Tag Archives: distribution model

3rd Wave of P2P Insurance

The P2P insurance model promises to change the conflict dynamic between insured and the insurer. From Friendsurance to Guevara and the eagerly anticipated Lemonade, P2P insurance has already evolved two generations in six years. Now, we see the emergence of the next generation of P2P insurance; the self-governing model.

People-to-People Insurance

The jury may be out on the peer-to-peer insurance model, but that hasn’t stopped the steady stream of new entrants who believe in fundamentally changing the dynamic between insured and insurer.

Back in December, I wrote this article on P2P insurance and featured two very different InsurTech start-ups.

First, there was TongJuBao, a Chinese peer-to-peer insurer that provides social risk sharing insurance products. Recently, Tang Loaec, the founder/CEO sent me this announcement of a strategic partnership to distribute the company’s products through Huaxia Finance across Greater China.

See Also: Is P2P a Realistic Alternative?

The second was Guevara, the U.K. motor insurer that was first to take the P2P model beyond a pure distribution play. I must give credit to Paul Andersen, Guevara’s co-founder and CEO, for the term “people-to-people insurance,” which is way more appropriate than peer-to-peer.

Since that article, there has been a stream of announcements from the pseudo-stealth peer-to-peer insurer Lemonade.

First, the company caught everyone’s attention with a $13 million seed round (which is significantly higher than usually associated with a pre-revenue, no-customer first raise.)

Then, the company announced a list of high profile reinsurers lined up to back the business when it launches later this year. The latest news is the announcement that the company had hired a chief behavioral officer in guru Dan Ariely.

There’s much speculation about what they’re going to do when they go live, but we’ll just have to wait and see on this one.

In the meantime, I’ve been drawn to a new wave of P2P insurers. Some on the blockchain, some using Bitcoin and all based on a self-governing, peer-to-peer network model.

The Next Wave of Peer-to-Peer Insurance is “Self-Governing”

The first wave is based on a distribution model where “friends and family” risk pools self-insured each other’s deductibles to lower premiums.

Then we saw the carrier model, wave 2. Here, the pools are the primary bearers of risk, and they share in any retained premiums not paid out in claims.

Wave 3 is the self-governing model, A back-to-the-future model that takes us further toward a mutual insurance than we’ve seen to-date.

To find out more, I Skyped with Alex Paperno, the co-founder of Teambrella, the Russian InsurTech that uses Bitcoin to hold client money.

This article appeared in The Digital Insurer.

8 Start-ups Aiming to Revive Life Insurance

In my last post, I described the state of the life insurance industry, including the pain points where InsurTech entrants are poised for impact.

The life insurance industry is suffering from a dying (literally) distribution model, complex products and a flawed purchase funnel.

New entrants can transform the industry by bringing a clean-sheet approach to:

  • Putting the client at the center of the business
  • Prioritizing the direct-to-client experience, including simpler products and path-to-purchase
  • Launching businesses on a back-end that enables low-cost, fast issuance and personalized underwriting and offers
  • Creating business models that align carrier and client interests and flex beyond protection-after-the-fact to providing value through prevention services
  • Supporting multi-channel servicing and claims management that satisfy clients
  • Using data responsibly to be proactive, personalized, timely, cost-effective and relevant
  • Treating life insurance as part of the client’s broader financial plan, including the connection to anticipating one’s healthcare requirements and managing the drivers, to the extent these are controllable, of health problems
  • Aligning with the demographic trends (the boomer handoff to the millennial generation and the emergence of the new majority in the U.S.) and the technology trends (mobile as the main screen; the role of social media in the client experience; and the application of big data to change the experience and business model)
  • Disproving orthodoxies that have become barriers to innovation for the sector, i.e., “insurance is sold not bought,” “the agent is the customer,” et al.

As much as start-ups are emerging and being funded aiming at health, home and auto, much less attention is being paid to either life insurance or its sibling, long-term care.

One founder/CEO with whom I spoke this week had two possible explanations: (1) Life insurance is the stepchild of the sector, and (2) the “sold not bought” orthodoxy is embedded, even among start-ups, which are typically seen as better not only at casting aside such self-imposed obstacles but seizing upon them as open doors for disruption. These factors may be deflecting entrepreneurial energy and attention in other directions.

See Also: InsurTech Can Help Fix Drop in Life Insurance

Long-term care has been a challenging product for traditional carriers, with players either abandoning the product or re-pricing and reconfiguring their products as flaws in earlier underwriting have become clear. According to Consumer Reports, between 2007 and 2012, 10 of the 20 top long-term-care providers stopped selling the product, and those in the business began raising rates, some reportedly as much as 90%, to address high claims projections.

