Tag Archives: Friendsurance

Sharing Economy: Playing Out in Canada

According to a new study from the Insurance Institute of Canada (IIC), the sharing economy presents both an opportunity and a threat to the insurance industry. In the U.S., the sharing economy has already created 17 companies valued at $1 billion or more, including Uber and Airbnb. Some 27% of the U.S. population participate in this type of consumption. Now, with millions of Canadians who use the sharing economy seeking unconventional coverage as a result, innovative startups are threatening Canadian insurers.

See also: Opportunities in the Sharing Economy  

Opportunity – Widespread Use

Forty-five percent of Canadians report being interested in sharing underutilized assets to generate income. In Montreal alone, Uber provides roughly 300,000 rides per month. This means that new types of insurance policies are needed to support the emerging car-sharing and home-sharing industries. For example, because the sharing economy often includes short-term asset sharing, there is an opportunity for insurance companies to provide unconventional coverage options.

Some insurers are already creating products to satisfy this demand. For instance, Aviva Canada has a policy for ride-sharing drivers, and Square One Insurance developed a product specifically for Airbnb hosts.

Threat – New Competition

All of this new opportunity is fueling the creation of nimble and mobile-friendly insurtech startups such as Prvni Klubova, Lemonade, and Metromile. These companies provide insurance in innovative ways using mobile and AI-driven technology. Companies like these three are potential threats to traditional insurers in Canada. In fact, Lemonade has already gained more than $59 million in funding and is quickly becoming a major player in the industry.

According to a recent study, nearly half of traditional insurance companies are concerned that as much as 20% of their businesses could be lost to new insurtech players. If insurers fail to adapt to new competition, these fears could become reality. And insurance carriers are not the only companies experiencing disruption. Insurance brokers also face competition from new platforms such as Friendsurance.

The Solution

There are two options for traditional insurers to consider when it comes to dealing with swift insurtech startups — compete or partner. Competition has been attempted by a number of traditional insurers, such as Economical Insurance, who launched Sonnet Insurance, an online-only insurance provider. However, due to the rapid pace of emerging technologies, head-on competition presents many challenges. Launching an insurtech solution from the ground up is resource-intensive, especially for companies who are not as familiar with a technological terrain.

See also: Sharing Economy: The Concept of Trust  

Partnering can be a more productive endeavor. Many traditional insurers have recognized this and have already formed key partnerships. For example, Intact and Aviva Canada have partnered with Uber. Intact is also a partner with Turo and an investor in Metromile. Additionally, Northbridge has partnered with RideCo, a Waterloo-based ride-sharing startup. Through this partnership, ride-share drivers can receive as much as $1 million in third-party liability coverage.

Final thoughts

Sharing economy valuation is projected to top $335 billion by 2025. Its impact on the Canadian insurance market will only continue to grow. While many Canadians will benefit from the expansion of the sharing economy, traditional insurance companies will need to adapt in order to keep up with new competition from insurtech newcomers. As a result, we are likely to see more partnerships between traditional insurers and insurtech companies in the years to come.

The Spread of P2P Insurance

The sharing economy is not just a U.S. experience. It is truly a global phenomenon that has infiltrated and influenced multiple industries in both developed and developing countries. Even the ultra-conservative insurance industry has not been immune to these advancements.

While U.S.-based insurer Lemonade has been receiving much of the recent domestic headlines for being an innovator, the insurance sharing model, or peer-to-peer insurance, has, in fact, been in existence in several countries since as early as 2010. Companies such as Friendsurance, PeerCover, Riovic and Guevara have played key roles internationally in the disruption of the traditional insurance model in countries like Germany, South Africa, New Zealand and France — among others. While peer-to-peer insurers shift focus toward technology, automation and social networking, it is apparent that the core concepts of traditional insurance — such as sharing losses through mutual insurance arrangements, avoiding adverse selection and mitigating moral hazards — remain fundamental to its business model and, quite frankly, its survival.

Peer-to-peer insurance, much like traditional mutual insurance, is a group of “peers” who pool their premiums to insure against a risk and across both types of insurance the perils that buyers are insuring against remain homogeneous. It is, in essence, the centuries-old concept of mutual insurance being given a 21st century makeover.

This new peer-to-peer model of insurance adheres to traditional pooling and sharing of losses, but it is now combined with today’s technology, providing a product for increasingly savvy consumers who require transparency in an on-demand economy. Further, peer-to-peer and traditional insurers also group policyholders in similar ways; however, the peer-to-peer model may provide more refined classes because of advances in computer algorithms and artificial intelligence (AI).

