Tag Archives: insurance 2.0

Darwinian Shift to Digital Insurance 2.0

Brian Solis, a digital analyst and anthropologist, studies the effects of disruptive technology on business and society, calling it “digital Darwinism.” Solis borrowed Darwinism to describe how organizations adapt to changing customer behavior (anthropological view) and rapidly changing technology through digital transformation. As Solis says in various articles, the effect of digital Darwinism on business is real, and it’s enlivened through evolutionary changes in people in their views, expectations and decision-making.

And we are seeing it rapidly unfold in the insurance industry.

The pace of disruption and dramatic changes are truly evident when we look at Majesco’s first Future Trends report from February 2016 to the second one in March 2017…and now in 2018. This year’s Future Trends report takes a deeper look at the current state of insurance disruptors across people, technology and market boundaries, and how they are pressuring insurers to adapt, pushing them out of their traditional orbits and toward new models and opportunities — “digital Darwinism” — to Digital Insurance 2.0.

The Insurance Darwinian Shift

Majesco’s consumer and SMB surveys show that customers seek “ease in doing business” across the research, purchase and service aspects of insurance. In addition, they are rapidly adapting to the digital age, and they have a rising interest in innovative products and business models emerging in the market, posing a threat to existing insurers.

See also: Digital Playbooks for Insurers (Part 1)  

Startups like Lemonade, Slice, Zhong An, Haven Life, Bought by Many and Neos are embarking on Digital Insurance 2.0 business models using digital platform capabilities and ecosystems that exploit untapped markets and address under- or unmet needs that strengthen customer relationships.

New business models are serving different markets, have different products and services and use different strategies. While customer demographics and expectations, emerging technologies and data, and insurtech have had a majority of the focus, one area that has been a catalyst for these companies to shift to Digital Insurance 2.0 is platform solutions.

Platform solutions provide these innovative companies speed to value, unique customer engagement, a test-and-learn platform for minimal viable products and value-aligned optimized costs. Their platform solutions also catalyze digital technologies and processes, AI/cognitive, cloud computing and an ecosystem, into a powerful new force to expand capabilities and reach well beyond those of the traditional Insurance 1.0 model. They are creating new paths, energizing the market and lowering operational costs.

Digital Adaptation is Just Beginning

As a result, incumbent insurers must aggressively begin to define their vision and path to Digital Insurance 2.0, leveraging today’s catalytic lever, platform solutions.

And Digital Insurance 2.0 is just the beginning. The catalytic effect of platform solutions in the shift to Digital Insurance 2.0 is rapidly evolving, gaining momentum and laying the groundwork for future reactions. Will the next catalyst be blockchain or some other trend that will propel us toward Insurance 3.0?

See also: Digital Insurance 2.0: Benefits  

Insurers’ abilities to adapt and rapidly move to Digital Insurance 2.0 will likely define their future. As such, insurance executives and leaders should ask themselves the following:

  • Are we appealing to customers’ motivations, making our processes simple and creating compelling triggers to act?
  • What is our business strategy, and how are we incorporating a platform and ecosystem approach?
  • In which markets and with what customers will we find our future growth? What will they expect?
  • What is our partnership approach today, and how will it need to change to extend to a broader ecosystem?
  • Is our technology platform the foundation for our growth?

The future is still unfolding. New technologies and ecosystems will continue to emerge. And with those changes, over the next decade, we will likely see the beginnings of Digital Insurance 3.0 emerge.  Organizations will need agility to adapt and respond, a keen focus on innovation that encourages experimentation, and a priority on speed to value to succeed, or even survive.

Hurricane Harvey’s Lesson for Insurtechs

Just sixteen years ago, Tropical Storm Allison struck Houston, killing 23 people, dropping more than three feet of rain in some areas, flooding 73,000 homes and causing $5 billion of dollars in damage. For people whose homes were flooded in 2001, it is hard to imagine a more tangible or compelling argument for flood insurance. Surely, someone who suffered catastrophic flood damage would protect themselves with optional flood coverage, right? Yet, when Hurricane Harvey hit on August 25thHouston‘s Harris County had 25,000 fewer flood-insured properties than it did in 2012. Across Houston, the number of flood insurance policies fell from 133,000 to 119,000 – an 11 percent drop in the past five years despite a 4.5 percent increase in population.

