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10 Insurtechs for Superb Engagement

We have written about the key challenges that insurance carriers are facing. Winning insurtechs are those that tap into these challenges to accelerate digital transformation. In this post, we’ll focus on the first of seven different flavors of winners in fintech insurance: insurtechs that drive superb customer engagement.

Customer engagement leaves much to be desired

Most insurers still have low Net Promoter Scores. In spite of all the efforts and investments in the last years, customers continue to experience a lot of friction throughout the customer journey. And what is even more challenging, rising consumer expectations are more and more difficult to meet. The frame of reference is set, not by the service offered by other insurers, but by what customers experience when they reach out to other brands, for instance when using their smart phone.

See also: Core Systems and Insurtech (Part 1)  

There are a bunch of reasons why customer engagement is the first flavour we are exploring in this blog series. We believe customer engagement is the key to turning digital transformation efforts into a lasting competitive advantage:

  1. Customer engagement is the key to build trust
    This is what research told us: Trust is built by excelling in the daily provision of services. Touch point performance, the perceived quality of customer-facing employees, the ease of doing day-to-day business are the most important elements in building or reinforcing trust.
  2. Customer engagement offers new points of differentiation
    Because virtually every financial institution is simplifying its product range and individual products, it will become increasingly difficult to differentiate from competitors on a product level.  Consequently, the points of differentiation of financial services will shift to the way the company engages with customers, e.g. in service and customer experience.
  3. Service is becoming a much more important purchase driver
    In the past, you shared your thoughts and experiences with your neighbors over your backyard fence. Nowadays, people exchange their thoughts and experiences also over a virtual fence powered by smart phones and social media. Peer-to-peer information sharing is almost always about the service quality. This has a huge impact on our decision-making. We are less and less choosing solely on price any more; more and more we are — within a certain price bracket — choosing on service. Service is becoming a much more important purchase driver.
  4. Lack of customer engagement results in loss of value
    Every day, thousands of insurance and financial products are purchased that do not completely match the needs of the customer. The cancellation rate in life insurance is proof of this. Sunk costs include billions of euros in intermediation costs and, even more importantly, of course, huge loss of value for customers.
  5. Customer engagement is a primary source of profit
    Ample research shows that customers who have had real positive experiences will drive revenues and profit in a variety of ways. They are more open to other products of that company. They will be less sensitive for offers from competitors. The costs to serve will decrease. And the customers are more likely to advocate your services to friends and family.
  6. New entrants set new standards to engagement
    Not all new entrants will survive, but they will definitely set new standards. Despite the fact that they differ quite a lot in nature, they have one thing in common. Every new entrant is attacking the frictions and complex processes that customers have to deal with when working with financial institutions. Incumbents need to step up to the plate to keep up.
  7. Regulators scrutinize how the industry engages with customers
    During the first couple of years “after Lehman,” the various supervisory authorities have focused on the way money was made, and the quality of financial products. We now see that that focus has widened to just about every aspect of customer engagement: sales, advice, service, even advertising. Regulators are forcing insurers to have a 360-degree view of customer engagement to treat customers fairly.

Address the pain points

The challenge is to close the gap between the insurer and the customer. Moving from transaction to interaction, from one-way communication to a dialogue and from interaction to intimacy, taking the dialogue from exchanging information to actions.

Too often, customer engagement is mistaken for creating a Disney-like experience. We think the opportunities are much closer to home. In our work for insurers, we have learned that customers across the globe more or less experience the same pain points:

  • “They do not really know me. They do not understand my situation.”
  • “I am not convinced they act in my best interest.”
  • “They do not treat me nicely. I don’t think they would walk the extra mile.”
  • “Their information confuses me.”
  • “They don’t make it easy for me.”
  • “I am not sure what I’m covered for and what the overlap with other policies is.”
  • “It is not clear what the status of my claim is.”
  • “I am not sure what I am exactly paying for; it seems very expensive.”
  • “It takes ages to get an answer. And too often I’m not getting any.”
  • “What the call agent says is different from what the broker told me.”
  • “They don’t treat me fairly.”

Just imagine what would be accomplished in terms of customer engagement if all these pain points were solved.

Furthermore, insurance is still about averages, products, one-size-fits-all, paper, brokers and agents – which is not always in sync with changing customer preferences and what technology is able to. In fact, we notice that customer engagement technologies that are widely accepted in other industries are still hardly used in insurance.