Simply, peer-to-peer companies allow participants to insure a common deductible, while large claims are still covered by traditional insurers. When smaller claims occur that fall within the deductible, this loss is shared among a small circle of friends or similar policyholders. Traditionally, when policyholders had a good year and a favorable loss ratio, premiums would be returned in the form of a dividend. This concept has also been adopted by some peer-to-peer insurers, while others have also designated excess premiums be sent to a charity chosen by the policyholder group. So while peer-to-peer insurance may provide more refined methods of grouping policyholders or more options for distributing unused premiums, the underlying core concepts of traditional insurance are still maintained.

See also: Examining Potential of Peer-to-Peer Insurers  

Sharing economy businesses express their desire to reduce costs and increase transparency for consumers. Peer-to-peer companies are working to accomplish this by insuring self-selecting groups. Their philosophy is that they can improve the quality of the risk because of the relationship between the members. The peer-to-peer models strengthen the sense of responsibility within the group, which results in a reduction in both moral and morale hazard. As the two often get confused, we define moral hazard as a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost — in other words, an intentional act. Conversely, morale hazard is an increase in the hazards presented by a risk arising from the indifference of the person insured to loss because of the existence of insurance, which, in comparison, is more unintentional behavior.

Allowing policyholders to actively choose the members of their policy group could foster a greater sense of belonging, responsibility and duty to others. Groups in which close-knit friends or family share in losses tend to manifest a stronger aversion to risk with the knowledge that your actions will have a direct impact on your family’s pocketbook. That family vacation everyone was planning — and paying for with the year-end dividend payment — could be put on hold because of a recent insurance claim. Similarly, if any proceeds from premiums were designated for a specific charity (i.e. pediatric cancer research in honor of a niece stricken with the disease), a member of a close-knit group may engage in better driving habits to avoid being the person responsible for a drag racing accident that could result in the loss of that donation. With more at stake, pooling participants are more likely to engage in responsible behavior — better for them and the insurer.

For peer-to-peer models where groups can unconditionally decide on their members, there can be even greater benefits — for both the group and insurer. One such advantage is the reduction of adverse selection. Typically, it can be very difficult for insurers to assess the full nature and habits of applicants at the time of an underwriting review. The insured is typically in a position to palliate their risk, often without making material misrepresentations. However, in peer-to-peer models that rely on referrals from other group members, the likelihood that the complete risk exposure of a potential insured is revealed is much greater. For example, perhaps several family members have decided to submit an application for shared automobile insurance with a peer-to-peer insurer. While most of the members have superior driving history and habits, they all know to never drive with Aunt Susie. She’s known to them as a speeder, tailgater and road-rage extraordinaire; however, she has been lucky enough to avoid any serious accidents, which has kept her record looking clean. Though she may appear to be a good risk for a half-sighted insurer, her relatives know better and, in preservation of their premium and potential dividend, deliberately do not ask her to join their group.

See also: An Overview of VC Investment in Insurtech  

Although peer-to-peer insurance models have promoted their new-age benefits with the introduction of digital platforms, AI and cost transparency, their business model is built on the foundation on traditional insurance, and their ability to succeed will be based on how well they can deliver the best of both worlds. Peer-to-peer insurers will continue to develop their models and philosophies on distribution channels, return-of-premium programs and scope of coverage.

While it is too early to calculate how much market share they can siphon from traditional insurance companies, it is clear they have many valuable attributes both operationally and philosophically that will assist them entrench their business among mainstream competitors.

How to Respond to Industry Disruption

Automating risk management, rating, quoting and renewals, integrating massive disparate legacy systems and redefining age-old business models – essentially all at once – is no small task. But it offers progressive insurers great opportunities to vault past the competition

It seems as if almost overnight emerging insurance technologies have flooded the market under the rubric of insurtech. Of course, this isn’t quite how it happened. This shift in insurance, evolving over decades, has seen a rush largely due to the emergence of agile disruptors recognizing the need for digitization and automation in a market previously slow to change.

The innovations have been fast and furious, but according to a recent Celent report, Life Insurance CIO: Pressures and Priorities 2017, insurance IT departments are still relatively slow to make innovation a top priority. Only 14% of carriers pursuing innovation say it will have a significant impact on IT spending. Some 71% report a moderate impact, and 14% say none at all.

Nevertheless, as disruptive forces increase, traditional insurers will have to respond.

See also: Preparing for Future Disruption…

Take peer-to-peer insurance. This new model first appeared in 2010 when a German company, Friendsurance, decided to offer products that promote transparency. Its pricing reflects the number of claims recently submitted.

Consider Lemonade—the insurance outfit, not the drink. It offers personal insurance to New Yorkers, boasting, “Maya, our charming artificial intelligence bot will craft the perfect insurance for you. It couldn’t be easier, or faster.” There’s even a charitable angle: “We take a flat fee, pay claims super-fast and give back what’s left to causes you care about.”

New approaches such as Friendsurance and Lemonade are creating customer-centric models that could garner attention from consumers and may have the potential to change insurance dramatically.

