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Insurtechs Are Specializing

Money has been pouring into insurtechs, reaching a record of almost $2 billion in Q4 2019. Since 2018, investors have put more than $1 billion per quarter into companies seeking to shake up the industry. Not a single market segment has been untouched.

In 2020, the focus will be on innovating with insurtechs that enable incumbents. One report found that 96% of insurers said that they wanted to collaborate with insurtech firms in some way. Those surveyed favored partnerships and the software as a service (SaaS) approach to developing new solutions. There’s a rapidly growing list of insurer and insurtech partnerships.

See also: An Insurtech Reality Check  

Insurtechs are developing to solve niche problems, and most aren’t aiming to tackle every vertical or every phase of the process. We all know the saying, jack of all trades, master of none. Insurtechs are focused on being the master at very specific parts of the value chain. Allianz has partnered with Flock, an insurtech startup offering pay-per-flight drone insurance; Aviva partnered with Digital Risks in the U.K. to develop insurance for startups and small and medium-sized enterprises (SMEs); and State Farm partnered with Cambridge Mobile Telematics to deliver usage-based insurance to drivers in the U.S.

One big driver of these partnerships is the inability of one company to do everything at once. Synergies can be realized when combining complementary skills. In Germany, Generali formed a partnership with Nest to offer homeowners insurance that leverages Nest’s smart home technology. Nest’s technology detects smoke and carbon monoxide and sends alerts to customer’s phones, reducing the risk for the insurer. Nationwide’s partnership with sure.com allows it to sell renters insurance through an app; Nationwide is still handing the underwriting and policy management separately. 

More and more, incumbents are working with several insurtechs that integrate to bring change to every aspect of the industry. 

Insurtechs bring the speed, agility and technological skills that incumbents need.

As Deloitte’s 2020 Insurance Outlook pointed out, “Despite some attempts to upgrade legacy marketing and distribution systems… carriers continue to struggle to drive more effective connections with consumers accustomed to online shopping and self-service.” Trying to bring legacy systems into the current age of digitization simply isn’t working, and, if incumbents try to build in-house, they face a longer time to market and higher costs.

Partnering with an insurtech company allows incumbents to quickly bridge the innovation gap, where technology changes faster than their ability to keep up. The estimated timeframe to develop solutions in-house is around 18 months, whereas you can be up and running in as little as three months if you partner with an insurtech. Moreover, incumbents that partner can respond more quickly to changing customer demands and lessen their risk of losing market share to a competitor. 

See also: How Tech Makes Sector Safer, Smarter  

For their part, insurtechs have realized that seeking to disrupt and replace incumbents can be too costly. To run a successful insurance company, you need significant capital, which is difficult for startups to raise. The insurance industry is also regulation-heavy, making it difficult for newcomers to find a place. Startups struggle to access the complex networks that support insurers. The industry presents too many barriers to independent disruption, but partnership benefits everyone involved.

Insurers are ready to innovate and have the data and distribution networks to support large-scale rollouts. Insurtechs have the technology and the agility to come into a large organization in the midst of change, work with its legacy systems, partner with insurtechs solving other problems in the supply chain and provide immediate value in moving them into the digital world. Both sides of the equation are ready and willing to realize the benefits of working together.

Expanding Into Small Commercial

Small commercial remains a fundamentally attractive sub-segment of commercial insurance. It is intrinsically a large and underserved market; while many small businesses are confident about their business needs, they are often unknowingly underinsured. For example, according to our recent global survey of small business owners, nearly two-thirds of U.S. small businesses do not have business interruption coverage, and 53% lack indemnity coverage. Additionally, once small business owners have a policy in place, they are generally less prone to shopping and switching carriers than larger customers. Their agents also have limited incentives to facilitate this process given lower levels of commission. This has traditionally helped well-established small commercial players better navigate the ebbs and flows of the underwriting cycle, with more than decent levels of profitability for those who can navigate the more sophisticated pricing environment and agency consolidation trends.