Take the use of video. Research shows that only 7% of a conversation is about words, 38% is about tone of voice and 55% is about body language. We have seen quite a few successful WebEx implementations; e.g. bank employees who assist customers in the complex process of purchasing a mortgage, with application-to-proposal conversion rates increasing from 10% to 35%, and proposal-to-signed contract from 50% to 75%.

Another no-brainer is the use of YouTube channels to explain what customers should do when a particular event takes place. These channels are extremely effective to explain more complex consumer electronic products but are hardly used in insurance. Think of the application of social data to simplify the underwriting and onboarding process of new customers and consequently higher conversion rates, or to login to certain information to simplify the customer experience. Or take the poor state of FAQs at many insurers’ websites, while a company such as Zendesk is able to launch a tailored state-of-the-art solution in just a few weeks and at very low costs.

The Tripolis communication platform allows companies to take personalization to a next level, deploying real-time relevant dynamic content in, for instance, email campaigns. Customers receive personalized real-time information and offerings that anticipate their context, the time of day, where they are – not when the email is sent, but at the moment the email is opened. Obviously, this improves the impression of a one-to-one intimate relationship with the brand. While the use of such solutions is increasing fast in other industries; this is hardly the case in insurance.

Fortunately, more and more insurtechs are helping insurers to make a leap in customer engagement, to become much more effective in every step of the customer journey.

And, of course, we also see new entrants that are attacking specific frictions, complex processes and product and pricing imperfections that customers have to deal with when working with insurance companies. Trendwatching.com coined the term Clean Slate Brands: a whole new breed of exceptional new brands living by the rules of business 3.0 — newer, better, faster, cleaner, more open and responsive. Brands that consumers are therefore attracted to, also because they cannot have sinned yet.

See also: Insurtech: Unstoppable Momentum  

A line-up of 10 insurtechs that drive superb customer engagement in various stages of the customer journey:

PolicyGenius addresses the uncertainty of consumers with regard to gaps and overlaps in the various policies they hava purchased over time. PolicyGenius offers a highly tailored insurance check-up platform, where consumers can discover their coverage gaps and review solutions for their exact needs. PolicyGenius’ online store includes solutions from life and long-term disability to pet insurance. Quoting engines offer side-by-side comparisons of tailored policies.

Trov offers customized home insurance by allowing coverage of individual key items rather than a one-size-fits-all coverage set with average amounts. An app-based platform allows customers to discover and track the real-time value of their belonging. They simply upload the items they own to a digital locker, by scanning a product UPC code, entering an auto VIN number or a home address or looking up individual items in an in-app database. Trov (backed by leading fintech VC Anthemis) has partnered with a wide variety of proprietary data sources like Zillow (U.S. real estate), Blackbook (U.S. autos) and Symantics3 (global consumer products).

Erste Digital taps into the fast-growing use of social media and mobile to purchase products and services – quite neglected by traditional insurance companies. Erste Digital is a B2B digital broker platform selling “add on” insurance. The Scan2Insure mobile app allows customers to scan a barcode to instantly get a quote to insure the product. To sell through social media channels, Erste Digital has integrated the platform into YouTube, Instagram, and Facebook.

BIMA offers micro-insurance in 14 emerging markets in Africa, Latam and Asia, using a mobile-delivered model. Traditional insurance companies find it difficult to service those living on less than $10 per day. And that is a shame, because insurance is a powerful tool that can prevent families from falling back into poverty in case of illness and injury. BIMA gives customers access to micro-insurance that is paid for using prepaid mobile credit or postpaid billing. Policies start from $0.23 per month, and BIMA pays out within three days of receiving a claim. Today, BIMA serves more than 18 million customers.

Recently, BIMA decided to enter the health sector. In emerging markets, people need to travel far and spend many hours in waiting rooms to see a physician. BIMA’s mobile health services make it easy, quick and affordable to access medical advice from a qualified doctor via a tele-doctor service. Memberships are available in three, six or 12 month pre-paid packages and include an unlimited number of phone consultations with a qualified doctor for the whole family.

More about BIMA’s fascinating business model in one of our next posts.

Cuvva introduced a mobile app that enables the user to sign up, get a quote and buy coverage in less than 10 minutes. Quite different than what customers have to experience when they apply at the average insurance firm. Basically, a completely digital experience run from a smartphone. What is also addressing a customer need is that Cuvva gets customers covered for only as long as they need it; from a single hour to a whole day – rather than the usual single option of a year.

Another imperfection, at least in the eyes of customers, is the costs of deductibles. insPeer allows users to share insurance deductibles with their friends and family members.

