Tak Sato, Managing Partner MS&AD Ventures, Inc.
In 1996, Tak Sato joined Sumitomo Marine & Fire Insurance Co. as Deputy Manager in the Marine Cargo Underwriting Department. Later, in 2017, he was the first to represent MS&AD Insurance Group as Deputy General Manager in Silicon Valley. Here, his role was to scout and identify relevant insurtech startup opportunities through insurance trends for the firm before becoming the Head of Investment and founder of MS&AD Ventures in 2018. MS&AD Ventures formed the group's first overseas Corporate Venture Capital, or CVC. Over the course of the next three years, MS&AD Ventures successfully invested in 65 companies across seven different countries and created the Silicon Valley MS&AD Garage Program. This startup program focuses on resolving pain points that cannot be solved internally and discovering new business models that highlight new trends within the insurance industry. To date, the program has had 37 participants from 22 sites across five countries.
Plug and Play: Given your extensive experience in Silicon Valley and your deepened understanding of insurtech, what do you see as the current trends and challenges that the insurance industry encounters?
Tak Sato: When I was first assigned to work in Silicon Valley in 2017, traditional insurance companies, willing to harness open innovation, were mainly interviewing startups whose customers were also insurance companies. My impression then was that those startups were of interest to insurance companies because the startups would improve existing services by adding new technology and data to their business model. And that made it very intriguing for those insurance companies to learn more about them.
However, the situation has fundamentally changed since insurance companies evolved and started to look out for startups outside of insurtech proactively. I hear more people say, "Although I think this technology is outside the realm of insurance, there seem to be certain use cases for it. Why don't we work on it together?”
We're particularly intrigued by startups that offer a unique set of data or leverage it in a compelling way. There are startups that have or analyze data, but some lack a clear understanding of which industries they should target and which industries could utilize the information they have, and this is where insurance companies nowadays come in. They look out for those startups and help them understand their relevance to the insurance industry.
Helping understand the Silicon Valley-based innovation activities within your organization
Plug and Play: Building partnerships with startups overseas is something that Japanese insurance companies struggle with. What best practices can you share with other Japanese insurers who have a presence in Silicon Valley and are trying to overcome the hurdle?
Tak Sato: We're very aware of the hurdles and set expectations on both sides right. On one side, we promote our company's strength by conducting PoC sessions with startups and prove we're worth engaging and working with as a corporation. On the other hand, when executives visit from Japan, we make sure that all accompanying colleagues, including the executives, understand that each visit isn't just a courtesy visit but a critical decision-making moment. I believe meetings are opportunities for making decisions; thus, prior to every visit, we always prepare the right set of questions that help in the decision-making process, setting clear expectations towards the executives regarding what decisions have to be made and what the goal of the visit is. This effort has been well-received within the company, and I believe that we've formed a good standard for our work. We've been recognized within the company as a place where you can have a fruitful interview whenever you go to Silicon Valley.
Plug and Play: As much as you want to offer favorable conditions for startups, I imagine that there are various demands from upper management at the headquarters. How did you get upper management to understand the situation in Silicon Valley?
Tak Sato: There are many things to say, but I think Plug and Play had a significant role in helping the executives understand the situation. When one of our executives first came to Silicon Valley, we asked for his input on their current problem statements and technology interests that could be solved through his trip to Silicon Valley. We then leveraged Plug and Play to help us find relevant startups, and I also went back to our executive to very respectfully explain that, in Silicon Valley, Japanese companies that are slow in decision-making and lack a sense of urgency are made fun of. Therefore, Japanese companies aren't very popular as collaboration partners. I thus suggested that to have a working relationship with startups, executives should be able to provide constructive answers on the spot. The executive then replied, "Don't underestimate me."
After having had four startup companies pitch to our executive during that first trip, we made the rapid decision to sign contracts to run PoCs. While our other colleagues from HQ were puzzled by the rapid decision, our executive said, "Speed, speed, speed," and went on signing contracts with all four companies. When I thanked the executive afterward, he said, "I knew that in Silicon Valley, it is a world where you get nothing unless you act. So if we don't have questions beyond the interview process, and if we can trust Plug and Play, I think we'd be fine to sign the contract first and then figure out if it works."
Upon returning to Japan, the executive would talk to various board members about how important speed in Silicon Valley is. Thanks to this, I think the other executives' understanding of how Silicon Valley works has improved.
As a result, the MS&AD Group has made business partnerships with 21 startups in the past three years, half of which were introduced to us by Plug and Play.
From start-up to the success of CVC
Plug and Play: MS&AD's CVC has won numerous awards and has been active in the Insurtech Report published by Willis Towers Watson, with investment projects consistently listed in the report, but what is your vision and strategy that has led to your current success?
