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From steam to sensors and solar: HSB’s tale of reinvention

John B. Riggs, CTO and SVP of Applied Technology Solutions at HSB (Hartford Steam Boiler), describes how the company is using technology to build new ventures and create new business models in the historically risk-averse insurance sector.

A photo of John Riggs wearing a blue suit jacket over a blue checked shirt and red tie, against a gray background

When John Riggs joined HSB in January 2020, he was tasked with exploring how emerging technologies could enable new growth for the 150-year-old insurance company. Advanced technology may seem worlds away from a company that began its journey in the Victorian era. But steam was the foundational, disruptive technology that powered the industrial revolution, and HSB was founded on engineering expertise as well as underwriting. In fact, when Munich Re acquired the company in 2009, half of all HSB employees were engineers and technical inspectors. Now HSB is building on its history of innovation as it expands into IoT, climate solutions, and data-driven products and services.

Prior to joining HSB, Riggs was a principal with PwC US, where he was a leading practitioner in business innovation and corporate venturing. Today, he leads the Applied Technology Solutions (ATS) business at HSB, with three focus areas: sensor solutions (built around Meshify, an IoT subsidiary acquired in 2016); risk solutions (providing innovative coverages and guaranties for OEMs and digital service providers); and data solutions (enabling new business models to monetize data).

Riggs recently sat down with strategy+business to discuss his work in ATS and how he has approached building new products for HSB—and creating new business models. He shared his views on why an ecosystem approach is essential for innovation, and for building agile, robust, and forward-thinking insurance and technology companies.

The following is an edited version of the conversation.

S+B: HSB is no ordinary insurance company. It has technical roots going back to the steam age. Can you talk about how this capability supports HSB’s core business—and opens opportunities for new business models?
It’s interesting how technology positions us within the insurance value chain. We have more engineers than any other insurance company because of our traditional focus on equipment breakdown. So there’s an interesting twist from a business model perspective: large insurance companies write commercial property and casualty [P&C] policies for all types of businesses covering many types of risk, and they cede to us the section of the policy dealing with equipment breakdown. We are in a better position to manage the risk because we have the engineering expertise, and we’ve been doing equipment inspections for more than a century.

This makes sense for the end customer—say, the CEO of a medical center or a restaurant chain, or the owner of a multistory condo—who simply wants to buy a P&C policy. They don’t want to buy a separate equipment breakdown policy. They buy one policy with everything included.

Our client is the primary insurer. In some cases, they want the equipment breakdown coverage to be white-labeled: the policyholder doesn’t need to know that HSB is behind the curtain. In some cases, primary insurers talk openly about HSB, which provides additional security to the policyholder. In almost every case, these client companies are also our competitors. There’s always a chance that they will take the equipment breakdown portion of the policy back from us, and handle it themselves, and we lose the premium.

S+B: This sounds like classic co-opetition—your clients are also your competitors at different times and in different contexts.
There’s co-opetition in almost everything we do. We insure against cyber risks, and some clients have their own cyber policies. We insure against employment practice liabilities, and many clients have their own liability programs. We have to make sure we have the expertise to deliver significant value to them. In technology, we’ve become the outsourced IoT arm of around 50 client companies. They see us as their R&D and delivery organization for IoT.

Remember that traditional insurance is a fairly risk-averse sector. The idea that you’d have a new product that starts on a J curve [earning negative returns at the onset of investment] is a little bit alien to many insurance executives. “Product development” for them is mainly about designing and pricing risk solutions that they expect to drive profitable revenue from Day One.

S+B: And this creates a space in the ecosystem where you can play?
Yes, if you combine that risk aversion across 50 different insurance companies, together they’re willing to let us take the risk of developing IoT products and services. We’ve aggregated it into a comprehensive, growing business.

S+B: Why did HSB get into IoT and sensors?
When I joined in 2020, HSB wanted to focus on sensors as a way to explore and demonstrate what technology could mean for the firm. Our CEO recognized that our core equipment breakdown business was at risk of being disintermediated. If equipment is connected and monitored 24/7, why do our clients and end-users need insurance? So, we wanted to understand the implications of IoT and start developing solutions.

Our sensor journey began with churches. This may seem odd, given that our core business is equipment breakdown, but we spotted a clear market opportunity. Remember that congregations typically gather only once or twice a week. Places of worship are empty for the balance of the week. And often they’re cold when not in use. Water leaks and freezing pipes are a problem.

Early on, we partnered with a primary insurance company that insures religious organizations, to help them mitigate their significant water- and freeze-related losses. At first, we worked with a vendor to co-design a cellular leak and freeze sensor, and then we designed our own sensor because we needed something more robust. For instance, we needed long-range signal capacity to make up for poor cellular coverage, and to penetrate cinder block and steel. Perhaps we never intended to get into the sensor manufacturing business, but you can’t buy commercial-grade sensors like ours on the open market.

S+B: Aside from the sensors business, what else is in the HSB ATS portfolio?
There are three legs to the ATS stool: sensor solutions, risk solutions, and data solutions—in that order of maturity and growth.