Collision damage waiver and loss damage waiver on rental vehicles are also always expensive. Insuremyrentalcar provides the solution with a package that starts from $5 a day to $93.99 a year.

Embroker says it aims “to revolutionize the way businesses buy, manage and understand insurance.” The company combines the service and expertise of the best-in-class brokers with an innovative technology platform. The 100% online solution allows customers to optimize insurance spending with policy benchmarking tools and provides a real-time interface to track and manage claims, apart from many other beneficial features.

Claim Di and Snapsheet are both all about making the most important moment of truth of a car insurance, when an accident takes place and the claim process that follows, less of a hassle.

The Claim Di mobile app “shake and go” feature facilitates communication and claims between parties in an auto accident and their insurance companies. The drivers can shake the phone near the phone of another party who also uses Claim Di, allowing for an insurance claim without waiting for a surveyor from their respective insurance companies to arrive at the scene (which is common practice in Thailand). Claim Di also includes roadside assistance, a call service for insurance companies and a module to facilitate payment to claimants.

Snapsheet provides insurers the process and technology to optimize virtual claims operations. Claims adjusters get the tools they need to provide a seamless experience; a mobile solution enables customers of insurers to settle a claim completely virtually. The solution simplifies claims adjusting, reduces the cycle time and increases customer satisfaction. Consequently, Snapsheet’s solutions are transforming claims organizations into a customer-first experience and cost-efficient operation.

Bauxy’s offerings takes away hassle and frustrations in a very different way. They enable consumers to file their claims just by taking a photo of the invoice. No more queuing on the phone to talk with insurance company call agents, asking when the money will be reimbursed and getting frustrated in the process. Bauxy submits the claim on the consumer’s behalf.

What these insurtechs have in common is that they cut two ways. On the one hand they solve frictions and dramatically improve customer engagement. On the other hand, they simultaneously improve operational efficiency. In our view, this is what makes an insurtech a winner.

In our next post we will focus on the second flavor of winners in fintech insurance; insurtech solutions for dramatic cost savings. So stay tuned!

New Era of Commercial Insurance

Despite a generally soft market for traditional P&C products, the fact that so many industries and the businesses within them are being reshaped by technology is creating opportunities (and more challenges). Consider insurers with personal and commercial auto. Pundits are predicting a rapid decline in personal auto premiums and questioning the viability of both personal and commercial auto due to the emergence of autonomous technologies and driverless vehicles, as well as the increasing use of alternative options (ride-sharing, public transportation, etc.).

Finding alternative growth strategies is “top of mind” for CEOs.  Opportunities can be captured from the change within commercial and specialty insurance. New risks, new markets, new customers and the demand for new products and services may fill the gaps for those who are prepared.

Our new research, A New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance at a Time of Market Disruption, highlights how changing trends in demographics, customer behaviors, technology, data and market boundaries are creating a dramatic shift from traditional commercial and specialty products to the new, post-digital age products redefining the market of the future.

See also: Insurtechs Are Pushing for Transparency

Growth Opportunities

New technologies, demographics, behaviors and more will fuel the growth of new businesses and industries over the next 10 years. Commercial and specialty insurance provides a critical role to these businesses and the economy — protecting them from failure by assuming the risks inherent in their transformation.

Industry statistics for the “traditional” commercial marketplace don’t yet reflect the potential growth from these new markets. The Insurance Information Institute expects overall personal and commercial exposures to increase between 4% and 4.5% in 2017 but cautioned that continued soft rates in commercial lines could cause overall P&C premium growth to lag behind economic growth.

But a diverse group of customers will increasingly create narrow segments that will demand niche, personalized products and services. Many do not fit neatly within pre-defined categories of risk and products for insur­ance, creating opportunities for new products and services.

Small and medium businesses are at the forefront of this change and at the center of business creation, business transformation and growth in the economy.

  • By 2020, more than 60% of small businesses in the U.S. will be owned by millennials and Gen Xers — two groups that prefer to do as much as possible digitally. Furthermore, their views, behaviors and expectations are different than those of previous generations and will be influenced by their personal digital experiences.
  • The sharing/gig/on-demand economy is an example of the significant digitally enabled changes in people’s behaviors and expectations that are redefining the nature of work, business models and risk profiles.
  • The rapid emergence of technologies and the explosion of data are combining to create a magnified impact. Technology and data are making it easier and more profitable to reach, underwrite and service commercial and specialty market segments. In particular, insurers can narrow and specialize various segments into new niches. In addition, the combination of technology and data is disrupting other industries, changing existing business models and creating businesses and risks that need new types of insurance.
  • New products can be deployed on demand, and industry boundaries are blurring. Traditional insurance or new forms of insurance may be embedded in the purchase of products and services.

