities with little input from me – unless they want it. I don’t try to get involved in the micro detail, ensuring individuals have the room to move and evolve. But my role is to ask, ‘What is the end game?’ – ‘What is X?’ – because there’s never one way to achieve X. They’ve all got better knowledge and better experience in certain areas than I possess. My role is to try to bring the team together and get the maximum out of them, and then to use my experience at higher levels to guide through and move the organisation as a whole to the next target as quickly as possible.
Finally, I enjoy change and dynamic environments.
Some people use the terminology of ‘being a farmer’ in their business. I’d never just sit there and work over the business gradually – it’s just not in my nature.
I’m always thinking, ‘How do we drive it to the next $100 million or $200 million in growth while delivering to our customers?’
FST Media: Who is your professional hero and how have they shaped your thinking as a leader and innovator?
Fagen: Without wanting to name any names, the ones who’ve gained the most respect from me are those who’ve been able to grow international businesses from Australia, move it to a multitude of countries, run change programs and produce extremely good results for their customers and their shareholders. I have worked in global roles and it’s clear the complexity does go up a lot, particularly for Australian-based organisations, due to simple time zone differences as well as being geographically a long way from anywhere.
I’ve gained a lot more respect for people who’ve grown international businesses out of Australia.
FST Media: So, would you like to see Blue Zebra go international?
Fagen: We’ve already started some discussions overseas. We’re happy to take that slowly. We want to ensure that we absolutely nail down our next Blue Leopard Version Two platform rollout in Australia. We see tremendous opportunities with our system that’s been created for this reason – international expansion.
Again, a few of us at Blue Zebra have had global roles previously, so it’s something we’re more than comfortable managing and exploring further. ■
Colin Fagen was a featured speaker at FST’s Insurance Summit, Sydney 2022.