All of this is a succinct lesson for the investors and innovators who told me at last year’s Insuretech Connect conference that they were frustrated by the lack of real product innovation. Indeed, if Insuretech 1.0 focused on new distribution strategies, such as online aggregators; and Insuretech 2.0 included new internal competitive advances, such as new approaches and tools for underwriting, claims, and risk management, including IoT advances; then, if Insuretech 3.0 is product innovation, it will need to be more thoughtful than product innovation in non-insurance sectors, at least for personal lines.

Indeed, successful insurance product innovation is about picking your battles. At OneTitle, for example, we leveraged an existing mandate (title insurance) and maintained accepted policy forms and coverages, but innovated on virtually every other lever.

See also: Harvey: First Big Test for Insurtech  

Insurance startups, innovators and early stage investors will face a battle if they focus on optional, creative or expanded personal lines coverage options targeting more than a niche population. Tropical Storm Allison already tried—and failed—to convince Americans to buy optional coverage by dumping four feet of water into 73,000 living rooms. It is hard to imagine an insuretech coming up with a more compelling argument than that.

Before you howl about the value of risk avoidance or peace of mind: consider the transaction from the consumer’s perspective. For most, buying insurance is the only commercial transaction that amounts to paying money and receiving nothing in return. As Harvey shows, even making a large claim just 16 years ago is not enough to counteract the consumer’s view that, absent a claim, they receive nothing in return for their premium dollars.

Absent government or third-party mandates, aggregate insurance premiums paid directly by consumers would shrink dramatically. The vast majority of consumers don’t buy insurance – regardless of whether it’s in their best interest – unless they are forced to do so by law or by a third party like a mortgage lender or a landlord. And they don’t show any signs of changing their behavior. Most consumers vastly underweight risk avoidance and peace of mind, even when the risk is as obvious as a flood experienced only 16 years ago. P&C call center veterans tell stories of policyholders who call to request a refund since they didn’t have a claim that year.

Insuretechs, insurance startups and investors would be wise to understand this as they rush to bring more consumer-friendly insurance products to market. There are important opportunities for insurance innovation, but product innovation in mass market personal lines must be viewed through the lens of legal or other mandates. Without that mandate, a new product category or expanded coverage is unlikely to appeal to more than a relatively niche market.

The lack of flood insurance in Houston is only the most recent example of consumers’ willingness to give up valuable coverage in order to avoid spending money on insurance. In 2015, for example, 6.5 million taxpayers paid an average penalty of $470 rather than purchase required health insurance under the ACA.

Viewed a different way, the ACA requires most consumers without employer-paid or other forms of health insurance to select from a menu of insurance choices. The penalty is effectively the least expensive “plan.” It costs $470 and offers no coverage. In the metallically-named ACA plans, this one ought to be named “Lead.” The next least expensive option—Bronze—cost an average of $1,746 after tax credits in 2015. But, 6.5 million adults placed so little value on health insurance that they selected the least expensive “plan” despite an explicit understanding that they would actually receive nothing more than legal compliance in return.

See also: Getting to ‘Resilient’ After Harvey and Irma  

Auto insurance tells a similar story: 32.6 percent of drivers have either no liability insurance (12.6 percent) or carry only the state minimums which, at $25,000 or less in coverage in most states, offer only a veneer of coverage. As an aside, this may be unintentionally rational given that 30.2 percent of American households have a total net worth of less than $10,000, making them effectively judgement-proof.

Of course, there is real opportunity for innovation in insurance, including product innovation. At OneTitle, for example, we started with a mandated product—title insurance—and formed a full stack insurer specifically to ensure that we had the control and flexibility to innovate on price, service delivery, distribution model and efficiency levers.

New Products and Combined Approaches

At American Family Ventures, we think advances in product development will have a dramatic impact on the insurance industry. We’re also excited about new insurance experiences that combine “Insurance 2.0” distribution, structural and product innovation. We’ll discuss both subjects below.


Before we dive in, let’s define a few things. We consider an “insurance product” to be the entire financial protection experience. From a whole product perspective, this definition includes processes inherent in the creation and the use of such products, including methods of underwriting and activities like claims and policy administration.

We’re watching two product trends in particular:  behavioral disaggregation and the unbundling of policy time and coverages.

Behavioral Disaggregation

As the world becomes increasingly connected through mobile devices, sensors, networks and information sharing, new context becomes available for managing risk. Dynamic insurance products that react to comprehensive information on behavior will be a direct result of these increases in contextual information.

