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Predictions From 6 Insurtech Leaders

Insurtech, a hotbed of deal and growth activity over the last two years, is gaining traction and credibility. The leaders of top insurtech startups in the U.S. — focused on renters insurance, auto insurance, life insurance, small business insurance, mortgage lender insurance and on-demand insurance — share their thoughts about 2017 and predictions for 2018.

Participants (alphabetical order by company)

  • Fabric, cofounder and CEO Adam Erlebacher
  • Jetty, cofounder and CEO Mike Rudoy, cofounder and President Luke Cohler
  • Metromile, CEO Dan Preston
  • Next Insurance, CEO Guy Goldstein
  • Slice, CEO Tim Attia
  • Spruce, cofounder and CEO Patrick Burns

Q. What will be different about insurtech in 2018, compared with 2017?

Theme 2017: opportunity

“The unveiling year,” Slice CEO Tim Attia

“A grace period,” Next CEO Guy Goldstein

“An explosion of investment into insurtech across existing and new insurance lines,” Metromile CEO Dan Preston

“Lessons learned from being live in market,” Jetty cofounder and President Luke Cohler.

Theme 2018: maturation

Fabric cofounder and CEO Adam Erlebacher, “Where startups begin to gain traction and work toward meaningful scale”

Jetty cofounder and CEO Mike Rudoy, “A year of maturation where consumers’ trust in insurtechs deepens, cementing marketplace standing”

Next CEO Guy Goldstein, “Mistakes will have far bigger implications”

Slice CEO Tim Attia, “2018 will be all about proving that we can scale and build real businesses”

Metromile CEO Dan Preston, “Emerging winners will likely announce second or third rounds of capital”

Q. What was your company’s greatest 2017 achievement, and what is your greatest 2018 goal?

Fabric cofounder and CEO Adam Erlebacher, “Fabric launched in 43 states in one year”

Jetty cofounder and President Luke Cohler, “In 2017, our greatest achievement was validating our thesis and finding product market fit with renters and property managers. Our largest goal for 2018 is simple: expansion”

Metromile CEO Dan Preston, “Metromile’s biggest achievement in 2017 was the launch of AVA, our entirely automated claims process that uses AI to validate and automate claims. In 2018, we are excited to expand AVA to nearly all claims we handle”

Next CEO Guy Goldstein, “In 2017, we established our company foundation and core pillars, sold 10,000-plus policies and cracked the code on SMB insurance. Our goal for 2018 is to expand reach and accelerate our growth”

Slice CEO Tim Attia, “Our 2017 achievements included a Series A funding and Progressive partnership, but the largest was our homeshare product launch in nearly all 50 states. In 2018, we’ll expand our existing product, launch other on-demand products, go global and release our cloud-based offering”

Spruce cofounder and CEO Patrick Burns, “In one year, we went from serving homeowners and mortgage lenders in one state to 48 states. Our biggest goal for 2018 is to serve more customers, leveraging scale to drive down costs”

See also: Insurtech in 2018: Beyond Blockchain  

Q. What was your company’s greatest challenge in 2017; what do you anticipate as its greatest challenge in 2018?

Theme: 2017 challenges, validation

Slice CEO Tim Attia, “When re-imagining insurance, you truly have to re-imagine it. You have to forget everything you know and are used to and recreate the experience”

Jetty cofounder and CEO Mike Rudoy, “In 2017, we had to validate and fine tune our model and customer experience”

Metromile CEO Dan Preston, “Our big shift from MGA (agency) to full insurance company. It required the entire company (and more) to get it done.”

Theme: 2018 challenges, scale

Jetty cofounder and President Luke Cohler, “The challenges we face in 2018 will be associated with scale. New volumes of customers will require improving technical infrastructure, customer support functions and product experience”

Metromile CEO Dan Preston, “The biggest challenge will be managing growth while launching in new markets (as every market is very different!)”

