My first job after serving in the Peace Corps was working at Levi Strauss on technology, data and vendor supply chain projects. I remember hearing the famed story of how Levi Strauss had the foresight and innovation to tackle the gold rush from the picks and shovels angle, building out infrastructure that far outlasted the explosion of miners rushing to California to seek fortune. People often drew parallels between Levi Strauss and the tech boom, but it wasn’t until recently that I truly connected the dots.
I went on, like many others, to join the tech sector, eventually jumping into the excitement of insurtech -- a legacy industry faced with the growing challenges of modernization. My last company, Sheltr, which I co-founded with Praveen Chekuri, provides homeowners with routine preventative maintenance service and diagnostics to offer data-driven care to catch issues before they become costly repairs. After Sheltr became the first acquisition made by insurtech unicorn Hippo, we decided to leave homeowners insurance and build payments infrastructure on the commercial side.
We did this because we saw a pattern. Insurtech continues to receive huge amounts of attention and investment. In Q1 of 2021 alone, insurtechs raised $2.2 billion across 110 deals. But much of this insurtech investment has been focused on distribution-related companies aiming to sell insurance directly to customers by promising a better product, novel ways of acquiring customers and improved end-customer experience. A big piece was missing.
The unsolved problem in insurtech
While many billions of insurtech investment dollars have flowed into insurance, this has primarily centered on companies trying to reinvent insurance businesses from the ground up. The insurtech community hasn’t focused enough on improving the critical infrastructure and tooling that insurance carriers and distributors need to be successful in today’s competitive, digital world.
While some strides have been made, we’re still in the early stages of insurtech infrastructure. Embedded insurance, usage-based insurance (UBI), advanced telematics are all emerging trends that will no doubt continue to evolve in the years to come. However, many of the most critical pieces of insurance infrastructure remain untouched. Behind the elegant customer experiences of distribution insurtechs is technological shoe-string and duct tape holding it all together. Said bluntly, infrastructure has not kept pace with customer expectations in insurance.
Why have we, as an industry, fallen behind in meeting what our customers need from us? As with many legacy industries, established incumbents with millions of customers have a hard time moving quickly and adapting--and this is especially true in sectors where expenses have to be prioritized on compliance and risk. But innovating insurance infrastructure is also a challenge for startups. As I’ve learned working at various early stage companies, the customer-facing interactions are always tackled first, while behind the scenes is an operational mess. What’s happening at the macro-level with insurtechs -- dealing with the front end before dealing with the back end -- parallels what happens at most startups at the micro-level.
As an industry, we reached an inflection point, where everyone on the distribution side -- from brokers to agents to carriers -- suddenly had no choice but to digitize. All aspects of insurance including underwriting, distribution and servicing are moving from offline to online. This affects all consumers, both personal and commercial. We increasingly expect high-quality experiences in our professional lives just as we do in our personal lives -- and this growing sentiment was put in overdrive when COVID-19 hit.
Where to start?
Recognizing the need for infrastructure innovation is the first step, but how one goes about implementing and executing a fully end-to-end digital infrastructure solution is critical.
Payment is the first logical step. Payment is one of the most under-innovated and complicated pieces of any insurance system. As a consumer, it’s no secret that paying for insurance is much harder than buying nearly anything else in 2021. Imagine buying groceries and not knowing who to pay (the brand or the retailer), how often to pay or when to pay (when you eat the food or when you take it home), then having to write a paper check to mail off. Payment is also laborious and expensive for the sellers and backers of insurance. Just thinking about the amount of hours spent by agencies, managing general agencies (MGAs), wholesalers and carriers reconciling transactions is likely making some of you want to walk away from your computers.
The second step is to listen and pay attention. The question shouldn’t be who will win -- incumbents or startups -- but rather how can we deliver the best customer experience and sustainable product? How can we pay attention to successes and failures so that, collectively, we can get closer as an industry to meeting the needs of our modern customers? Easier said than done, but we will get there.
The dangers of ignoring infrastructure
The reason why we, as an industry, will undoubtedly find ways to innovate is that the risks of not doing so are too high. Companies that don’t adapt and build proper infrastructure for their core actions -- such as payments transactions -- will ultimately fail to meet rapidly evolving customer expectations. You can only go so far with a facade of streamlined customer experience because, at scale, you’ll eventually need a robust digital back end to support your systems and stay competitive.
You’ll need the picks and shovels.