See Also: Insurance 2.0: How Distribution Evolves

The concept of contextual insurance is not new. In fact, the purpose of insurance underwriting is to segment and accurately price insurance using information about the applicant. Even behavior-based pricing is not a new concept. Since the 1950s, insurers have used access to DMV records to adjust rates in the event of speeding tickets or other traffic violations. However, the innovation we’re seeking goes a few steps further.

An insurance provider that accurately understands the discrete behaviors influencing the safety of an asset and its users could also offer novel and effective ways to protect both. Behavioral data could be generated through connected devices, more robust asset histories and inventory tracking, collaboration with the owner on risk mitigating activities and the like. Using enhanced access to relevant behavioral information, new products would offer increased customization, accessibility, frictionless coverage acquisition and live reconfiguration. Perhaps someday we’ll see dynamic, multi-factor insurance policies that continuously and automatically adjust to choices the policyholder makes.

Consider the following homeowners insurance example: A homeowner replaces an old fireplace with a new model that has important safety features. Of course, this fireplace is “connected.” As soon as the fireplace cloud tells the homeowner’s insurance carrier the new model is installed and active, the homeowner’s premium payment drops by 10%. Impressed with this outcome, the homeowner tells three of her neighbors about the product, and they promptly replace their own rickety fireplaces. As a result of the newly safe cul-de-sac , rates drop an incremental 3% for all residents in the neighborhood. Soon after, one of the neighbors is shocked to discover that his new model was incorrectly installed, creating a small gas leak that would become dangerous over time. Fortunately, his insurer, in coordination with the manufacturer, flags this issue and repairs the unit before it becomes a hazard. A week later, the three homeowners who originally purchased the product, dining out with their insurance savings, all decide to purchase water-leak-detection systems, for which they are promptly rewarded with an additional insurance discount.

We’re still in the early innings of behavior-based insurance, but, as you can see, its impacts are meaningful. Contextual data doesn’t have all the answers, but it will drive new insights and, perhaps more importantly, prevent losses.

Unbundling Policy Time and Coverages

Existing insurance products bundle coverages. For example, consider that a standard homeowners policy consists of four types of coverages:

  1. Coverage for the structure of your home
  2. Coverage for your personal belongings
  3. Liability protection
  4. Additional living expenses if your home is temporarily unlivable

Each of these coverage areas then insures against loss from a number of specific perils (fire, lightning, wind, etc.). Each also has distinct exclusions. These coverages are put together, often in very standard ways, to create homeowner’s insurance.

However, insurers might also unbundle coverages and fragment coverage time periods to create tailored coverage systems that react to the risks present (and absent) in various circumstances. These strategies subdivide coverage profile and duration into more relevant and accurate segments, offering more accurate pricing or supporting new forms of self-insurance.

Fragmenting coverage time can be accomplished with on-demand or transactional insurance. As we all witness large portions of our lives becoming managed services — transportation, home ownership, fitness — paying to be protected against loss only when specific risks are present or a unique event occurs is an increasingly useful option. This could imply securing insurance only when circumstances or behavior indicate need, or using broad, umbrella-type coverage for losses in everyday activities and ratcheting up coverage for specific types of risk.

For example, imagine an insurance service that uses access to a mobile calendar and other apps to offer timely insurance products based on daily activities. If your morning commute is in a Zipcar (that doesn’t drive itself… yet), you might be offered short-term, simplified personal auto insurance options before you leave. If you instead decide to walk to work that morning, you receive credit toward discounted health and life products. If you’re taking a long flight during inclement weather, you’re prompted with an offer to increase your term life insurance amount. If your job requires you to travel to an unsavory place, your employer is reminded to add kidnapping and ransom insurance to its existing commercial policy (yes, that exists).

Unbundling coverage can be done with a la carte policies. In using a la carte features, insurers can offer insureds more control over the assumption or transfer of risk and, in turn, greater capacity to segment and self-insure (alone or in groups) specific parts of an asset, incidents or perils. This allows for the personal assumption of precise risks by excluding them from coverage. This is accomplished today, in part, through the selection of deductible levels, but we think there are ways to push the concept further.