Next CEO Guy Goldstein, “In 2018, our major challenge will be growing our offering from 20 classes of business to hundreds, while still maintaining excellent customer service”

Slice CEO Tim Attia, “2018 will be about scaling the company and executing, in ways that fit with what customers want”

Spruce cofounder & CEO Patrick Burns, “In 2018, we anticipate our biggest challenge will be hiring the highest-quality engineers and sales people as we continue to scale”

Q. What was a surprise to you in 2017?

Theme: Positive surprise at the intensity of consumer and partner buy-in to new insurtech options

Jetty cofounder and CEO Mike Rudoy, “We were genuinely surprised at the rapidity and size of buy-in from all types of consumers eager for better solutions and experiences that fit their lifestyle. This isn’t unique to Jetty but across the insurtech landscape”

Metromile CEO Dan Preston, “A big surprise came from the 2017 InsureTech Connect conference in Las Vegas, which had more than 4,000 people, orders of magnitude bigger than the entire world of people who knew what ‘insurtech’ was when we started Metromile in 2011”

Next CEO Guy Goldstein, “We were very surprised to learn that companies were underwriting business insurance policies manually, based on individual underwriter experience. SMB insurance is a $100 billion industry, and not using data to evaluate risk was bewildering”

Slice CEO Tim Attia, “We were surprised that our customers enjoy interacting with us regularly and being able to tie coverage directly to a successful and safe stay”

Spruce cofounder and CEO Patrick Burns, “We’ve been pleasantly surprised with the receptiveness of mortgage lenders to working with a new company”

Q. How will incumbents interact with insurtech companies in 2018?

Theme: shift to action

Metromile CEO Dan Preston, “I would expect the number of partnerships to grow significantly”

Slice CEO Tim Attia, “I think incumbents have no choice but to embrace insurtech companies”

Jetty CEO Mike Rudoy, “As insurtech players continue to capture market share, incumbents will be forced to identify response strategies”

Next CEO Guy Goldstein, “The incumbents understand that change is coming and is required”

Spruce cofounder and CEO Patrick Burns, “The industry is in the beginning stages of a multi-year shakeup as end-to-end digital sales and servicing become the norm”

Theme: expectation of beneficial partnering

Metromile CEO Dan Preston, “Competition fostering strong collaboration. Especially when expertise and assets are concentrated in different ways: incumbents with scale and capital, startups with new products, technical expertise and lack of legacy systems/thinking”

Fabric cofounder and CEO Adam Erlebacher, “Many [incumbents] are engaging directly with startups. On a basic level, most carriers lack the digital infrastructure needed to execute a direct digital strategy”

Next CEO Guy Goldstein, “Generally, [incumbents] seem very open and keen to work with new insurtech companies. Acquisition strategies are probably their best bet to integrate new technology”

Slice CEO Tim Attia, “Insurtechs are faster and more nimble than the incumbents; [who] should be excited to engage and leverage new offerings”

Q. What do you admire about other insurtechs?

Jetty cofounder and CEO Mike Rudoy, “Munich Re is hardly a startup, but their willingness to partner and help quickly grow great insurtech companies is impressive”

Slice CEO Tim Attia, “I admire how well insurtech companies complement one another. We have a similar goal: to enrich the customer experience and engagement”

See also: 2018: A Look Back, Then Forward!

Q. What’s the one book you read in 2017 that you can’t stop thinking about or recommending?

Jetty cofounder and President, Luke Cohler: “Deep Work: Rules for Focused Success in a Distracted World” by Cal Newport. “A great guide that explains how we can regain our ability to focus without distraction on cognitively demanding tasks, despite the common distractions of our work environment”

Metromile CEO Dan Preston: “The Wright Brothers” by David McCullough

Next CEO Guy Goldstein: “Red Notice” by Bill Browder. “About a builder of an investment business in Russia. It left me feeling impressed and inspired by his drive to push through and find solutions to any challenges facing him”

