Tag Archives: Slice Labs

A New Way to Develop Products

The long-term sustainable value from insurtech lies in its ability to change how insurance products are created. The economic model behind how startups bring their products to market is bending — no, breaking — the traditional development cost curve. Insurers that recognize this dynamic and adjust their innovation activities accordingly will create more value from insurtech than their competitors.

Insurtech has already gone through at least two iterations in its short lifespan. A little more than a year ago, the market was abuzz about widespread disruption. Now that it is recognized that there is value in integrating insurtech, partnership is the rage. The next phase will see an increase in greenfield operations. Over the next 12 months, the economics of insurtech development will result in a significant increase in spin-offs and stand-alone propositions.

See also: 10 Trends at Heart of Insurtech Revolution  

The reasoning is this – economics will motivate different behavior. Traditional insurance product development is typically characterized by these approaches/tools/techniques:

  • Product or process-centered design
  • Waterfall development (although agile techniques are catching on)
  • Centralized, on-premise infrastructure
  • Package or custom-built software
  • Periodic release and control procedures
  • Service-oriented architecture (SOA) integration

Contrast that with insurtech operations. They are typically characterized by these approaches/tools/techniques:

  • Customer-centered design focused on delivering a minimal viable product as quickly as possible to the market
  • Agile development using small teams
  • Cloud infrastructure
  • Microservices architecture
  • Use of DevOps to control updates
  • Use of open source software
  • API integration

Here is where the economics comes in. Without reading ahead, answer the following question:

If you spend $1 delivering a specific set of functionality in the traditional approach, what amount would be needed to deliver exactly the same functionality using the new development approach?

I have been asking this question for the last two months. It is a tricky one, because the best input comes from the limited number of people who have delivered insurance products in both the traditional AND the new development approach. These few professionals have “lived” both environments. My sample size is small so far, but I have polled about 30 people.

The answer ranges between 20 and 30 cents on the dollar. So, call it a quarter. That means that a $4 million project delivered with the traditional approach is only $1 million using the new tools/techniques. Or, better yet, entire propositions, which include changes to both the insurance product and a new automation platform, can be delivered for less than $4 million. (For more on this, see the @Celent_Research report Slice Labs: A Case Study of Insurance Disruption.)

With this cost profile, a greenfield startup approach becomes much more attractive. Investing in a new product/market approach is much less risky given the smaller level of investment. If we marry this with the innovation fatigue expected as incremental efforts fail to deliver sufficient value to the core business, the environment is ripe for spin-offs.

This is not to say that the current “partner with a promising insurtech firm” or the “we want to make innovation part of our culture” approaches will go away. However, expect to see significantly more stand-alone efforts than we have seen in the past.

Immediate adjustments to this opportunity include:

  • Insurers should include multiple startups in their innovation portfolios
  • Insurance software/IT services providers and venture groups should help both insurers and insurtech firms to set up greenfield propositions
  • Insurtechs should look beyond incremental solutions and apply their talent and techniques to entire insurance propositions

See also: How Technology Breaks Down Silos  

As some of the spin-offs succeed (and most of them fail), insurers will learn how to develop in the new environment and will transfer these techniques to their core business. As a result, the true value of insurtech will not be an either/or choice, but change through absorption of new approaches and techniques.

Insurtech = new way to develop insurance products.

The Start-Ups That Are Innovating in Life

In my last post, I provided categories within which to organize the innovation players within life insurance. Both start-ups and legacy businesses are pursuing solutions to industry pain points. Attention is being paid to distribution, product, client experience, speed, productivity, big data, compliance and other areas within the life category where inefficiency exists or where client needs are not met today.

The very complexity of life insurance will be a deterrent, at least in the near term, to the volume of innovations versus what we have seen in other areas of InsurTech. Much of the innovation, including the examples presented here in my April post, aim at specific issues with the current model for life insurance, versus taking a clean-sheet approach.