Insurtech is re-shaping this new digital world and disrupting the traditional insurance value chain for commercial and specialty insurance, leading to specialty protection for a new era of business. Consider insurtech startups like Embroker, Next Insurance, Ask Kodiak, CoverWallet, Splice and others. Not being left behind, traditional insurers are creating innovative business models for commercial and specialty insurance, like Berkshire Hathaway with biBERK for direct to small business owners; Hiscox, which offers small business insurance (SBI) products directly from its website; or American Family, which invested in AssureStart, now part of Homesite, a direct writer of SBI.

The Domino Effect

We all likely played with dominoes in our childhood, setting them up in a row and seeing how we could orchestrate a chain reaction. Now, as adults, we are seeing and playing with dominoes at a much higher level. Every business has been or likely will be affected by a domino effect.

What is different in today’s business era, as opposed to even a decade ago, is that disruption in one industry has a much broader ripple effect that disrupts the risk landscape of multiple other industries and creates additional risks. We are compelled to watch the chains created from inside and outside of insurance. Recognizing that this domino effect occurs is critical to developing appropriate new product plans that align to these shifts.

Just consider the following disrupted industries and then think about the disrupters and their casualties: taxis and ridesharing (Lyft, Uber), movie rentals (Blockbuster) and streaming video (NetFlix), traditional retail (Sears and Macy’s) and online retail, enterprise systems (Siebel, Oracle) and cloud platforms (Salesforce and Workday), and book stores (Borders) and Amazon. Consider the continuing impact of Amazon, with the announcement about acquiring Whole Foods and the significant drop in stock prices for traditional grocers. Many analysts noted that this is a game changer with massive innovative opportunities.

The transportation industry is at the front end of a massive domino-toppling event. A report from RethinkX, The Disruption of Transportation and the Collapse of the Internal-Combustion Vehicle and Oil Industries, says that by 2030 (within 10 years of regulatory approval of autonomous vehicles (AVs)), 95% of U.S. passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model called “transportation-as-a-service” (TaaS). The TaaS disruption will have enormous implications across the automotive industry, but also many other industries, including public transportation, oil, auto repair shops and gas stations. The result is that not just one industry could be disrupted … many could be affected by just one domino … autonomous vehicles. Auto insurance is in this chain of disruption.

See also: Leveraging AI in Commercial Insurance  

And commercial insurance, because it is used by all businesses to provide risk protection, is also in the chain of all those businesses affected – a decline in number of businesses, decline in risk products needed and decline in revenue. The domino effect will decimate traditional business, product and revenue models, while creating growth opportunities for those bold enough to begin preparing for it today with different risk products.

Transformation + Creativity = Opportunity

Opportunity in insurance starts with transformation. New technologies will be enablers on the path to innovative ideas. As the new age of insurance unfolds, insurers must recommit to their business transformation journey and avoid falling into an operational trap or resorting to traditional thinking. In this changing insurance market, new competitors don’t play by the rules of the past. Insurers need to be a part of rewriting the rules for the future, because there is less risk when you write the new rules. One of those rules is diversification. Diversification is about building new products, exploring new markets and taking new risks. The cost of ignoring this can be brutal. Insurers that can see the change and opportunity for commercial and specialty lines will set themselves apart from those that do not.

For a greater in-depth look at the implications of commercial insurance shifts, be sure to downloadA New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance at a Time of Market Disruption.

A Simple Model to Assess Insurtechs

“The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative.”

― Peter Thiel, Zero to One

Whether we’re talking about telematics, artificial intelligence (AI), digital distribution or peer-to-peer, investing in insurance-related technology (commonly termed “insuretech” or “insurtech”) is no longer considered boring. In fact, insurtech is one of the hottest investable segments in the market. As a 20-plus-year veteran in insurance, I find it surreal that insurance has become this hip. Twenty years ago, I gulped as I sent an email to the CFO of my company, where I proposed that there was a unique opportunity in renters insurance. That particular email was ignored. Today, that idea is worth millions of dollars.

What changed?