Slice CEO Tim Attia: “Misbehaving: The Making of Behavioral Economics” by Richard H. Thaler, who cowrote “Nudge” and won the Nobel Prize in Economics in 2017

Spruce cofounder and CEO Patrick Burns: “The True Believer” by Eric Hoffer. “It was written in the 1950s, but it’s immensely relevant today. Every startup CEO (and every politician) should read it”

Metromile: Pioneers in Digital Engagement

Imagine a world where the insured has a continuous digital engagement with the insurer. Where the “insurance product” is a value-add service that offers more than just financial protection. In this world, the insurance brand becomes “sticky,” and churn becomes a function of product development, not promotional pricing. In fact, price is no longer the only buying criterion. This is the world of Metromile, the pioneers of digital engagement insurance.

To find out more for InsurTech Insights, Rick Huckstep spoke with Dan Preston, the CEO of pay-per-mile auto insurer Metromile.

SAMSUNG CAMERA PICTURES

Value trumps price, hands down, every time!

Metromile was ahead of its time when it comes to digital engagement. This is the world of insurance protection where customers buy insurance cover because of the continuing value it provides, not just because of the price it is offered at.

In recent times, the buying of insurance has become associated with searching for the cheapest price. Online buying guides advise customers to always shop around for the best price and never auto-renew. Even the regulators force statements on renewal notices to advise customers to shop around. This is commoditization in all its glory!

Which is good for consumers, right? Maybe at the point of sale, but, when insurance is sold below premium, it means someone else is paying for it. Until renewal time, when premiums are increased significantly.

All this does is irritate the customer, further diminish trust in insurance and cause the customer to start all over again looking for a new insurer! What a waste of time and effort for everyone!

The case for digital engagement in insurance

The big problem in any price-driven market is that cost of sales is a killer. Price points only ever go down, sales and marketing costs don’t (not at the same pace anyway), and this continually squeezes the whole supply chain. In the intermediated world of personal lines insurance, the addition of friction and inefficiency simply compound the cost (and margin) issue for insurers.

No matter how hard the insurer tries to build and promote a trusted brand, the uncertainty of premium pricing always undermines it.

The building of brand loyalty takes time, and insurers don’t hang on to customers long enough to do so. For traditional insurers, their only opportunity to show value is through the claims experience. However, all too often, the insurer fails to seize the day and ends up disappointing the customer. (Read “Democratizing insurance claims restores trust for customers” and the RightIndem solution)

And yet customer feedback clearly shows they want more in the way of value. And are willing to pay for it!

See also: How Sharing Economy Can Fuel Growth  

Earlier this month, at the Digital Insurer conference in Singapore, James Eardley from SAP Hybris presented the findings of a current report from Ovum, “Driving Engagement through Value Creation.” The report found that customers would pay higher premiums for value engagement.

Interestingly, when you look at the demographics, the Under-35s showed the highest willingness to pay more.

Turning the Insurance Product Into a Lifestyle Product

The advances in digital technology in the last decade have given insurers the means by which they can create “sticky” insurance products. Once they’ve “won” a customer, they can now hang on to that customer. They use enabling tech such as telematics, mobile apps, wearables and IoT devices to create ways of connecting and engaging with customers continuously.

As a result, we’ve seen the introduction of digital engagement products based on new sources of data, personalized to the specific risk conditions of the customer. These new technologies enable insurers to radically shift from being the provider of an enforced product to a provider of a value-added service. The adoption of this enabling technology gives insurers the ability to dynamically improve risk ratings, to personalize premiums and adjust policy conditions on a continuing basis. The traditional approach of a single, point in time questionnaire can be replaced by a continuing assessment and review approach enabled by these new technologies.

As Maria Ferrante-Schepis writes in Flirting With the Uninterested, “Insurance companies, when you really think about it, are not just in the protection business. They are in the ‘lifestyle continuity business.’”