A market primed for significant disruption

Most traditional small commercial players, which rely primarily on agency distribution, have operated the same way for decades and are now saddled with inefficient operations and bloated cost structures. While some of them have made sensible strategic moves (e.g., expanding their underwriting appetite by acquiring or building excess and surplus lines capabilities), none has demonstrated a “silver bullet” solution that puts them safely ahead of the pack or better positioned to deter entrants. In a challenge to incumbents, technology (e.g., advances in automation transforming underwriting and servicing) is increasingly lowering barriers to entry.

Additionally, there is unmet demand among small business owners for digital insurance offerings due to a shift in purchasing preferences. Nearly 90% of small commercial purchasing decisions are made by business owners, many of whom have been conditioned by their personal shopping experiences (e.g., 77% of customers who purchase personal insurance online prefer purchasing commercial insurance online, as well). This has had a major impact on their attitudes for other insurance products, as 33% of U.S. small businesses would prefer purchasing commercial insurance online. For millennial small business owners, that number climbs to 75%. Despite this rise in demand, only about 1% of commercial insurance policies are currently sold without any intermediaries, compared with around 10% of homeowners policies and 30% of personal auto policies.

This confluence of factors may convince a number of players that entering or further breaking into small commercial and successfully underpricing incumbents should be a relatively straightforward exercise. However, we have yet to see even early disruption of this sub-segment, even though it has grabbed recent headlines and many players have increased their focus and investments in the space (either as new entrants or incumbents who have not traditionally prioritized their small commercial business). While incumbents have generally maintained their dominant position, small commercial outsiders, including 1) predominantly middle market carriers moving downmarket, 2) personal lines carriers moving upmarket and 3) startups, have found the market challenging. We explain below why this is has been the case.

A) Middle market and super-regional commercial carriers

The lower end of the small business market can constitute a logical growth opportunity for middle market and super-regional commercial carriers, especially as their producers avoid small and micro risks. For carriers, these risks are attractive because they are generally less price-sensitive and easier to underwrite than the more complex business they typically handle.

Channel conflicts. One key challenge is managing channel conflict with the existing agency force. Generally, entering small commercial requires expanding the agency network. In addition to committing the time and resources necessary for expansion, carriers also need to be extremely careful and subtle in how they assuage the concerns of their existing agency force, many of whom may view the shift downmarket as a “decommitment” by the carrier to its existing larger accounts and loyal agents. Because smaller risks can be costly for agents to acquire and service relative to commission, many carriers going after small commercial have to regularly emphasize to their top producers that they are pursuing business that producers don’t want. Others look to collaborate with their mid-market agents by providing incentive compensation for referring micro accounts.

See also: The 5 Big Initiatives in Commercial Lines  

Operational efficiency. Another key challenge is operational efficiency. Given the risks these carriers traditionally underwrite and process, many of them have grown comfortable with manually intensive processes. Succeeding in small commercial requires low-to-no touch processes that support the speed and scalability required to handle a high transaction volume. Straight-through processing has become table stakes to acquire and service a greater number of customers at a lower cost, as has using tools to monitor the performance of the book in real time to avoid adverse selection.

B) Personal lines carriers

For predominantly personal lines carriers, diversifying away from increasingly commoditized business and moving upmarket can also constitute the next logical growth opportunity. In fact, several leading personal lines players, including Allstate, Berkshire Hathaway through biBERK and Progressive, have clearly announced or demonstrated over the last few years that they are making small commercial a higher priority.

Advertising. A key challenge for these carriers as they move upmarket is generating awareness of their offerings. While spending billions of dollars annually on mass advertising may work in personal lines, small commercial requires a different marketing approach. They need to consider alternative means of getting small business owners’ attention, such as building affinity partnerships that can help funnel traffic in preferred customer segments, or deploying targeted advertisements on social media.

Distribution. Another top challenge is picking the right distribution channel(s). Building a brand new network of small commercial agents can be an expensive enough proposition for middle market carriers, but with personal lines carriers that rely on independent agents the cost can be even higher as there is usually less overlap with their current agency force. As such, sticking with an agency distribution channel may be a significant barrier to entry for some players. Building strong digital customer-facing quote, bind and service capabilities can be a way around that. In addition to aligning with trends in small business owner expectations, personal lines carriers that choose to go direct can potentially take advantage of a lower expense base from not having to pay commission and redirect that to price savings. But it makes the advertising challenge even more significant.