Entrants into the space aim to solve adviser problems, become the new intermediaries between the carriers and the client or assist the carriers themselves. For their part, carriers are funding and leading transformation efforts. They know they must adapt, but because it’s almost impossible to drive massive change from within an established business model and culture, it is likely that start-ups creating differentiated value that avoid becoming mired in complexity can do well.

Here are examples of opportunities:

Adviser conversations will move from the kitchen table to digital channels.

The Global Insurance Accelerator aims to drive innovation in the insurance industry. Of note in GIA’s 2016 cohort is InsuranceSocial.Media, a tiered offering that automates adviser participation in social media. Based on a user-defined profile, advisers are provided with algorithm-driven content that they can distribute via their social media identities.

Hearsay Social is a more evolved startup also enabling adviser social media. The company boasts relationships with seven out of 10 of the largest global financial services companies, among these New York Life, Pacific Life, Farmers and AXA. Hearsay addresses the compliance requirements that carriers have so their advisers can participate in social media: (1) archiving every instance of social media communication and (2) monitoring all adviser social conversations, intercepting compliance breaches. While not sexy, this capability is critical and commands C-suite attention.

An early-days market entrant also targeting adviser digital presence, LifeDrip claims to offer an automated marketing platform, including a personalized agent site, targeted content, signals on client readiness to buy and product recommendations.

Advisers as intermediaries are unlikely to disappear any time soon, but their role, engagement approach and capabilities must be more tech-savvy to appeal to virtually any consumer segment in this market with buying power. Expect additional new entrants that continue not to write off live intermediaries, and bring to market solutions to reshape the adviser relationship.

See also: How to Turn ‘Inno-va-SHUN’ Into Innovation

The new intermediaries are digital.

Smart Asset promises to simplify big financial decisions, including the purchase of life insurance, with an orientation toward how people make these decisions vs. pushing product. Shoppers can input data to a calculator and determine a coverage target; they are then encouraged to request a quote from New York Life. Smart Asset’s experience will be more credible when it includes multiple providers. It will require marketing investment to scale participation. Its basic approach could appeal to a large segment that will demand simple, low-cost product.

PolicyGenius has developed a consumer-friendly interface including instant quotes for life, as well as pet, renters and long-term disability insurance, following completion of an “insurance checkup.” As with other start-ups, this is a data-gathering exercise undoubtedly important to the company’s business model. AXA is an investor in PolicyGenius; the site promotes several major carriers as product providers.

Slice Labs is worth calling out because it is a direct-to-consumer play defining itself against a specific, important market segment – the 1099 workforce whose growth is being stimulated by the “on-demand economy.” Think not only about the Uber and Airbnb phenomena, but also the reality of more Americans moving away from traditional employer relationships where automatic access to benefits was a given.

Carriers will be viewed as start-up clients.

All of the companies mentioned already focus in and around the acquisition of new clients. InforcePro offers an automated solution for agents and carriers providing insights into sales opportunities and potential risks that exist within their current books.

Why does this matter? Insurance contracts are inordinately complex – even for the experts. Carriers and agents, particularly in recent years, have been forced to focus more heavily on maximizing the performance of the policies they have issued, versus just trying to sell more. The focus on the relationship with the policyholder has been skimpy. Life insurance policyholders can cancel a policy but cannot be “fired,” and represent continuing exposure, as their future claims can be on the carrier’s balance sheet for decades. With the risks and potential value now more obvious, in-force management has become a priority for focus and investment.

See also: Start-Ups Set Sights on Small Businesses

Carriers will drive efforts to innovate beyond incremental moves.

Haven Life owned by Mass Mutual but operated separately is a digital business whose product line is term life up to a $1 million benefit. The company operates in more than 40 states and represents a bold move for a 165-year old carrier. Nerdwallet rates Haven’s pricing as “competitive” – not the cheapest but well within range.

What is interesting about Haven is that it is not just implementing a shift of the same old approach to digital channels: Quotes are available in minutes, and coverage can become effective immediately, with the proviso that medical testing be completed within 90 days of policy issuance. In this space, this approach represents meaningful experience innovation.