Digital engagement insurance in action

Great examples in life and health are Vitality and Oscar along with insurtech platforms such as Fitsense and Sureify. Here, wearable devices combined with mobile apps enable digital engagement with the insurance brand to promote a healthy lifestyle. In so doing, the app becomes a lifestyle product, part of the customer’s daily routine. This makes it a lot harder to churn come renewal time.

I covered this previously here about wearables and digital engagement in life and health.

In home, the adoption of IoT devices has done more than (just) create a means for digital engagement. The IoT-enabled smart home moves the insurer into the loss-prevention space. Now, insurers can build insurance products that are focused on preventing the loss altogether. (Read about IoT and loss prevention in this article about digital engagement in home insurance.)

The latest example to catch my eye comes from the innovation team at Halifax, the U.K.’s third largest general insurer with 3.2 million customers.

Bringing together a number of insurtechs, the Halifax home insurance app is built on Surely’s insurance platform as a service.

Surely provides the core insurance functions and integrates with third-party data sources to provide loss prevention and mitigation. These data services include Fing to connect all smart devices together, HomeServe Labs, which uses its Leakbot for water leak detection, and Fibaro for fire detection. The platform also connects to presence and entry-detection sensors, such as Samsung SmartThings, and all sensors are integrated into the app and provide the Halifax customer with up-to-date information about his house and home contents.

The Halifax app even takes a weather feed to warn of extreme weather conditions that can affect the home.

Prevention is always better than cure, right!?

Metromile is the pioneer of digital engagement

When it comes to auto, the combination of in-car telematics and mobile phone tech has seen the launch of pay-as-you-go and pay-how-you-drive insurance products. It’s a subject I’ve covered before, including articles like this featuring U.K. on-demand auto insurer Cuvva.

The real expert on this subject at the Digital Insurer is Andrew Dart, who writes our Connected Insurer page.

Which brings me to the main subject of this month’s article – Metromile.

It represents everything that defines #InsurTech as we know it today, and yet it pre-dates the social media tag by half a decade! Metromile is a seven-year-old U.S. auto insurer I first wrote about back in 2015. The business model is based on a pay-per-mile insurance product, which is wrapped with other services to enhance the car ownership experience for customers.

To enable continuous customer engagement, Metromile uses tech in the form of the Metromile Pulse (a device that plugs into the car’s on-board diagnostic port) and a smart driving app on the customer’s mobile. The company recently announced Series C and D investment rounds that took the total money raised to $205 million. It’s an impressive sum that puts the company in the insurtech fundraising upper quartile.

You can watch the firm’s CEO Dan Preston explain the Metromile insurance product in this short YouTube video.

The thing that struck me about Metromile is that it doesn’t say anything about “insurance” when they describe what they do. Here’s what they say “About Us” on their website:

At Metromile, our mission is to empower drivers by creating a more connected and informed car ownership experience.

By taking our deep understanding of data and transforming it into information and services that make having a car less expensive, more convenient and smarter, we aim to make the urban car experience as simple as it can be. And for some, we hope to make car ownership a possibility where it wasn’t before.

They’ve literally taken an insurance product and turned it into a lifestyle product!

Leveling the playing field for low-mileage drivers

When it comes to auto insurance, the main risk factor is how often drivers are on the road. If you’re not on the road, then factors such as claims history, driving behavior or condition of car are insignificant. In the case of auto, those who don’t drive very much subsidize the higher-mileage drivers. This is because traditional auto insurance products take a blunt-instrument approach to assessing driving time.

See also: Cyber Insurance Needs Automated Security  

Metromile says that customers can save on average $500/year on auto insurance (which is roughly 40% to 50% of the typical cost of insurance). You will see something similar in the U.K. from Cuvva. The company claims its pay-as-you-drive insurance can save drivers as much as 70% of traditional insurance premiums.

Creating value that EVERY insurance customer gets

In a recent call I had with CEO Dan Preston, I asked him about digital engagement and the Metromile model. He told me, “There are typically three interactions the insurer has with their customers. When they sell a policy, when they renew and when they receive a claim. There’s nothing in those interactions that adds value. Even the claims process is so full of friction that it becomes an unpleasant experience for the customer. It’s the place where NPS [Net Promoter Score] goes to die!