Of note, we believe the inverse of unbundling — “super-bundling”— is also quite powerful. This refers to insurance products that increase the scope of protection until the insured is no longer required to consider insurance at all. In essence, they abstract the idea of insurance from the buyer. Instead, as long as any obligations the customer owes the insurer (payments or data) are fulfilled, everything and anything is covered. Of course, this convenience is likely to carry additional costs.

These contrasting approaches to providing insurance offer distinct benefits. Unbundling offers maximum economic efficiency in exchange for increased engagement and complexity, whereas super-bundling offers maximum simplicity in exchange for decreased control and higher costs.

Additional Considerations and Questions

Balancing the interests of the individual with the interests of society and public policy is a key question surrounding product innovation. For example, assuming unbundling scenarios are economically viable for the individual, how do we ensure the presence of coverage for liability-related incidents and the protection of third parties?

Other questions that need answering as product innovation advances include:

  • How will privacy and data sharing be addressed in mutually beneficial and safe ways? Customers will expect value in exchange for sharing information about behavior, so data recipients must create the right incentives and will have to protect personal data vigilantly.
  • How does the unbundling of insurance consumption affect the way risk is aggregated and spread across large groups of people?
  • Will frequent, accessible and granular self-insurance create adverse selection issues?
  • Can unbundled customers effectively select risks to self-insure, or will people fall victim to the ludic fallacy, applying oversimplified statistical models to complex systems?
  • And, as with any product, what is the appropriate balance between customization and ease of use?


Insurance distribution and structural/product innovation support one another in ways that are both reactive and complex. As a result, they can be used in coordination to create entirely new insurance experiences.

One example we often discuss is the idea of “entire life” insurance. This is not the same as whole life insurance but rather describes a “super-bundled” risk management product offering the maximum amount of simplicity and flexibility to the insured. In short, entire life insurance would offer a single policy that captures information related to all of your daily needs (transportation, housing, health, travel, etc.) and wraps it into a dynamically priced instrument that indemnifies you against loss from anything bad that might happen. In contrast to the on-demand insurance, usage of entire life insurance is abstracted from the buyer. Instead, the policyholder has a single policy that represents the entire cost to insure that individual based on dynamically adjusted, minute-by-minute protection for all activities.

Such a product, if at all feasible, would require a substantial amount of behavioral data and insight. The makers of this product, at least at first, might also need to discover new approaches to capital raising and risk pooling to offer the product within the bounds of state and federal law. Finally, it stands to reason that a product so deeply integrated with other services and data sources might be sold most effectively via some form of digitally enhanced adviser or life concierge service. Think Jarvis for financial security.

See Also: P2P Start-Ups From Around the World

We also think that combinations like entire life create barriers to entry. If we revisit the simple Venn diagram from our first post, you can imagine a defensibility gradient, where increasingly challenging activities — from a technical, regulatory or human capital perspective — build on each other to create complex, difficult-to-replicate models and relationships.

Defensibility across three areas of Insurance 2.0

While the gradient diagram above portrays the center as the most difficult to replicate, it’s not hard to imagine the dark portion of the circle shifting based on the source of competition. In other words, it may be that, when comparing tech startups to insurance incumbents, barriers to entry are shifted toward the product, but when considering incumbent defensibility against market share erosion from incidental channels (competing directly with carriers), the gradient shifts towards distribution.


In the past few posts, we’ve offered some guesses on what the future holds for insurance. However, given the speed of change and complexity of the systems in play, we’ve surely missed things and made mistakes. So, instead of making internal forecasts that are precisely wrong, we opted to share our observations with you, in the hopes you can incorporate or transform these ideas into your own.

If you’re working on changing insurance in these or new ways, let us know!

Is P2P a Realistic Alternative?

At American Family Ventures, we believe “Insurance 2.0.” will be, in part, shaped by structural innovation. The traditional insurance structure of centralized risk-pooling has been around for a long time. Unsurprisingly, it is also subject to heavy regulation. As a result, many entrepreneurs are using new approaches to lower regulatory burdens or unlock value through decentralization.

Two of the approaches we’re excited to watch develop are peer-to-peer (P2P) and private-investor-backed insurance.

Peer-to-Peer Insurance

P2P insurance isn’t a new concept. Mutual insurance companies effectively use a peer-to-peer model today. However, there appear to be a number of emerging approaches altering the dynamics of the risk/insured pool and creating new benefits for policyholders, carriers and investors.