That said, there are new ventures worth watching, and the good news about the relatively low level of attention being paid to life insurance, for those who see ignored space as white space, is that there could be more opportunity to succeed for those who engage.

Here are a few start-ups focused on the valuable white spaces:

In stealth mode are three companies worth keeping an eye on:

  • Sureify Labs is focused on “bridging the gap between insurers and their current and future policyholders” through a B2B offering aimed at helping traditional carriers move into the new world. The company’s site states that the platform “starts with consumer web and mobile applications that drive engagement through device-integrated wellness, savings and rewards programs tied to a policy. Behind the scenes, we give you as the carrier all the tools necessary to engage, communicate and up-sell your policyholders through digital mediums.” This sounds as though it would be a dream come true for carriers that are serious about building client-centric businesses.
  • Ladder, formed just a year ago (see: CB Insights report) is reportedly starting with a mobile value proposition built around easier and faster access to term life insurance, using available, permissible data sources to improve the underwriting process. If, as the name suggests, the company is building a value proposition that redefines the traditional notion of an insurance ladder – a construct that lets you plan for extra coverage when you’ll need it the most and taper off coverage at other times – I would expect them to develop more dynamic, effective relationships with clients than those propagated by the traditional one-and-almost-always-done insurance sales model.
  • Human Condition Safety (HCS’ site is under construction) is an example of a start-up focused on expanding the value a life insurance carrier can provide by offering prevention services in addition to protection. AIG became a strategic investor in the company earlier this year. HCS is said to be “developing wearable devices, analytics and systems to improve worker safety.”

A number of start-ups are building capabilities to solve carrier problems improving on the traditional distribution and product models. An investor might ask if these are businesses or features:

  • Force Diagnostics is focused on “combining science and a customer-centric streamlined process” to transform health and wellness screening. The expense (to the carrier), hassle (to the applicant) and elapsed time (a burden to all) associated with today’s underwriting requirements for blood and urine samples are ripe for reinvention.
  • Insurance Social Media, part of Serious Social Media, is offering a “set it and forget it” capability to improve agent effectiveness on social media. Given the demographic profile of the average agent (57 years old, and accustomed to pushing product), kick-starting their social media presence and providing relevant content solve pain points for today’s distributors. Of course, two questions regarding any start-up aiming to mass-produce content are: first, can such content come across as authentic, and second, how does this model scale?
  • Insquik offers agents a white label solution to create their own online stores. The focus is on term life automatic issuance up to $350,000 face value, and, according to the company’s site, aims specifically to serve the sub-segment of agents who “have access to large populations of consumers i.e., focused on Worksite Employee Benefits, Affinity Groups, Unions, Groups and Associations.”
  • Fitsense is a start-up coming out of StartupBootcamp that is building a data analytics platform focused on enabling insurance companies to reduce premiums “for anyone with a smartphone or wearable device.”
  • Sure provides a digital front-end and a more real-time experience for an old idea – a micro-duration life insurance policy that provides coverage during air travel. (In the pre-digital era, this was simply called “per trip coverage”.) American Express is one company that for more than 30 years offered air flight life insurance policies at varying face amounts, as part of a portfolio of travel-related protection benefits.

The opportunity for Insurtech to expand efforts in the life insurance category is not simply the commercial potential of disrupting a model that has proven its limitations. It is also the prospect of addressing a societal need that has been neglected for decades. These are two compelling reasons to encourage more participation by investors and entrepreneurs, stimulating a bigger pipeline of entrants to take on the reinvention of the category.

Are You Fit Enough for Growth?

When it comes to scrutinizing costs, most insurance companies can say, “Been there, done that. Got the T-shirt.” Managers are familiar with the refrain from above to trim here and cut there. The typical result is flirtation with the latest management trends like lean, outsourcing and offshoring. However, the results tend to be the same. Budgets reflect last year’s spending plus or minus a couple of percent.

Meanwhile, managers attempt to develop strategies to capitalize on the trends reshaping the industry – customer-centricity, analytics, digital platforms and disruptive delivery and distribution models. Yet, after all of the energy companies exert to reduce expenses, there is often little left over to spend on these strategic initiatives.

Why do you need to look at your expense structure?

A variety of pressures have led carriers to improve their cost structures. In all parts of the market, low interest rates and investment returns are forcing carriers to scrutinize costs to improve return on capital, or even to maintain profitability to stay in business.

After all of the energy that companies exert to reduce expenses, there is often little energy left over to spend on strategic initiatives.

P&C carriers with lower-cost distribution models have been able to channel investments into advertising and take share, forcing competitors to reduce costs to defend their positions. Consolidation in the health, group and reinsurance sectors have forced smaller insurers to either a) explore more scalable cost structures or b) put themselves up for sale. For life and retirement companies, lower interest rates have taken a toll on the competitiveness of investment-based products.