C) Startups

Even though a non-traditional player has yet to make a significant dent into the market, a variety of tailored solutions continue to emerge. Newer entrants like Bunker and Founder Shield have focused on specific underserved customer segments. Others have attempted to innovate by providing purely direct-to-customer offerings for commercial lines (e.g., Pie Insurance for workers’ compensation).

Insurance knowledge. Many insurance startups owe more to their marketing ideas and technology-savvy staff than to their founders’ understanding of the industry, which can leave some significant blind spots. Incumbents often are able to rely on extensive, high-quality experience datasets to distinguish good risks from bad ones and appropriately price them. Startups usually lack this fundamental information.

Foundational insurance infrastructure. A slick front-end website has limited benefits if it’s not backed by essential middle- and back-office functions like risk management, policy endorsements processing and other post-bind servicing (e.g., annual premium audits). Many startups have to stand up these functions and don’t have the expertise to effectively navigate and operate in different state regulatory environments. For startups looking to grow fast, building these capabilities from scratch can seem prohibitively expensive and time-consuming. However, there are plenty of partnership opportunities that can expedite this process, as well as options for renting solutions as opposed to buying them (e.g., licensed producers, cloud-based platforms).

The digital opportunity

Small commercial outsiders need to consider how they are going to provide a digital end-to-end experience along the entire customer journey to meet small business owner needs. This requires a clearly defined digital small commercial go-to-market strategy that addresses customers, products and services, pricing, channels and brand. Indeed, many current small commercial players have already recognized this shift and are investing in enhancing their existing digital capabilities, including via strategic partnerships (e.g., with fintechs). These players are looking to create true omni-channel offerings and increase the loyalty of their existing customers.

Other players are pursuing small commercial opportunities by building differentiating business models. These “digital attackers” are creating purely digital offerings that emphasize speed and ease-of-use while avoiding the constraints of legacy systems. New aggregators are occupying the client interface and consolidating different product providers (e.g., Simply Business). Other integrators are starting to build new business models for the customer journey (e.g., Flock). And various segment-specific digital direct-to-customer and B2B2C models are emerging (e.g., Cake). Given the relatively large opportunity in the space (particularly the micro space), these options are worth considering for small commercial outsiders.

See also: 3 C’s for Commercial Brokers in 2018  

The outsiders that will be best set up for success in small commercial are those that can both strategically plan for the risks that have tripped up similar players in the past while finding opportunities to inject digital capabilities into their operations. They will be able to hit the ground running and differentiate themselves from both incumbents and other new entrants. Furthermore, they will be better positioned to meet the changing and currently unmet preferences of small business owners.


  • Small commercial has changed very little over the years. We believe the market is ripe for disruption although there have been no major changes to date.
  • Small commercial generally has been a profitable line that has weathered underwriting cycles well, but it does suffer from inefficient operations and bloated cost structures. Lowering costs of entry into the market are putting pressure on incumbents to improve their business operations.
  • As in personal lines, there is increasing desire among small commercial customers for a digital purchasing process. As of yet, customer expectations have gone largely unfulfilled, which provides a real opportunity for whoever can meet them.
  • Digital solutions – often from insurtechs – offer promise to improve not just the customer experience but also operational efficiencies and cost structures.
  • Though nascent, aggregators are consolidating different product providers, integrators are starting to build new business models for the customer journey and various segment-specific digital direct-to-customer and B2B2C models are emerging.

You can find the report here.

This article was written by Jamie Yoder, Jon Blough, Francois Ramette, and Marie Carr.

Insurtech Now Hits Corporate, Specialty

When insurtech sprang to prominence in 2015, most startups focused on personal lines disruption. Our August 2016 infographic showed that 75% of insurtechs were targeting personal lines and that 56% were focusing on distribution. Most corporate and specialty insurers concluded that insurtech presented no threat and only limited opportunity and continued with business as usual.

That was then, and now is now. Insurtech now matters for corporate and specialty insurers.