For context, we see P2P as a set of techniques allowing insureds to self-organize, self-administer and pool their capital in a way that protects all the pool members from loss, all while ensuring any capital in the pool not reserved to pay claims (less any fees owed to a facilitator or administrator) is returned directly to the pool members. Of course, there is a great deal of nuance to making that work.

See Also: P2P Start-Ups From Around the World

Here’s a simplified diagram of a P2P insurance model:

We’ve identified a few reasons to think that, by redefining the traditional insurance structure, P2P models can offer unique benefits.

For one, the P2P system could mitigate elements of conflict in traditional, centralized insurance models. Because insurers (for the most part) get to keep the premiums they don’t pay out in claims, occasionally the incentives of policyholders and carriers fall out of alignment. Conversely, in a pure P2P model, because the premiums not needed for claims are refunded to the policyholders, in theory, any conflict with a carrier is diminished.

While that logic is clear, it likely oversimplifies the issue. The insurance system, while not without its flaws, has functioned for some time and has regulations and processes in place to mitigate adversarial circumstances. In addition, if conflict exists in the insurer/insured relationship, it likely remains present in the P2P model but shifts from customer/carrier to peer/peer. In essence, because any pool member’s payout is a function of the claims paid out to others in the pool, members now have personal disincentives to pay claims, similar to carriers in the traditional model. That said, the carrier/customer relationship isn’t perfect, and new variations of P2P could help advance it.

Secondly, P2P organizing models might leverage large networks like Facebook and LinkedIn more effectively than traditional insurance. The nature of self-selection logically fits the use of a social or professional network — it’s easier to imagine a group of Facebook friends deciding to form an “insurance group” than it is to imagine that same group recommending all of their friends purchase individual policies from a large provider. In effect, large networks power the formation of smaller networks.

In addition to organizing benefits, integration with large, network-based platforms can create efficiencies in administration and retention. Increased frequency of engagement as well as preexisting communication and payment infrastructure could power usability advantages, stronger net promoter scores and better retention rates.

Finally, P2P models, by enabling modifications to the size and composition of risk pools, could create differentiated pricing strategies. P2P models are often associated with self-organization, but they don’t necessarily require it. So, if P2P facilitators become involved in pool selection and can use existing or new underwriting criteria to influence or control pool composition, they could construct pools that offer each member the highest possible returns after claims (or, effectively, the lowest possible cost of insurance). In other words, P2P facilitators might algorithmically generate smaller baskets of varying risk profiles, shifting members, when necessary, to intentionally spread expected claims across numerous pools, thereby creating consistently lower average claims volumes per pool (and, consequently, better payouts for members).

Private-Investor-Backed Insurance

Private-investor-backed insurance allows third-party investment capital to pay or backstop claims expenses in exchange for investment return. For example, a private investor, in theory, could agree to receive premium payments from a basket of insureds in exchange for the obligation to pay claims when they arise. In this model, the private investor (or group of private investors) essentially steps into the financial shoes of the insurer, accepting a stream of certain cash flows in exchange for an uncertain future liability (which could exceed those cash flows). The facilitator of such a marketplace would likely take some fees in exchange for customer acquisition, administration, securing reinsurance and performing the functions of an insurer other than providing risk capital.

See Also: Insurance 2.0: How Distribution Evolves

There are a handful of benefits we think the private-investor-backed model offers participants in the insurance relationship.

First, if certain types of insurance risk can be effectively securitized, those securities would (theoretically) offer professional or retail investors diversification through an instrument that is not highly correlated with the general market (low beta). Some investors already have exposure to insurance through reinsurance contracts and catastrophe bonds, but securitized insurance could offer broader access to more familiar risks with different payoff profiles.

Secondly, similar to what Lending Club and Prosper were able to accomplish in personal and small business lending, a private-investor-backed insurance model might offer price-competitive options to customers who have difficulty securing traditional insurance. For example, today, customers who are unable to secure insurance from conventional insurers (standard market) use excess and surplus (E&S) markets to address their insurance needs. If private investors are willing to take on these E&S risks—whether due to the presence of unique underwriting criteria or higher risk appetites—they could create new competitive dynamics in the E&S market and ultimately improve options for buyers.