This spells trouble for companies that have not adequately sorted out their expense structure. And a shrinking insurance company sooner or later will run afoul of regulators, ratings agencies, distributors and customers. Even if expenses are shrinking, if revenue is declining more quickly then the downward spiral will accelerate. It is virtually impossible to maintain profitability without growth. Expenses increase with inflation, tick upward with each additional regulatory requirement and can spike dramatically when attempting to meet customer and distributor demands for improved experiences and value-added services.

The reality is that companies have to grow, and that’s difficult in a mature market, especially in times when “the market” isn’t helping. What’s the key to success, then? In short, growth comes from better capabilities, service, customer-focus and products – all of which require continuing investment in capabilities.

See Also: 2016 Outlook for Property-Casualty

The math doesn’t work unless you’re finding ways to spend less in unimportant areas and allocate those savings to more important ones. If your answer to any of the following questions is “no,” then it’s important that you look at your allocation of resources for capital, assets and spending:

  • Are you making your desired return on capital?
  • Are your growth levels acceptable?
  • Do you have an expense structure that lets you compete at scale?

The transformation of insurers from clerk-intensive, army-sized bureaucracies to highly automated financial and service operations has been a decades-long process. The industry has invested heavily enough in standardization and automation that one would expect it to be a well-oiled machine. However, when we look under the covers, we see an industry with a considerable amount of customization and one-offs. In other words, the industry behaves more like cottage industry than an industrial, scalable enterprise.

We know that expenses are difficult to measure, let alone control. But why are they so intractable?

The industry’s poorly kept secret is that insurers, even larger ones, have sold many permutations of products with many different features. All of these have risk, service, compensation, accounting and reporting expenses, as well as coverage tails so long the company can’t help but operate below scale.

Why are expenses so intractable? The issue is scale.

What defines operating at scale for you? A straightforward way to answer this question is to consider whether you’re operating at a level of efficiency on par with or better than the best in the marketplace. Where do you draw the line? The top 10% to 15%? The top 20% to 25%? Next, ask yourself if you, in fact, are operating at scale. Remove large policies and reinsurance that disguise operating results, then sort out how many differentiated service models you are supporting. Are you in the bottom half of performers? Are you in the top 50% but not the top quartile? Are you in the top quartile but not the top decile?

Every insurer needs a more versatile and flexible expense structure to fully operate at scale and be more competitive.

Competition is changing

Customers now have access to a wealth of information and are increasingly using it to make more informed choices. New market entrants are establishing a foothold in direct and lightly assisted distribution models that make wealth management services more affordable for more market segments. Name brands are establishing customer mind-share with extensive advertising. FinTech is shifting the way we think about adding capabilities and creating capabilities in near real time. Outsourcers are increasingly proficient and are investing in new technologies and capabilities that only the largest companies can afford to do at scale.

See Also: Don’t Do It Yourself on Property Claims

The competitive landscape will continue to change. More products will be commoditized – after all, consumers prefer an easy-to-understand product at a readily comparable price. As they do now, stronger companies will go after competitors with less name recognition and scale and lower ratings. Customer research and behavioral analytics will more accurately discern life-long customer behavior and buying patterns for most lifestyles and socio-demographic groups. The role of advisers will change, but customers of all ages will still like at least occasional advice, especially when their needs – and the products they purchase to meet them – are complex.

Table stakes are greater each year and now include internal and external digital platforms, data-derived service (and self-service) models, omni-channel distribution models and extensive use of advanced analytics. The need to improve time-to-market has never been more important. Scale matters. Because they can increase scale, partners also matter even more than in the past. If they have truly complementary capabilities, new partners can help you improve your cost curve because you can leverage their scale to improve yours (and vice-versa).

In conclusion, all companies – regardless of scale – need to ensure that their capital and operating spending aligns with their strategy and capabilities and the ways they choose to differentiate themselves in the market. In this transformative time, the ones that can’t or won’t do this will fall increasingly behind the market leaders.

Implications: Leave no stone unturned

  • Managing expenses is a job that is never finished. Even if you’ve already looked at expenses, it doesn’t mean that you get a pass from scrutinizing them afresh. You will always have to keep rolling that particular boulder up the hill. Acknowledging that you could always manage expenses better is the first step to doing it well.
  • Identify and commit to the cost curves that get you to scale. This may require new thinking about sourcing partners and which evolving capabilities hold the most promise for the future of the company. How transformative do your digital platforms need to be? Can the cloud help you operate more efficiently and economically? How constraining is your culture, management and governance?
  • Every company needs to invest. Every company needs to be “fit for growth.” You will need to increase expenses where it helps you compete and decrease it where it doesn’t. Admittedly, this is hard to do, but the companies that don’t do it successfully will be left by the wayside.