Sensor solutions is an IoT-enabled business focused on commercial and personal lines for mitigating losses from leaks, freezes, fires, and perishable goods.

The second leg is risk solutions: providing performance guarantees for digital service providers and for OEMs. Any connected asset can be monitored, and we provide a guarantee that it’s doing what it’s supposed to do, in terms of output or uptime, for instance. This is mostly a B2B2B play. We provide contractual liability insurance protection to an OEM, and the OEM provides the asset to the end customer, usually a business buyer, with the performance guarantee embedded within a service contract.

Imagine performance guarantees for solar panels, for instance. We’ve been doing that and going a step beyond by guaranteeing conversion in terms of solar efficiency—that is, achieving the cost savings that were targeted. As an aside, there are a few different areas in which we could play in the climate solutions space. What we’re doing now is looking across the business ecosystem for the best places for us to orchestrate value, be that solar efficiency or battery performance, for example.

The last piece, data solutions, is about taking insurance into technology, and technology into insurance. For example, when you buy a homeowner’s insurance policy, you will probably be asked whether you have a fire monitoring system and whether it is connected and centrally monitored. Some insurance companies make you prove this, and some don’t—they take your word for it. But if there’s a fire, and you never had a connected system, there could be fraud claims and other issues. The insurer can bypass all this by validating and monitoring the connectivity. That’s what we provide. We take IoT systems—fire detection and mitigation, smart meters, and water sensors—and connect them to our insurance platform. This is tech-enabled insurance.

S+B: This sounds like a whole new business model.
It is. Our platform connects insurance companies to IoT solution providers, including OEMs and digital service providers. Our platform sits in the middle, and we get a revenue share from the performance guarantee that they sell to the asset owner. On the other side, we can earn a commission by brokering the technology-enabled insurance policy.

S+B: As you’ve described it, the technology mandate of ATS is potentially very broad. Within this, how do you prioritize opportunities?
The short answer: process and governance. We prioritize by having a clear definition of what the opportunities are, along with a consistent way to unpack and assess them. We create a pipeline of ideas and then run those ideas through a traditional stage-gate process and governance model.

The phases look like those you’d find at any big tech company: discovery, concept, validation, and commercialization, at the end of which, you launch new products. Actually, you can do minimum viable product [MVP] launches during the commercialization phase, to answer critical questions prior to full commercial launch.

S+B: In your experience, what are the common failure modes in this type of process?
The most common failure mode is simply not failing fast. We have ideas that we put years of effort into, and significant money. Instead of killing it, it is very tempting to explore one last branch of the tree. We are trying to counter this by insisting we have a business case for any concept, any early-stage development. So, in addition to process and governance, I would add fiscal responsibility as a prerequisite to getting this right. Any proposed initiative that comes our way needs to have a business case to sit alongside the exploration.

I believe the other big failure area for building insurance-tech businesses is operational execution. It’s difficult to scale the part of the business that you know the least about. You can become a master of the technology and refine your design, but all the operational details are the most difficult thing to do. Remember, our customers are insurance companies. They don’t have a high tolerance for failure, and they are detail-oriented. So, operational execution is the biggest risk when you’re building a business like ours.

S+B: We’ve mentioned ecosystems a couple of times in this conversation. What do companies typically get wrong about building ecosystems to support new ventures?
RIGGS: You need to have discipline there as well. You need to vet companies consistently. You can’t just go after them emotionally or based purely on relationships. You have to vet their operations. You have to be very careful with intellectual property and knowledge transfer, including business process knowledge. But you have to have an ecosystem of business partnerships. You can’t do everything yourself, and if you try to, you’re building a suboptimal business model.

You have to have an ecosystem of business partnerships. You can’t do everything yourself, and if you try to, you’re building a suboptimal business model.”

S+B: A common dilemma for companies building new businesses is how much autonomy to give them. The parent wants to support the child but not smother them. How have you approached this, with your sensor subsidiary Meshify, for example?
I think it’s critically important to have a brand that attracts talent. People that write software, do development operations, and develop firmware typically are not attracted to an insurance company. It’s important to be able to leverage the Meshify brand and the spirit of its leadership and founders.

And the systems we use to execute the IoT business are outside of the HSB fence. It is valuable for us to be able to run those systems the way we need to. It’s important to have a wholly owned but separate legal entity, with its own IT mandates and policies around IT. That’s how we operate: Meshify is separate, but it’s serving the insurance business every single day.

What connects Meshify to the core business? Four words: leadership and product management. Nine months after joining HSB, I established the head of product management role and gave that person responsibility for our product road map. Anything we develop within Meshify or source from a third party must flow through product management and HSB’s product development process and governance. At the leadership level, I lock arms with my colleagues on our cross-functional governance team, and we jointly drive the outcomes.

Author profiles:

  • Scott Likens is PwC’s Global AI and Innovation Technology Leader. Based in Austin, Texas, he is a partner with PwC US.
  • Simon London is an editorial advisor to PwC US.
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