Joel Dudley, senior analyst at Timetric’s Insurance Intelligence Center (IIC) analyses why insurance distribution represents a natural target for insurance technology start-ups. He explains that as the price-comparison space becomes increasingly crowded, entrants are having to offer more sophisticated services to their users. They are moving beyond straightforward price-comparisons, and are increasingly looking to cannibalize the advisory role traditionally reserved for brokers.
Many an investor has looked at insurance’s disaffected customers, legacy technology and painful claims process and set out to find a better way.
But disruption was initially slow. Hopeful new insurance carriers faced crushing capital and regulatory requirements long before they could bring their first products to market. Even after jumping through all these hoops, persistently soft insurance markets in much of the Western hemisphere made for an unattractive proving ground.
‘Disruption at the margin’
As a result, start-ups began to focus on achieving ‘disruption at the margin’. . Unable to take on the carriers at the core of the industry, they sought smaller footholds. Of these, insurance distribution proved to be overwhelmingly popular.
Insurance distribution represents a natural target for start-ups.
Buying and managing insurance remains a tedious process, replete with exactly the kinds of frictions – tracking down different providers, repeatedly entering details, evaluating the coverage provided, making sure policies remain in-force – that the tech boom of the past decade has made it its mission to eradicate. In a world of one-click taxi rides and swipe-right dating, the whole insurance-buying process seems to be a relic of a bygone era.
Price-comparison websites are an obvious starting point for disrupting insurance distribution. Price-comparison websites Insurify, Easypolicy and PolicyGenius have received combined funding of $19.2m since the start of 2016.
This is additional to the USD17 million investment in The Zebra in January and the $33.3m raised by CoverHound in September last year.
Brokers have generally remained positive in the face of price-comparison websites. They note, rightly, that theirs is a relationship business, predicated on building relationships with clients so as to truly understand their needs. They provide services that go far beyond simply shopping around for the cheapest policy.
But the arrival of services such as motor insurance price-comparison website, The Zebra, changes things.
As the price-comparison space becomes increasingly crowded, entrants are having to offer more sophisticated services to their users. They are moving beyond straightforward price-comparisons, and are increasingly looking to cannibalize the advisory role traditionally reserved for brokers.
PolicyGenius is another example of this approach. Like The Zebra, its surface is that of a traditional price-comparison website.
But a visitor applying for term life insurance will see messages telling them why specific pieces of information are being requested and how it will affect their premiums.
A page requesting information on the visitor’s cholesterol levels cheerfully points out that "if you’re currently being treated for high cholesterol and your levels are normalizing, you may want to wait until you can report a better number before you apply, so that you can get a cheaper rate."
If the buyer has any questions, a toll-free number allows them to speak directly to PolicyGenius’s certified insurance agents. These trends are not confined to personal insurance.
San Francisco-based start-up Embroker provides a platform for businesses to manage their insurance offering policy management, claims tracking and policy search tools. [Embroker’s goal is to replace the traditional insurance brokerage with a tech-enabled and data driven platform].
Its peer-comparison tool allows clients to compare their insurance coverage to that of similar businesses. Its third-party insurance tool allows them to verify the insurance status of their suppliers and vendors.
In this way, Embroker exemplifies the advantages that the new tech start-ups hold over traditional insurance brokers. Because insurance brokers must work so closely with every client, they are usually constrained to serving a small user-base. In turn, this means that they cannot achieve the economies of scale that would make the development of the new tools offered by Embroker et al. feasible.
The new insurance start-ups can achieve user-bases on the scope of whole countries and beyond. This is feasible because their websites, apps and other technological tricks reduce the need for one-on-one interactions.
In turn, large user-bases allow them to justify major software development expenses, drawing in more customers and further narrowing the gap between their offering and that of traditional insurance brokers.
These large user-bases also serve another purpose – they provide the start-ups with huge troves of consumer data. There has been much hand-wringing about the insurance industry’s inability to seize the opportunities offered by "big data".
The newcomers, with tech in their DNA, are unlikely to face similar limitations. If data-protection laws do not impede, the start-ups are likely to eventually reach a position where they can understand their customers and cater to their whims on a level exceeding even the closest of broker relationships.
Asked if Embroker could displace brokers, Tyler Chalk, strategic account manager at Embroker,
tells Life Insurance International that Embroker itself is a broker – just one augmented by technology.
He says Embroker stands apart from other brokers by using its data correctly. In Chalk’s view, brokers have tons of data, but it just sits in big books, while Embroker leverages it.
Chalk adds: "For small to medium size business owners purchasing commercial insurance, the technology solutions for obtaining coverage, and perhaps, more importantly, for enhancing risk management, understanding their coverage, ability to self-service, pay bills and manage their insurance needs is almost non-existent."
Do you agree that insurance technology start-ups could spell the end for insurance brokers? Join the debate and email your view to Life Insurance International editor Ronan McCaughey, firstname.lastname@example.org