Driverless cars, enabled by Internet of Things technology such as sensors, will affect the way cars are insured. Google and Uber are already investing in fleets of self-driving vehicles, but, with few on the road as of yet, the extent to which safety has improved hasn’t been determined.

But it is clear is that claims previously resulting from human error would likely no longer apply. The car manufacturer, not the driver, would be liable. If this happens, drivers can expect lower insurance premiums but may see higher prices or built-in fees for autonomous cars to reflect the transfer of risk from the driver to the manufacturer.

Digital business tools such as electronic signatures are already having a big impact. The technology allows for the creation and transfer of secure signatures over networks via computers, tablets and smartphones. It can support completing an application or policy in one transaction.

E-signatures improve workflow for the broker as well as the customer’s experience. Now brokers and customers can finalize transactions from anywhere at their convenience and eliminate the manual tasks of printing, scanning, faxing and emailing documents. Electronic signatures also help reduce risk by providing audit trails and ensuring all documents that necessitate a signature are in order. Benefits include lower costs, fewer errors and more streamlined processes. Regulations in some states limit the use of e-signatures, however.

See also: Which to Choose: Innovation, Disruption?  

These innovations are creating entirely new ways for insurance providers to reach and retain customers, and it’s only just beginning. Today, continuous innovation is just as important for insurers as the traditional disciplines of underwriting, financial management, marketing and customer service.

An Overview of VC Investment in Insurtech

Significant numbers of insurance startups are emerging in the market today, and many are providing brilliant tech-based solutions.

Insurtech startups have shown so much promise that venture capital firms are starting to invest heavily in them. In fact, between 2011 and 2017, VC funding for insurtech companies grew 31% annually.

Between Series B and Series D funding, $2 billion to $3 billion is being directed to insurance startups annually. Here is a look at some of the most exciting insurtech startups that are receiving significant funding.


Lemonade is a home and renters insurtech company that is making a lot of waves. The company launched in New York in 2016 but now is planning to expand into California. Lemonade uses artificial intelligence and behavioral economics to optimize accuracy and efficiency.

After its latest round of funding, Lemonade has generated $60 million in total. This makes it one of the biggest players in the insurtech startup space. Lemonade’s funding is not coming from average VC firms; it is coming from high-level sources, such as General Catalyst, GV (Google Ventures) and Sequoia.

See also: Let’s Make Lemons Out of Lemonade  


Friendsurance received $15.3 million in its latest round of funding. The majority of the money invested in this round came from the Hong Kong-based Horizons Ventures.

Friendsurance is a sophisticated peer-to-peer insurance startup that has its headquarters in Berlin. Originally, it was only a national company, but it is now expanding internationally.

In addition to Horizons Ventures, Friendsurance has received funding from Otto Group Eventures, the European Regional Development Fund and the German Startups Group. With so much financial backing, and a steadily growing customer base, Friendsurance looks poised to succeed internationally.


Amodo is a Croatian insurtech that helps insurance companies get the most out of connected devices. The company lets customers build profiles and provide data, which helps insurance companies address the specific needs of each customer much better.

For example, with Amodo’s Connected Customer Platform, insurance customers can use their smartphones to prove that they spent time at the gym, to earn lower premiums on health insurance.

Like Lemonade and Friendsurance, Amodo has also attracted the interest of some major VC companies. In 2016, Amodo received 450,000 euros of seed funding from an Austrian VC, SpeedInvest.

Also like Lemonade and Friendsurance, Amodo is in the process of expanding. The company is trying to break out of the local Croatian market and spread across the world.

See also: Top 10 Insurtech Trends for 2017  

Insurtech Outlook

In the past few years, technology finally appears to have become as useful for insurance as it has for many other industries, such as finance, social networking, and media.

This is because insurance companies thrive on data, the compiling of which has become much more advanced.

Lemonade, Friendsurance and Amodo are but a few examples of the excitement VCs have for insurtech. As more and more of these startups improve the insurance world for insurers and customers alike, the list of VC-funded insurtech startups will grow exponentially in the coming years.

Preparing for Future Disruption…

“The future is here, it’s just not very evenly distributed.” — William Gibson

In his 2003 book, “The Slow Pace of Fast Change,” author Bhaskar Chakravorti highlighted how powerful innovations in technology and business often suffer slow adoption. He illustrated how, in a networked world, individuals, companies and regulators are all interacting, watching each other, guessing and second-guessing which investment choice is right. Often, the conservative choice is hard to dislodge.

But when alternatives reach a tipping point, change can be dizzyingly fast.