Last year, John Hancock initiated an exclusive relationship in the U.S. with Vitality, marketing a program that gives rewards to clients who demonstrate healthy habits such as having health screenings, demonstrating nutritious eating habits, getting flu shots and engaging in regular exercise. Rewards range from cash back on groceries to premium reductions. This program is strategically significant because it aims at prevention, not just protection, linking preventative behaviors that clients control to cost savings.

Numerous carriers are participating in innovation accelerators, establishing their own incubators or forming dedicated venturing and innovation units. It remains to be seen which of these are what a colleague refers to as “innovation theater” and which are for real — drivers of new business opportunity. As with any early-stage plays, their stories will emerge over years, not quarters.

Insuring a ‘Slice’ of the On-Demand Economy

In our emerging on-demand economy, Blue Ocean strategy will abound for P&C and life and annuity (L&A) In this post, I will focus on the Blue Ocean strategies that are needed in the P&C insurance industry.

The essence of Blue Ocean strategy, as discussed in W. Chan Kim’s and Renee Mauborgne’s 2005 book Blue Ocean Strategy, is “that companies succeed not by battling competitors but rather by creating ‘blue oceans’ of uncontested market space.” Society’s expanding on-demand economy is generating newly uncontested P&C insurance markets.

These new insurance markets are being formed from the blurring of consumer and corporate exposures that have historically been considered separate exposures by insurance companies, intermediaries, regulators and customers.

My objective in this post is to discuss the emergence of a new insurance player, a licensed insurance intermediary, that offers insurance that the Transportation Network Company (TNC) drivers—specifically Uber and Lyft drivers—should purchase to protect themselves, their ride-share vehicles and their passengers.

TNC drivers have insurance requirements for all three time periods

From the moment they “tap the app on” to the moment they “tap the app off,” Uber and Lyft drivers generate a fusion of personal and commercial automobile insurable exposures. The fused automobile insurable exposures are in play throughout three three time periods during which drivers need to protect themselves; their personal vehicles being used as ride-share vehicles to pick up, transport and drop-off their passengers; and, of course, their passengers.

The three time periods are:

  1. Time Period 1: This period begins when an app is turned on or someone logs in to the app but when there is no ride request from a prospective passenger. The driver can be logged into Uber, Lyft or both, but the driver is waiting for a request for a ride.
  2. Time Period 2: This period begins when the driver is online and has accepted a request for a ride but has yet to pick up a passenger.
  3. Time Period 3: This period begins when the driver is online and a passenger is in the car but has yet to be dropped off at the destination.

No, your personal automobile insurer probably does not cover the ride-share

It would be foolhardy (at best) and extremely costly (to the ride-share drivers) to assume the insurance policy that covers the driver’s personal automobile would also cover the exposures the driver generates as a TNC driver throughout the three time periods.

However, there is an expanding list of personal automobile insurers that:

  • cover time period 1 for ride-share drivers—TNC companies do not provide coverage during this period; and
  • will not cancel a driver’s personal automobile insurance policy if the driver tells the insurance company she is using the vehicle as a ride-share vehicle while driving for Uber or Lyft.

But the fact remains that there is a paucity of insurers that cover the personal and commercial automobile risks for people using a vehicle as a ride-share vehicle during all three time periods.

Further, drivers could very well find themselves with insufficient coverage even if the TNC provides coverage during time periods 1 and 2.

The paucity represents Blue Ocean uncontested market opportunities

The opportunities are the drivers’ need for insurance coverage to:

  • the fullest amount possible given the requirements of each state and each driver’s situation (i.e. the cost to repair the vehicle will differ by vehicle and state where the driver operates)
  • fill the insurance gaps between 1) the driver’s personal automobile coverage; 2) what Uber or Lyft provide during time periods 2 and 3; and 3) what each state requires.