Insurance seems to be the latest in a string of industries caught in the crosshairs on venture capital. With the success of Uber and AirBnB, VCs are now looking for the next stale industry to disrupt, and the insurance industry carries the reputation of being about as stale as they come. The VCs view the needless paperwork, cumbersome purchasing processes, dramatic claims settlement and overall old-school look and feel of the industry and think they can siphon those trillions of dollars of premium over to Silicon Valley. It seems like a reasonable thesis.

The problem is, it’s not going to happen that way. Insurance will NOT be disrupted. While insurance looks old and antiquated on the exterior, it is actually quite modern and vibrant on the interior. The insurance industry is actually the Uncle Drew of businesses; it’s just getting warmed up!

The Model

Much of the reason I think VCs are unaware of their doomed quest for insurance disruption is that they are looking at the market from a premium standpoint and envisioning being able to capture large chunks of it. $5 trillion is a lot of money. Without an appropriate model, an outsider coming into insurance can naively think they can capture even a fraction of this. But premium is strongly tied to losses. Those premium dollars are accounted for in future claims.

I once had a VC ask me what the fastest way to $100 million in revenue was. The answer is easy, “slash the premium.” I had to quickly follow up with, “and be prepared to be go insolvent, as there is no digging yourself out of that hole.” He didn’t quite get it, until I walked him through what happens to a dollar of premium as it enters the system. And it was this that became the basis of the model I use to assess new product formation and insurtech startups.

There are four basic components to my model. Regardless of new entrants, new products or new sources of capital, these four components remain everpresent in any insurance business model. Even if a disruptive force was able to penetrate the industry veil, that force would still need to reflect its value proposition within my four components.

Component 1 – EXPOSURE

This is the component that deals with insurance claims: past, present and future. Companies or products looking to capture value here must be able to reduce, prevent, quantify or economically transfer current or new risks or losses. Subcomponents in this category include expenses arising from fraud and the adjustment of claims, both of which can add substantially to overall losses.

See also: Insurance Coverage Porn  

Startups such as Nest are building products that increase home security by decreasing the likelihood of burglary (or increasing the likelihood of capturing the criminals on video) and thus reduce claims associated with burglary or theft. Part of assessing the value proposition of Nest is to first understand the magnitude of the claims associated with burglary and theft and then quantify what relief this product could provide (along with how that relief should be shared among stakeholders).

Another company that is doing some interesting things in this model component is Livegenic (disclaimer: I have become friends with the team). Livegenic allows insurers to adjust claims and capture video and imagery using the mobile phone of the insured. This reduces the expenses associated with having to send an adjuster out to each and every claim. Loss adjustment expenses can be in excess of 10% of all claims, so technology that reduces that by a few basis points can be quite valuable to an insurer’s bottom line and ultimately its prices and competitiveness.

Component 2 – DISTRIBUTION

This component focuses on the expenses associated with getting insurance product into the hands of a customer. Insurtech companies in this space are typically focused on driving down commissions. This can be done by eliminating brokers and going directly to customers. Savings can also be achieved by creating efficient marketplace portals that allow customers to easily buy coverage.

Embroker is one of many companies trying to do just that in the small commercial space by creating a fully digital business insurance experience. Companies such as Denim Labs are providing social and mobile marketing services to companies in insurance. And then there is Lemonade, which is developing AI technology that it hopes will reduce the friction of digitally purchasing (its) insurance and making the buying process “delightful.”  Peer-to-peer (P2P) insurance is a fairly new insurtech distribution model that attempts to use the strength of close ties via social methods for friends and close associates to come together to make their own insurance pools.

Distribution expenses in insurance are some of the highest in any industry. As with the risk component, reducing expenses in this component by even a few basis points is incredibly valuable.

Component 3 – CAPITAL

This component focuses on the expenses associated with providing capital or the reinsurance backstop to a risk or portfolio. For many insurers, reinsurance is the largest expense component in the P&L. Capital is such an important component to the business model that the ramifications of it almost always leak into the other components. This was one of my criticisms of  Lemonade recently. Lemonade will have a lot of difficulty executing some of the aspects of its business model simply because it cedes 100% of its business to reinsurers. So, when it comes to pricing or its general underwriting guidelines, its reinsurance expenses will overwhelm other initiatives. Lemonade can’t be the low-cost provider AND a peer-to-peer distributor because its reinsurance expenses will force it to choose one or the other. This is a nuance that many VCs will miss in their evaluation of insurtechs!