“When we started Metromile we quickly learned that customers want more than just a good claims experience. They want value through digital engagement.”

Metromile provides a frictionless claims experience with their new AI claims assistant, AVA. (PRNewsfoto/Metromile)

Here’s the thing that Metromile figured out early. By creating value over and above the insurance product, the company creates value that EVERY Metromile customer benefits from, not just those who might go through a successful claims experience.

Dan explained, “We set out to build Metromile into more than just an insurance business. We wanted to help our customers manage the cost of running a car. This includes everything from maintenance and regular servicing, to parking and speeding tickets.

“One of the early features on the app was a feature to help drivers avoid parking tickets by informing them of street sweeping schedules. We took publicly available data in the San Francisco area and laid that over our customers’ movements. Using the app, we were able to direct customers to parking areas that would not risk parking tickets. Some customers reported that the savings in parking fees more than paid for the cost of our insurance!”

Dan explained, “Ultimately it became a data collection exercise for us to collect data unique to the car and the driver as we went into new areas. In many places, the data we needed was in PDF format. We found ways to extract the data and still provide the features in the app.”

As Metromile moved into new jurisdictions, the company found that the data it wanted and needed to support the value-added services in the app were not always universally available.

Metromile’s win-win through value and loyalty

This is the real point of digital engagement – creating a win-win.

The customer gets value from the digital engagement with a lifestyle product (and tangible benefits such as lower parking fines!). And insurers see less churn, better (risk) data about customers and a greater sense of loyalty/connection/trust.

This is where behavioral economics kick in. It is this sense of trust and loyalty that directly links to lower levels of claims fraud and embellishment. (See Lemonade).

None of this would be possible in a traditional auto insurance product. Metromile has exploited technology to enable this digital engagement. The key is the Metromile Pulse: a dongle that customers plug into their car to read the on-board telematics data and that connects to the mobile phone and the Metromile app.

This allows Metromile to know when the car is being driven and when it is not. In turn, this allows Metromile to price on a per-mile basis for insurance, turning it off and on accordingly.

Metromile’s AVA delivers an automated claims experience

Metromile’s latest tech addition enables an automated claims experience. At the time of an incident, data captured by the app and the dongle is used by Metromile to settle a large number of claims. Many of them automatically and instantly.

See also: Effective Strategies for Buying Auto Insurance  

The company can do this because it is not waiting on a claims adjuster to collect information to support a claim. Instead, through the customer’s Pulse device, Metromile is able in many cases to verify and validate a claim without human intervention. In these scenarios, there is no reason to not pay a claim instantly.

The turning point for Metromile came about a year ago when it became a fully licensed carrier. Dan told me, “We’ve been handling claims in-house for about year now. In that time we’ve launched AVA, our AI claims assistant and the most exciting product launch to date at Metromile! We wanted to create a different experience for customers, one that was different to the traditional experience, with much less friction for customers.

“For the customer, all they want is to get back on the road. But for the traditional carrier, they won’t settle until they’ve got all the evidence that they need to justify the claim. In the traditional claims experience, often the problem is that the carrier only has the word of the customer to go on. Trust isn’t very strong in this relationship, and the result is that it takes time.

 “With Metromile, the Pulse can verify what the customer is telling us. Our tech can verify facts such as speed and location and time. The customer doesn’t need to provide this data because we already have it. This leads to instant payout or for the Metromile app to organize the repair and servicing of the vehicle.

“It’s another win-win because the instant and automated approach delivers a better customer experience by reducing cycle time and making it easy to claim. For Metromile, it lowers the cost of handling claims, which benefits customers in the long run by lowering premiums.”

(See here for more on chatbots, AI and customer engagement)

The lesson for insurers: Give more to Get back more

So there you have it! Everyone’s a winner when the insurance product is built around a digital engagement model. Customers get value from the money they’ve paid for their insurance purchase (not just a safety net if they suffer a loss). Insurers get value from lower customer acquisition costs, less churn, lower operating costs and reduced fraud.