Insurance, a traditionally slow-changing industry, has more than its fair share of headwinds to innovation. It is a fragmented industry, compounded by: state-by-state regulation; an extended value chain of retail and wholesale distributors through carriers; reinsurers and capital markets; and a plethora of orbiting service providers. This fragmentation has inhibited transformational change and led to a prevailing view that, through continuous improvement, industry players can always adapt and catch up to change.

This fragmented marketplace has traditionally protected incumbents. However, predators are circling. Insurtech, Silicon Valley-backed software companies, are looking to deliver insurance solutions. They observe the structural inefficiencies in the industry — that agents and brokers work through every day — and see red meat, tantalizing opportunities for new and disruptive paradigms. How are traditional agencies to adapt and stay competitive in the face of this threat?

Disrupting the distribution model

You can see the signs of coming disruption. Usage-based telematics (Progressive), peer-to-peer insurance models (Friendsurance), e-aggregators (PolicyGenius) and Internet of Things (IoT) companies are offering insurance coverage embedded with their products (autonomous vehicles). In 2015, venture capital companies invested $2.65 billion in insurtech with the intention of, at the very least, shaking things up.

See also: 2017: A Journey Toward Self-Disruption  

Some see the traditional agency model as living on borrowed time. Debates rage about the unique role and value that agents and brokers provide. When they really want to scare us, potential disruptors talk about “the Uber of insurance,” promising to transform the role of the agent to create a completely different customer experience.

This transformation is most advanced in personal lines where digitalization is facilitating straight-through processing and is reducing the need for human intervention in policy processing. By analogy, think of people doing their own taxes online, where data-drive technology and intuitive user interfaces supplant human-driven, client intimacy.

But more complex commercial lines are not immune to disruptive transformation. Digitalization, automation, analytics, embedded devices and telematics provide powerful tools to be integrated into new service and business models that can considerably change the value proposition for insureds.

How the customer defines “the job to be done”

While highly attuned to these possibilities, I align with those who see the role of independent agents remaining relevant well into the future. But there is a caveat: agents must truly and expansively fulfill their core promise to provide “peace of mind” to their insureds.

I am often struck by the notion that the “job to be done” by retail agents is to provide “peace of mind.” It is not enough to provide a piece of paper and a commitment to represent the client’s interests in the event of a loss. Increasingly, peace of mind means providing information seamlessly, when and where the client wants it, via a user-friendly interface, backed by data and tools to help prevent losses (rather than simply mitigate or retrieve them).

One agency principal recently noted that it was imperative “to make the friction points go away” in the risk management process. But this is only the starting point.

Consider your organization. How much of your employees’ time is devoted to increasing your clients’ peace of mind? Or even understanding what peace of mind really means for your clients? By contrast, how much time is spent on “compliance activities,” busy work and redundant processing? While most insurance professionals are highly service-oriented, most insurance activities are not — tipping the scale in the opposite direction.

Developing client intimacy and institutionalizing that knowledge into daily practices is critical. This is because agents and brokers have what direct writers, software companies and device manufacturers will struggle to attain: trusted adviser relationships. This is the key asset to protect and enhance.

How to make your organization future-ready

You might think the first thing to do after reading this article is investing in new online systems, portals and user-experience consultants. This is secondary. The first thing to do is get your operational house in order. Look internally at your service operations and understand how aligned your business processes are to your business strategy. This may seem counterintuitive, but, to improve customer intimacy and deliver peace of mind, focus first on internal operations.

Streamlining operations is the foundation of the most successful innovation programs. Simplifying operational complexity increases transparency and strategic focus. Reducing process variability eliminates waste and inefficiency. Most agency leaders don’t realize how much time producers and service teams spend on redundant and non-core activities. This time can be reinvested in deepening an understanding of client preferences, purchase habits and risk profiles that will ultimately have an impact on loyalty and retention and will enhance the new business value proposition.

Creating internal capacity is not rocket science. It is achieved through operational best practices such as increasing strategic visibility so employees can better align priorities; segment accounts; standardize ad hoc tasks; source the right work to the right person; and improve the operational IQ of your people. Operational analytics additionally provide insights into which accounts or lines of business are profitable, which are dilutive and what to do where there are gaps.

Where once employees were under pressure to meet client needs, compete on price, put out fires and clean up backlogs, new, internal capacity will be discovered and directed to writing more profitable accounts, improving customer intimacy and innovating around digital channels and data-driven risk-prevention business models.

See also: Insurance Disruption? Evolution Is Better  

While the threats of disruption from insurtech are real, the outcome is not a foregone conclusion. Today’s agency will suffer decline, but tomorrow’s agency is within our grasp — not by saddling an already-complex operational environment with more sales people and systems but by building an organization on a foundation of operational and process excellence.

In doing so, the agents and brokers of tomorrow will assert their relevance and long-term competitiveness by delivering their clients the promise of peace of mind more expansively than ever before.

What does peace of mind mean to your organization?