For those seeking disruption in insurance, we have historical precedent of what that might look like based on the last 20 years of alternative capital flooding into the insurance space. I will devote space to this in future articles, but, in brief, this alternative capital has made reinsurance so inexpensive that smaller reinsurers are facing an existential crisis.

Companies such as Nephila Capital and Fermat Capital are the Ubers of insurance. Their ability to connect investors closer to the insurance customer along with their ability to package and securitize tranches of risk have shrunk capital expenses tremendously. Profit margins for reinsurers are collapsing, and new business models are shrinking the insurance stack. It is even possible today to bypass BOTH veritable insurers and reinsurers and put the capital markets in closer contact with customers. (If you are a fan of Michael Lewis and insurance, you will enjoy this article, which ties nicely into this section of the article).

In the insurtech space, VCs are actually behind the game. Alternative capital has already disrupted the space, and many of the investments that VCs are making are in the other components I have highlighted. Because of the size of this component, VCs may have already missed most of the huge returns.

Component 4 – OPERATIONS

The final component is often the one overlooked. Operations includes all of the other expenses not associated with the actual risk, backing the risk or transferring the risk from customer to capital. This component includes regulatory compliance, overhead, IT operations, real estate, product development and staff, just to name a few.

It is often overlooked because it is the least connected to actually insuring a risk, but it is vitally important to the health and viability of an insurer. Mistakes here can have major ramifications. Errors in compliance can lead to regulatory problems; errors in IT infrastructure can lead to legacy issues that become very expensive to resolve. I don’t know a single mainstream insurer that does not have a legacy infrastructure that is impinging on its ability to execute its business plan. Companies such as Majesco are building cloud-based insurance platforms seeking to solve that problem.

See also: Why AI Will Transform Insurance  

It is this component of the business model that allows an insurer to be nimble, to get products to market faster, to outpace its competitors. It’s not a component that necessarily drives financial statements in the short term, but in the long run it can be the friction that grinds everything down to a halt or not.

SUMMARY

I have presented a simple model that I use when I assess not just new insurtech companies but also new insurance products coming into the market. By breaking the insurance chain into these immutable components, I can estimate what impact the solution proposed will provide. In general, the bigger the impact and the more components a solution touches the more valuable it will be.

In future articles, I will use this model to assess the insurtech landscape. I will also use this model to assess how VCs are investing their capital and whether they are scrutinizing the opportunities as well as they should, or just falling prey to the fear of missing out.

Originally published at www.insnerds.com,

Asia Will Be Focus of Insurtech in 2017

Asia will be the key pillar in the coming revolution of insurance and in all likelihood will become the hottest market for insurance technology (insurtech) globally. It’s no longer just a pipe dream, as this time all the stars are aligning. Take the sheer population size and rapidly emerging tech-savvy middle class, together with low effectiveness of traditional insurance distribution. Combine that with a destabilizing wave of political populism, making its rounds across much of the developed world, and you’ve got most of the ingredients for a region that will take on a leading global role for insurtech.

So what, if anything, is missing to really ignite insurtech in Asia? It turns out that while the region is ripe for insurtech, the actual quantity and quality of startups in Asia is nowhere near that of other regions… at least not yet.

Share of investments in insurance startups can be used as a good proxy to the overall level of insurtech activity around the world. According to the figures, the U.S. takes 63%, with Germany (6%), U.K. (5%) and France (3%). China is at 4% – which doesn’t account for Zhong An’s massive investment in 2015 — and India at 5% (Source: CB Insights).

See also: The Future of Insurance Is Insurtech  

So the logical question is, why aren’t there more startups in Asia, considering the substantial opportunity and funding that exists in the region? Is it due to a shortage of experienced entrepreneurs, difficulty of starting a business, lack of access to investment or something else? The answer is that it’s likely a combination of a few factors, including a weaker early-stage entrepreneurial ecosystem, which doesn’t yet effectively support startups, and a cultural aspect of lesser tolerance for failure. Both of these are changing fast, though, and entrepreneurs across Asia are starting to identify and test innovative insurtech solutions.

The following are just a few recent notable insurtech startup examples across Asia that have already reached beyond Series A funding: Zhong An (an $8 billion Chinese insurtech startup), Connexions Asia (Singaporean flexible employee benefits platform with a U.S.$100 million valuation), and two large insurance aggregators out of India– Policybazaar and Cover Fox.

So why am I convinced that Asia insurtech startups will not end up dominating their regional home turf ?

Probability and “Survival of the Fittest”

The lack of critical mass of startups in the region means that they will not enjoy the same quality filters and network effects of the larger entrepreneurial ecosystems of the U.S., Europe and to a somewhat lesser degree China.