They also get one step closer to one of the biggest innovations from insurtech – personalization (and that’s a story for another day!).

Talking Insurtech With Regulators

Key Points 

  • Recent shifts in insurance regulation are driven by consumer demand.
  • Traps for the unwary mean that insurtech startups should engage with regulators early and often.
  • Brokers need to know how to navigate the complex framework of anti-rebate and anti-inducement laws.

It is no secret: Investors are pouring money into insurtech startups with the goal of transforming the insurance industry. This increased investment is fueling not only growth in the industry, but also growth in the number of conferences, expos and seminars that allow companies to promote their products, build connections and stay abreast of the latest trends. Last month, more than 3,500 startups, insurers, investors, and service providers converged on Las Vegas for the largest and most global of such conferences: InsureTech Connect.

Attendees at this year’s event were treated to a host of presentations, from insightful fireside chats with entrepreneurs, such as Metromile’s Dan Preston and Ring’s Jamie Siminoff, to thought-provoking panels on satellite imagery, telematics, wearables and innovative strategies for insurance companies of the future.

See also: InsureTech Connect 2017: What’s New  

But, as excitement and buzz steadily mount, at least one panel reminded attendees that insurance—while highly ripe for innovation—is also a highly regulated industry. The panel (“Balancing Innovation and Regulation”) featured Michael Consedine (CEO of the National Association of Insurance Commissioners), Ted Nickel (Insurance Commissioner of Wisconsin) and Chris Cheatham (CEO of Risk Genius).

Here are our key takeaways of that panel discussion.

Recent policy shifts are driven by consumer demand.

Over the past 200 years, the insurance industry has gone through periodic changes. But, as Consedine explained, this is the first time that significant changes are being driven by consumer demand. Specifically, consumers are demanding simpler and more intuitive policies; a streamlined and digital application process; faster claims payments; mobile access; and new products, such as peer-to-peer or pay-as-you-go. Insurance regulators nationwide realize that innovation will lead to consumers being better served, and, as a result, they are taking an active role in being a part of the conversation and enabling innovation.

Traps for the unwary mean that insurtech startups should engage with regulators early and often.

Once a company begins to analyze risk or price products, it runs the risk of being considered an insurance company and, more importantly, being subject to a host of often complex regulations that vary from state to state. For instance, while the amount and quality of available data are exploding—opening up the possibility of using new or unconventional data to price risk—state laws prohibit not only unfair discrimination generally, but also specific factors from being considered when pricing risk. In other words, as Mr. Nickel explained, a data set may show that there are more pool deaths in years when a Nicholas Cage movie is released, but whether that correlation is actuarially sound, let alone a fair basis on which to make pricing or rate decisions, is something that companies should discuss with regulators before launching. The same is true with respect to other issues, such as privacy or cybersecurity regulations—companies should understand the regulatory regime in which they operate and ensure that they are in compliance. To that end, Mr. Nickel encouraged companies to engage regulators from the outset to explain how a new algorithm or business model works to ensure that they are not running afoul of state regulations.

If you are a broker, be aware of anti-rebate and anti-inducement laws.

Nearly every state (with the notable exception of California) has some form of anti-rebate or anti-inducement laws on the books. Generally, these laws prevent a broker from providing something of value to a customer to “induce” an insurance purchase. While promotional items, such as golf balls and pens, are often exempt from such laws, a company must be especially careful when it begins to offer—at no charge—more valuable goods or services to its customers. According to Nickel, these laws might be particularly problematic for new entrants into the industry. For example, if a broker provides a wearable device to its customers, might such a gift implicate anti-rebate laws? What about specialized software provided at no charge? New companies in the broker space should ask themselves these sorts of questions sooner rather than later, seeking out counsel when necessary to avoid regulatory issues down the road.