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For Tim Kunde, insurance is ripe for digital disruption. An industry that has so far sat out the online revolution is heading for a Big Bang — and the potential rewards are huge.
“Companies like Spotify are so hyped, but the global music industry only makes $15bn in annual revenues, excluding concerts,” says the entrepreneur. “The German car insurance market alone gets €20bn a year in premiums.”
Kunde’s Berlin-based company, Friendsurance, is aiming to tap that rich seam and shake awake an industry that he sees as the sleeping giant of financial services. “There is vast potential . . . for innovation and digitalisation,” he says.
When he set up Friendsurance six years ago, his inspiration was Facebook, which at the time was making huge inroads to Germany. He brainstormed with a group of friends around his kitchen table to come up with a way to apply the principle of social networks to an industry, any industry.
What they came up with was the idea of peer-to-peer insurance. It is simple: a small group of people, each holding the same kind of policy, say personal-liability insurance, pay part of their premiums into a pool, which is used to settle small claims. If any money is left at the end of the year, the members get cash back. If no claims are made at all, they can retrieve as much as 40 per cent of their premiums.
Michael Tomoff from Cologne is one of many satisfied customers. He paid €1,900 in premiums on his four policies between 2012 and 2015, and received €800 back in cash through the Friendsurance system over that period.
Kunde’s start-up is now one of the leading lights of the burgeoning “insurtech” scene. It has formed partnerships with 70 insurance companies, which offer car, home contents, legal expenses and private liability coverage through the Friendsurance website. Kunde says the number of people who have signed up has now reached six figures. The company, which has 80 employees, raised $15.3m in its latest funding round in March, which was led by Horizons Ventures, the investment fund of Li Ka-shing, Hong Kong’s richest man. It is now planning to expand to Australia.
Kunde, 36, got his grounding in entrepreneurship at WHU-Otto Beisheim School of Management, one of Germany’s top business schools. Its alumni include some of the biggest names in Berlin’s thriving start-up scene such as Oliver Samwer, chief executive of Rocket Internet, the German tech company-builder. “The course was all about finding solutions to problems in business, but not only,” Kunde tells the Financial Times at Friendsurance’s headquarters, a big open-plan office dominated by a vast ping-pong table, in the trendy Kreuzberg district of Berlin. “They don’t just teach you a methodology, but an attitude, too — a kind of business instinct, with an academic underpinning.”
Kunde was born near Cologne into a family with a marked scientific bent: his father is a mining engineer, his mother a nurse. But he always wanted to study something economics-related.
Two factors drew him to WHU’s masters in management programme: the curriculum, which focused on practical work and case studies, and the requirement that students study for at least two terms abroad.
Kunde spent a term in Kobe, Japan, and a full year at France’s EMLyon business school, where his French ended up being so good that he wrote his final dissertation in the language.
Planning the study programmes was simple because of WHU’s partnerships with a range of universities around the world. “All 85 people in my year had at least one year abroad, in Denmark, South Korea, Hawaii, Japan,” he says. “That’s very special for Germany. You can do that at other places too, but you have to organise it all yourself.”
WHU’s masters in management course was biased towards concrete case studies and group work. Students were taught the usual subjects: such as accounting. But there was “not much pure theory, for the sake of theory,” he says, unlike the classic economics degrees offered by most German state universities.
Most of all, Kunde says, the school gave him “a will to achieve”. He adds: “Most people leave WHU with the desire to build things, to put things in motion. You can enter the world of work much more quickly and are ready to act.” The school also gave him a “strong, reliable network . . . that really opens doors”.
After graduating from WHU in 2004 he came to Berlin, drawn not by the professional opportunities, which were meagre at the time, but by a “fascination with the city and all its history and contradictions”. It was an unusual move: he was one of only two from his year of 85 who went to the capital, with the rest gravitating towards Düsseldorf, Hamburg or Munich — big cities with lots of jobs.
Kunde started working for Boston Consulting Group, advising insurance and consumer goods companies on sales optimisation and on how to improve their strategic focus. “But ironically, I ended up stepping back from the insurance practice and doing fewer and fewer projects with the insurers because it just wasn’t very exciting,” he says. “There wasn’t a lot of dynamism in the industry.” At the same time, he built up a sense of “how much you could do there”.
He was particularly struck by the lack of digitalisation. “In the banking world there are now clear interfaces, you can transfer money from here to the other side of the planet,” he says. “But you don’t have that in insurance and whole forests of paper are still sent round the world every day.” Digitalisation could lead to “massive cost savings” for customers.
He left BCG in 2008 and worked at Rocket Internet for a couple of years, heading a travel start-up. But he was keen to set up his own business and soon the idea for Friendsurance was born. Progress was slow at the start: it took a year to persuade the first insurance company to sign up as a partner. “It was a completely new concept for them to get used to and we had to learn how to broker, too,” he says.
The biggest challenge was the innate conservatism of the average customer. “Very few people are happy with their insurance provider or their broker, but very few will decide to sit down one day and optimise their entire insurance portfolio — they’re just too nervous about it,” he says. “So you have to overcome that inertia.”
Private investors began to stump up cash, including a few from the old economy, such as Benjamin Otto, scion of the family behind Germany’s Otto Group retail conglomerate. In the past couple of years, funding has got easier, with inflows from Li as well as the European Regional Development Fund and e.ventures, the venture capital fund.
Kunde says the world of insurance is set for big changes. The advent of self-driving cars should lead to fewer accidents: and when they do happen, it will become easier to establish exactly how and to what extent a car has been damaged and to validate claims, which could mean fewer instances of fraud.
“Our aim is to play a formative role in all of that,” he says. Friendsurance also wants to help make the whole process of buying insurance easier, he says. People who have just moved house should be able simply to click a button and update their home contents insurance with their new address. “There’s a lot one can do in terms of convenience, simplification and usability,” he says.
Friendsurance is one of many start-ups founded by WHU alumni. Other more recent examples include cooking app Kitchen Stories; Evopark, which has developed a smart parking card; Kale&Me, a juice delivery service; and store2be, an online booking service for retail space in shopping centres.
Kunde says most of the graduates from his year in WHU went into consulting. “Now, the newer graduates want to go straight into start-ups,” he says. “It’s become much more prestigious to work for yourself.”