(Incidentally, we agree with the point Adrian Jones, head of strategy and development at SCOR, makes in this excellent article: it’s a myth that insurtech has been around only since 2015. We do, however, believe that there has been a new thrust since then, harnessing the pace and power of new technologies.)

2015-2017: The first wave of insurtech

It is not surprising that insurtech started as a personal lines disruption play. Entrepreneurs, buoyed by what was happening in fintech and other industries, saw huge opportunities to make insurance more customer-centric based on their own experiences. Entrepreneurs wanted to simplify insurance (e.g. Sherpa), offer more tailored propositions (e.g. Bought By Many) or change the whole insurance paradigm (e.g. Guevara).

But the truth is that insurance has not been disrupted over the last three years, and it’s hard to see that this is about to change. As Adrian illustrates in another article, even the most prominent disruptors in the U.S. (Lemonade, Metromile and Root) are finding the going tough and burning through a lot of capital, whether directly or via  reinsurance.

See also: Digital Playbooks for Insurers (Part 1)  

We argue in our insurtech Impact 25 paper (February 2018, page 7) that many distribution insurtechs are not scratching sufficiently major customer itches to be worth the switching cost for those consumers. As a result, the perceived potential is worrying incumbents far more than their actual performance to date.

2018: The second wave of insurtech

If we were to update our insurtech landscape infographic, supplier insurtechs would feature much more prominently. These companies are developing technology (or, as in the case of German insurtech Kasko, have repurposed consumer propositions) to help incumbent insurers, reinsurers and brokers operate more effectively. Supplier insurtechs have found getting traction in consumer markets tough and are developing technologies or techniques that they can sell to the established insurers.

Many of these companies are targeting corporate and speciality underwriters. This is perhaps not surprising – at least not from the U.K. perspective. U.K. personal lines insurers have been investing in pricing capabilities, efficiency and fraud analytics for years as competition has become cutthroat. They are mostly advanced in many areas.

This is in strong contrast to corporate and specialty classes, where much underwriting is still judgment-based, processes are manual and underwriters and risk managers are resigned to poor data quality. As such, we believe that many of the Impact 25 Members can be valuable for corporate and specialty underwriters in 2018. Some examples are below:

  • Insurdata was set up by ex-RMS executive Jason Futers and helps (re)insurers obtain more accurate building location information. This is helpful for underwriting (e.g. commercial property, reinsurance portfolios), risk management and portfolio reviews.(websiteImpact 25 two-pager)
  • Risk Genius uses AI to read policies and understand coverage. Founder Chris Cheatham noted recently. “[My trip to] London was amazing. It took two days for one very big learning to sink in: Underwriters in Europe are empowered to manuscript with little or no formal approval process.” His business allows corporate insurers to get a better understanding of their exposures.(websitetwo-pager)
  • Flock is an analytics platform currently used to price drone flights dynamically, for example taking into account hyper-local weather conditions and locale of flight. The technology’s ability to process big data quickly could be helpful for commercial IoT propositions, for example. (websitetwo-pager)
  • Cape Analytics and Geospatial Insight generate underwriting or claims insight from aerial imagery. This is useful, for example, in natcat losses when (re)insurers need to assess their exposures quickly. (Cape Analytics: website2-pager; Geospatial Insight: websitetwo-pager)

See also: Have Insurers Lost Track of Purpose?  

What it means for corporate and specialty insurers

Technology is not, of course, a new phenomenon in corporate and speciality insurance. However, the speed of proliferation of new vendors (of both technology solutions and data sources) is arguably unprecedented. It challenges the corporate clock speed of most incumbents and will present opportunities to successful adopters to tilt industry profits in their direction.

But identifying the correct response is challenging for incumbents and, as we argue in our Impact 25 paper, there is no single, correct course of action. Choices that need to be made broadly fit into three categories:

  • Strategy: Should we focus on customer experience/proposition or efficiency?
  • Technology: Do we build or partner or buy? If we partner, how do we create and protect differentiating IP?
  • Execution: Should we innovate within the business or in dedicated teams? What structures and processes do we need?

These questions – among others – need to be answered to ensure an effective corporate response.