Simply put, depending on the type of vehicle the driver is using as the ride-share vehicle and the state where the driver is operating, it is entirely possible that whatever insurance the TNC provides—even if it meets the minimum requirements of the state—is inadequate to financially help the driver (Note: this is not meant to be an exhaustive list of financial requirements):

  • remediate/restore the ride-share vehicle to its pre-damaged condition;
  • pay for physical rehabilitation for the driver, passengers or pedestrians who are injured in an accident caused by a ride-share driver or a third-party;
  • pay for property remediation caused by the ride-share driver
  • pay the lawsuit of ride-share vehicle passengers who claim the driver attacked them;
  • pay for the lawsuit of ride-share drivers who claim a passenger attacked them; and
  • make payments in lawsuits brought by passengers or pedestrians injured or killed, or owners of property destroyed or damaged by the ride-share driver.

Slice emerges to provide hybrid personal and commercial P&C insurance

Slice Labs, a new player in the insurance marketplace based in New York City, is emerging to target this specific uncontested market space by providing Uber and Lyft drivers with access to hybrid personal and commercial automobile insurance for all three time periods. In a March 29, 2016, press release, the company announced it secured $3.9 million in seed funding led by Horizons Ventures and XL Innovate.

I truly appreciate and personally respect Slice for taking the time to enter this Blue Ocean market space in the “right way” by first becoming licensed in the states where the company wants to operate. Currently, Slice is licensed to conduct business for Uber and Lyft drivers in seven states: California, Connecticut, Iowa, Illinois, Pennsylvania, Texas and Washington.

Getting licensed

Moreover, Slice’s business model is to operate as a licensed insurance intermediary with underwriting and binding authority. The intermediary has become licensed as insurance agents for personal and commercial P&C, excess and surplus (E&S), and accident and health (A&H) insurance. Slice also has managing general agency licenses in the states where that license is required to sell the hybrid insurance coverage. Slice is taking this path of licensure because it is using a direct model and doesn’t plan to distribute through agents (intending instead to distribute through the TNC platforms and directly to the drivers).

Further, because this is a hybrid personal and commercial automobile insurance opportunity, Slice is designing and filing the requisite policy forms in each state where it wants to operate.

Slice is underwriting the risk, but it is not financially carrying the risk. For that, Slice will be working with primary insurers and reinsurers. Slice has not yet reached the point where it can identify which (re)insurers are providing the capability. Obviously, without having the insurance financial capacity, Slice can’t operate in the marketplace (unless Slice plans to use its seed financing and future investment rounds for that purpose—assuming that is allowed by each state where Slice wants to operate).

It is also important to know which (re)insurers are providing the capacity. I hope Slice releases that information very soon.

Conducting business with Slice

A driver purchases the hybrid policy by registering on the Slice app (registering is the process of the driver receiving and accepting the offer to apply for insurance), which triggers Slice’s underwriting process. At the completion of the underwriting process, Slice generates and sends the driver a price for the policy that will cover the driver’s fused personal and commercial automobile insurance requirements for each cycle of turning on and off the Uber or Lyft app.

Once the driver purchases the policy, Slice sends the driver the declaration page and policy in a form required by each state. Slice will send the DEC page and policy digitally if that is allowed by the state. Moreover, the Slice app will show the proof of insurance, the time periods the insurance policy is in effect and the amount of premium being charged during the time period from “app on to app off.”

If there is a claim, the driver will file the first notice of loss through the Slice app. Although Slice plans to work with third-party adjusters to manage the claim process, the driver will only interact with Slice until the claim reaches a final resolution.

What do you think?

Will this uncontested market space remain uncontested for very long? I sincerely doubt it. The addressable market is huge: every Uber and Lyft ride-share driver who does not have the requisite insurance or doesn’t have sufficient insurance (the two are not necessarily the same animal).

What do you think of Slice, of this market opportunity and of other on-demand economy opportunities that reflect a fusion of personal and commercial insurance exposures?