As a side note, we often hear people combining the notions of P2P and private-investor-backed insurance. In our minds, they are related and can work together but are separate concepts. Private investor backing is not a prerequisite to building a P2P model — a pure P2P model could employ a variety of strategies to guarantee liquidity and solvency. For example, P2P insurers could leverage reinsurance to cover large or aggregate claims beyond the pool balance, eliminating the need for private investment capital. The P2P insurers might also use traditional fronting arrangements to ensure solvency. By comparison, a pure private-investor-backed model doesn’t need P2P features to function. Instead, it might offer investors financial products that look similar to reinsurance contracts without making any changes to risk pooling or centralization of control.

Additional Considerations and Questions

There are various other structural approaches that might be used to create acquisition cost and pricing advantages or lower barriers to entry for start-ups. Often, these are not necessarily new structural ideas but are rather applications of existing legal strategies employed in surplus or specialty lines insurance to broader, bigger lines.

The successful execution of the P2P model relies on a number of assumptions we’re sure someone will figure out, but we don’t fully understand them just yet. For example, will pools self-select, or will they need to be automatically or algorithmically selected? If self-selected, will most pools (financially) perform as expected, or will there be a small subset of high-performance pools (created by information asymmetry) that generate an inverse adverse selection issue for the P2P business, thereby creating disincentives for participation by the majority of potential buyers? Will pools self-administer and self-police to influence lower losses and guarantee payment of claims, or will some centralized entity still need to exist to ensure member compliance? Will there be regulatory hurdles to overcome if small pools are constructed to reduce claims costs? Finally, how will pool facilitators/administrators/members handle float management — will the capital in the pools sit in cash, or will those assets be actively managed until need for claims? If actively managed, by whom?

The issues we’re interested to see addressed in private-investor-backed insurance are also numerous. Can insurance be a desirable or profitable asset class for private investors? Apart from catastrophe bonds, we haven’t seen much securitization of insurance. Which insurance products or coverages might one securitize best? In other words, which magnitudes and patterns of risk exposures will private investors accept, which existing or new data will they demand as third-party underwriters and what terms will be up for negotiation? Can facilitators find a way to make long-tail risk compatible with liquidity expectations for the asset class?

At the end of the day, we’re looking forward to finding out how companies are able to use structural innovation to create unique and differentiated value for customers.


Insurance 2.0: How Distribution Evolves

At American Family Ventures, we believe changes to insurance will happen in three ways: incrementally, discontinuously over the near term and discontinuously over the long term. We refer to each of these changes in the context of a “version’ of insurance,” respectively, “Insurance 1.1,” “Insurance 2.0” and “Insurance 3.0.”

The incremental changes of “Insurance 1.1” will improve the effectiveness or efficiency of existing workflows or will create workflows that are substantially similar to existing ones. In contrast, the long-term discontinuous changes of “Insurance 3.0” will happen in response to changes one sees coming when peering far into the future, i.e. risk management in the age of commercial space travel, human genetic modification and general artificial intelligence (AI). Between those two is “Insurance 2.0,” which represents near-term, step-function advances and significant departures from existing insurance processes and workflows. These changes are a re-imagination or reinvention of some aspect of insurance as we know it.

We believe there are three broad categories of innovation driving the movement toward “Insurance 2.0”: distribution, structure and product. While each category leverages unique tactics to deliver value to the insurance customer, they are best understood in a Venn diagram, because many tactics within the categories overlap or are used in coordination.



In this post, we’ll look into at the first of these categories—distribution—in more detail.


A.M. Best, the insurance rating agency, organizes insurance into two main distribution channels: agency writers and direct writers. Put simply, agency writers distribute products through third parties, and direct writers distribute through their own sales capabilities. For agency writers, these third-party channels include independent agencies/brokerages (terms we will use interchangeably for the purposes of this article) and a variety of hybrid structures. In contrast, direct writer sales capabilities include company websites, in-house sales teams and exclusive agents. This distinction is based on corporate strategy rather than customer preference.

We believe a segment of customers will continue to prefer traditional channels, such as local agents valued for their accessibility, personal attention and expertise. However, we also believe there is an opportunity to redefine distribution strategies to better align with the needs of two developing states of the insurance customer:those who are intent-driven and those who are opportunity-driven. Intent-driven customers seek insurance because they know or have become aware they need it or want it. In contrast, opportunity-driven customers consider purchasing insurance because, in the course of other activities, they have completed some action or provided some information that allows a timely and unique offer of insurance to be presented to them.