“Surviving” U.S. and European startups have to fight their way across a lot more competition to reach scale in their home markets. Hence, where a weaker startup in Asia could get repeated life support simply because there aren’t that many others to invest in, natural selection weeds out the weaker models in EU/U.S. much quicker in favor of more robust ones. Stronger startups then get to attract the best talent from the entrepreneurial ecosystem, including talented entrepreneurs whose models didn’t work as well, further reinforcing successful EU/U.S. startups.

Home Market Advantage

Success in a large home market like the U.K., Germany or a few U.S. states gives a substantial boost to any startup. It provides both credibility and cash flow to allow a much more aggressive expansion into other regions. This also gives a startup flexibility to develop the necessary adjustments to the business model to adapt it for Asia.

The U.S. and EU have a deep domain level of insurance expertise, which gives EU/U.S. startups from those regions a further edge to tap advisory expertise locally, because most of the largest global insurers are based in these two regions.

Lastly, considering that most startups adopt a collaborative approach with insurance companies, having a relationship that originates close to the top decision maker at headquarters gives an added advantage to EU/U.S. startups when they are looking at expanding to new regions. I’ve personally experienced examples of relationships developed in Europe that later carried over in creating a pre-warmed partnership with the insurer’s operations in Asia.

Regulatory Complexity

Asia is made up of a large number of countries, where each has its own insurance regulator, who possess views on how things should be run. This means an additional potential growth hurdle for Asian startups.

For example, a startup out of Singapore will need to figure out how to navigate the neighboring Asian country regulatory regimes pretty early in its growth cycle. Thailand, Malaysia, Indonesia and Vietnam markets all have diverse regulatory requirements. This lands the Singaporean startup at a disadvantage vs. a more mature startup out of EU/U.S. – which not only has experience dealing with regulators in its home market but also possesses a proven track record and a larger resource pool that it can use to overcome any regulatory issues.

Meet Future Leaders of Asia InsurTech

Here are  35 insurance startups from across the U.S., Europe and China that have a real shot at collaboratively shaping the future of Asia’s insurance . Granted that not all of these startups will successfully adapt their models for Asia, a few would and will go on to successfully dominate Asia’s insurtech landscape in the foreseeable future.

Credit: George Kesselman

Credit: George Kesselman

The future of insurance in Asia is coming fast, and it’s looking pretty exciting!

See also: Insurtech Has Found Right Question to Ask  

Below are links/brief description of each of these 35 ventures.

U.K.

  • Guevara – People-to-people car insurance
  • Bought by Many – Insurance made social
  • Cuvva – Hourly car insurance on-demand
  • SPIXII– AI insurance agent
  • Gaggel – A better alternative to mobile phone insurance.
  • ClientDesk – Digitizing the insurance industry
  • Insly – Insurance broker software

Germany

  • SimpleSurance – World’s leading e-commerce provider for product insurances
  • Friendsurance – The future of insurance (P2P)
  • Getsafe – One-stop digital solution for all your insurance matters
  • Finanz-chef24 – Germany’s largest digital insurance for entrepreneurs and self-employed
  • Money-Meets – Save money and improve finances
  • Clark – Insurance as easy as never before
  • MassUP – White-labeled platform for online insurance sales
  • FinanceFox – Your insurance hero

USA

  • Metromile – Pay-per-mile insurance (usage-based auto insurance)
  • Oscar – Smart, simple health insurance.
  • Zenefits – Online HR Software | Payroll | Benefits – All-In-One (EB distribution)
  • Policy Genius – Insurance advice, quoting and shopping made easy
  • Embroker – Business insurance in the digital age
  • Slice – On-demand insurance for the on-demand economy.
  • Trov – On-Demand insurance for your things
  • Cover Hound – Compare car insurance quotes from top carriers
  • Insureon – Small-business insurance
  • Bunker – The marketplace for contract-related insurance
  • Lemonade – Peer-to-peer renters and homeowners insurance
  • Cyence – Comprehensive platform for the economic modeling of cyber risk

China

Why Disintermediation Is Overrated

Venture capital money has poured into insurance technology to the tune of more than $3 billion in the last 18 months. Much of this capital has financed companies founded under ambitious missions and goals:

“It’s a digital-first, direct-to-consumer agency — we’ll be a carrier in 18 months.”

“We’re a mobile-first, full-suite personal insurance shopper.”