Tak Sato: As of 2021, our Silicon Valley office now has 20 employees, but back in 2017, I was the only one. With the mission to create a CVC within a year, I came to Silicon Valley in May 2017 and established the CVC arm of MS&AD in May 2018. However, in hiring a top investment manager who was familiar with the local market, we initially couldn't come to an agreement on many things because "the structure is completely different from a typical VC" and "we are not interested in Japanese companies," etc. In the end, we didn't start the business until October, five months later. It took quite a long time. We had initially planned to have one investment committee member in the U.S. and four to six in Tokyo, but during the hiring interviews, the structure of the investment committee was questioned and we had to reconsider in order to hire experienced investment managers. We had internal discussions and changed the structure to having two investment committee members in Silicon Valley, two in Tokyo, and two more members who don't have investment rights but have veto powers. As a result, we were able to perform investment activities with speed which is essential when working in the Silicon Valley ecosystem.
Creating the Innovation Factory for new business ideas from zero to one
Tak Sato: While our CVC needs to ensure the financial success of our investments, we also aim to create new innovations with the companies we invest in. We invest in companies because we think they're great, so we naturally introduce them to our business units at the headquarters. However, in retrospect, the business units had no idea how they could benefit from the companies we’ve invested in. It was as if we had shoved an unwashed carrot covered in dirt into their mouths and said, “eat this organic carrot because it tastes good.” However, it might upset their stomachs (the existing business) if people don’t know how to cook this carrot to best suit their needs. Initially, it was not easy to create business partnerships.
We're now working to create an "Innovation Factory" in Silicon Valley to process and provide exposure to different kinds of cuisines (i.e., future businesses) they can be used for. We don't employ many dedicated employees like so-called "innovation labs" but rather pour the equivalent amount of resources into startups, aiming to launch new businesses that place the startups' unique business models, technologies, and data at the center of their cuisine, and to make small failures and successes as fast as possible. We're making those small failures and successes as quickly as possible to test hypotheses and create new menu options. In other words, the "Innovation Factory" is a mechanism to create 0.1 from 0 together with a budget. The critical point, I believe, is that we allow people to make mistakes at many different stages in the process.
What are the advantages of utilizing Plug and Play?
Plug and Play: What have been the benefits of using Plug and Play's services since you joined our Insurtech program in 2017?
Tak Sato: When we initially signed the partnership in 2017, we thought we would only participate for two years until we launched our CVC arm. But four years has passed in the blink of an eye. This is because Plug and Play itself continues to evolve as well. For example, when we were considering how we should work during COVID, Plug and Play changed almost all of their programs to online within one week. They then held an event on COVID-related innovation, and I realized that we could not imitate their adaptation speed. I appreciate their attitude in continually adapting to social changes.
Furthermore, my colleagues and I really appreciate the cross-industry exposure Plug and Play offers. As such, Plug and Play once organized a “Japan night” event, which led us to do an event where six insurance companies made a pitch to startups across different industries. The pitch event was a great success, not only in Tokyo but also in Silicon Valley.
Vision for the future
Plug and Play: How do you see the future of the insurance industry?
Tak Sato: When an accident or disaster occurs, it's the business of the insurance companies to promptly calculate the amount of damage and pay out insurance claims in order to restore the stability of their customers' lives. While this is undoubtedly an important social responsibility, I believe there are more ways to deliver security and safety to the world. For example, if a customer’s wallpaper is damaged by a typhoon, the insurance claim will be paid according to the policy terms. However, this isn't the key solution to the customer's problem. Not everyone is knowledgeable about wallpaper repair or has a wallpaper repair professional on standby, so even if a claim is paid out, the issue of a quality solution persists. So to truly solve the customer's pain, the customer needs to be provided with the right information and repair professional.
I think there’s still room for improvement for insurance companies in the pre and post-accident service delivery. I believe this is especially true in the pre-claim services to prevent accidents. For example, if we can utilize disaster prevention programs and leverage predictive analytics and data models, we can potentially warn customers, “based on tomorrow's expected rainfall, there's a high possibility of landslide damage in the area around your home, so please evacuate." This could create a new industry of "hazard forecast.” It may seem like an endless mission, but we believe it's necessary to continue to make steady efforts to improve each and every one of these things.
I also believe that insurance companies can make better use of data in a world where data is abundant. I believe that there are many ways to prevent accidents from occurring, and if accidents do occur, there are still ways to reduce their impact in order to realize our management philosophy of, "providing security and safety through our global insurance and financial services business, and supporting the development of a vibrant society and a healthy future for the Earth.” We feel there's a path that needs to be pioneered. I would like to work with startup companies to solve social issues one by one while fully using the data related to safety and security generated every day.