There are two specific distribution trends we predict will have a large impact over the coming years, one for each state of the customer described above. These are: 1) the continuing development of online agencies, including “mobile-first” channels and 2) incidental sales platforms.

Online Agencies and Mobile-First Products

Intent-driven customers will continue to be served by a number of response-focused channels, including online/digital agencies. Online insurance agencies operate much like traditional agencies, except they primarily leverage the Internet (instead of brick-and-mortar locations) for operations and customer engagement. Some, like our portfolio company CoverHound, integrate directly with carrier partners to acquire customers and bind policies entirely online.

In addition to moving more of the purchasing process online, we’ve observed a push toward “mobile-first” agencies. By using a mobile device/OS as the primary mode of engagement, the distributor and carrier are able to meet potential customers where they are increasingly likely to be found. Further, mobile-first agencies leverage the smartphone as a platform to enable novel and valuable user experiences. These experiences could be in the application process, notice of loss, servicing of claims, payment and renewal or a variety of other interactions. There are a number of start-up companies, some of which we are partnered with, working on this mobile-first approach to agency.

To illustrate the power of a mobile-first platform, imagine a personal auto insurance mobile app that uses the smartphone camera for policy issuance; authorizes payments via a payment API; processes driving behavior via the phone’s GPS, accelerometer and a connection to the insured vehicle to influence or create an incentive for safe driving behavior; notifies the carrier of a driving signature indicative of an accident; and integrates third-party software into their own app that allows for emergency response and rapid payment of claims.

Incidental Channels

In the latter of the two customer states, we believe “incidental channels” will increasingly serve opportunity-driven customers. In this approach, the customer acquisition engine (often a brokerage or agency) creates a product or service that delivers value independently of insurance/risk management but that uses the resulting relationship with the customer and data about the customer’s needs to make a timely and relevant offer of insurance.

We spend quite a bit of our time thinking about incidental sales channels and find three things about them particularly interesting:

  1. Reduced transactional friction—In many cases, customers using these third-party products/services are providing (or granting API access to) much of the information required to digitally quote or bind insurance. Even if these services were to monetize via lead generation referral fees rather than directly brokering policies, they could still remove purchase friction by plugging directly into other aggregators or online agencies.
  2. Dramatically lower customer acquisition costs—Insurance customers are expensive to acquire. Average per-customer acquisition costs for the industry are estimated to be between $500 and $800, and insurance keywords are among the top keywords by paid search ad spend, often priced between $30 and $50 per click. Customer acquisition costs for carriers or brokers using an incidental model can be much lower, given naturally lower costs to acquire a customer with free/low cost SaaS and consumer apps. Network effects and virality, both difficult to create in the direct insurance business but often present in “consumerized” apps, enhance this delta in acquisition costs. Moreover, a commercial SaaS-focused incidental channel can acquire many insurance customers through one sale to an organization.
  3. Improved customer engagement—Insurance can be a low-touch and poorly rated business. However, because most customers choose to use third-party products and services of their own volition (given the independent value they provide), incidental channels create opportunities to support risk management without making the customer actively think about insurance—for example, an eye care checkup that happens while shopping for a new pair of glasses. In addition, the use of third-party apps creates more frequent opportunities to engage with customers, which improves customer retention.

Additional Considerations and Questions

The digital-customer-acquisition diagram below shows how customers move through intent-driven and opportunity-driven states. Notice that the boundary between customer states is permeable. Opportunity-driven customers often turn into intent-driven customers once they are exposed to an offer to purchase. However, as these channels continue developing, strategists must recognize where the customer begins the purchase process—with intent or opportunistically. Recognizing this starting point creates clarity around the whole product and for the user experience required for success on each path.


Despite our confidence in the growth of mobile-first and incidental strategies, we are curious to see how numerous uncertainties around these approaches evolve. For example, how does a mobile-first brokerage create defensibility? How will carriers and their systems/APIs need to grow to work with mobile-first customers? With regard to incidental channels, which factors most influence success—the frequency of user engagement with the third-party app, the ability of data collected through the service to influence pricing, the extensibility of the incidental platform/service to multiple insurance products, some combination of these or something else entirely?

Innovation in how insurance is distributed is an area of significant opportunity. We’re optimistic that both insurers and start-ups will employ the strategies above with great success and will also find other, equally interesting, approaches to deliver insurance products to customers.