“We’re leveraging IoT and blockchain to completely redefine underwriting — in a way that makes sense to consumers.”

Wow, sounds disruptive.

Anyone close to the insurance industry has heard some variation of these assertions countless times over the past 18 months as entrepreneurs have identified the antiquated insurance industry as one ripe for disruption. There’s no arguing that insurance is a relative laggard in a financial services industry that has seen material innovation over the past decade. Advancements in payments, investment management and lending have permanently altered the way consumers think about banking and the movement of capital, while insurance has remained relatively underserved by technology.

See also: Find Your Voice as an Insurance Agent  

Technological innovation across industries has typically come in two ways: through uprooting incumbents or through empowering the existing system. In industries and business lines that are largely commoditized, the former approach has historically created lasting value — with Uber being a prime example. Meanwhile, industries that require expertise or personal touch have generally innovated incrementally by enabling existing channels — Charles Schwab or Sabre are examples.

Most agree technology will improve the user experience in insurance. Most agree technology will provide new access to data sources to improve underwriting. But will technology actually displace the incumbents and existing institutions? Is that the approach that will work in insurance? In some cases, yes. In the case of the commercial insurance, we generally think not.

Disintermediation? We see empowerment.

At first glance, commercial insurance may seem like an ideal candidate for meaningful disruption. It is a substantial market with more than $240 billion in premiums written annually; it has a brick-and-mortar, aging distribution channel (39,000-plus retail agents with an average age over 50); it primarily operates with pen and paper communication; and it largely functions in a data vacuum. In addition to these structural features, many small commercial policies can now be quoted, rated and bound instantly (they don’t need human review). This seems like a startup opportunity in a box.

With these market fundamentals in hand, a host of direct-to- consumer digital insurance brokers or companies (MGAs) are entering the market with the intent of disintermediating existing channels and delivering instant policies to small commercial insureds. Examples of some of these are Next Insurance, Embroker, Coverwallet, Trym — and the list goes on. For some business owners, purchasing coverage in this manner may in fact be the best way to transfer their business’ risks. Though it is quite likely the amount of premium placed through digital channels will increase from its current number (around 4%), we see the incumbent brick-and-mortar retail brokers, who command 96% of placed premium, as incredibly entrenched for a host of reasons:

  1. Commercial insurance is complex. Each business has unique risks that business owners struggle to understand. The alphabet soup that is commercial insurance and discussions of CGL, EPLI, E&O, coverage limits and deductibles are often met with blank stares. So, even if business owners understood their risks and could purchase coverage directly, they often are not familiar with what they are buying.
  2. Brokers actually acquire customers quite efficiently, and it may be difficult (or impossible) to acquire customers online at the same cost that brokers do through more traditional means. Acquisition of small and medium-sized business (SMB) clients generally works best when done vertically or locally — most brokers, local to their area and experts in specific products, fit that mold.
  3. Commercial insurance policies are not commodities. Each policy is unique and has its own specific set of coverages, endorsements and exceptions. An experienced agent has immense value to the insured navigating potential coverages.
  4. There is no cost savings by going around a traditional broker. Brokers are free insurance consultants to the client, and there is no cost difference between going through a digital channel vs. a traditional one.
  5. In commercial insurance, the buyer is insuring against certain things that could put her entire business at risk. A trusted adviser is, therefore, incredibly important in understanding various policies and insurable risks.

Unless there are significant advancements in artificial intelligence and reductions in marketing costs, we don’t see the possibility for meaningful disruption or displacement of the broker in the near term. We do, however, believe in a massive network of digitally empowered brokers.

The digital broker

Imagine a world where a technology platform gives a network of brokers the same digital tools that are being produced by the technology startups trying to replace them. The broker now has a digital interface that services insureds quickly while simultaneously providing expert advice that takes years to amass.

See also: 3 Ways to Improve Agent/Insurer Links  

Moreover, there is meaningful precedent for industries with the above dynamics to become empowered, not disrupted, by technology. Charles Schwab became a household name largely because it allowed wealth managers to break away from banks, freeing them from the operational overhead of having to build trading, reporting or portfolio management systems. Schwab enabled wealth managers to focus on being a high-quality consultant to its clientele. This has also been exhibited in real estate, where startups have empowered real estate agents with infrastructure and data science to provide a level of service and expertise on par with companies like Amazon and Google.

Both of these examples illustrate the transformative effect of empowering existing, experienced distributors of complicated and operationally intensive products. We see this same future for commercial insurance brokers.