Tag Archives: TongJuBao

Asia Will Be Focus of Insurtech in 2017

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

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

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

See also: The Future of Insurance Is Insurtech  

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

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

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

Probability and “Survival of the Fittest”

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

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

Home Market Advantage

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

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

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

Regulatory Complexity

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

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

Meet Future Leaders of Asia InsurTech

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

Credit: George Kesselman

Credit: George Kesselman

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

See also: Insurtech Has Found Right Question to Ask  

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

U.K.

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

Germany

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

USA

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

China

Insurtech Ecosystem Emerging in Asia

Building on T.J. Geelen’s blog post about the thriving fintech ecosystems in Asia, I’d like to share with you some insights relating to the emerging insurtech ecosystem in the region. Although insurtech in Asia is in its infancy, since 2015 we’ve seen a surge of interest. By the way, I’m a big believer that Asia has a real potential to power the next wave of global insurance innovation.

Four flavors of insurtech

First, let’s revisit the definition of insurtech to make sure we are all on the same page. Essentially, there will be three major camps of insurtech: one that enhances existing insurance structures, another one that aims to disrupt by providing alternative digital risk transfer mechanisms and the third type coming from existing insurance firms attempting to defend their existing market positions. The first and third types broadly can be broken into the following sub-types:

  • Product sales/distribution (aggregators, online portals, apps)
  • Risk management (IoT, healthtech, blockchain)
  • Fraud detection/prevention (big data, machine learning)
  • Claims management (big data, machine learning, vendor network management solutions)
  • Service management (chatbots)
  • Investment management (portfolio optimization, asset/liability matching)

The second type attempts to drive an end-to-end structural innovation, either removing part of the structure or fully digitizing it.

Why Asia for insurtech

Asia is attractive from both an insurer and an insurtech perspective due to the size of its significantly underinsured population. The region has traditionally seen a large part of the risks self-insured through family and community networks. As the region experiences rapid growth in the affluence of its population, together with an aging population, the risk exposure is becoming even more apparent, and the need for alternative risk transfer mechanisms, including insurance, increases. Insurtech, alongside traditional insurance, can help.

Further, there are near-perfect locations for the launch of a program. Singapore, for one, allows for sandboxed experimentation, regulatory support and advanced tech infrastructure. Limitations of traditional insurance distribution channels and the rapid increase of 4G mobile penetration mean that insurers are also highly interested in exploring innovative partnerships that help them connect with potential customers.

See also: Matching Game for InsurTech, Insurers

Insurtech in Asia

Asia is a very diverse region and has a mix of developed and emerging countries. So far, the major push for insurtech has come from China, India, and Singapore, while Japan, Korea and emerging Vietnam, Cambodia, Taiwan, Philippines, Thailand, Indonesia, Malaysia and Burma have lagged. (While Australia and New Zealand are geographically close and are very well integrated in the Asian region, the markets are much more ”Westernized” and hence are less applicable to this blog post.)

There’s China, and then there’s everyone else when it comes to insurtech. The first full stack (end-to-end) innovator, Zhong An, is valued at a massive $8 billion and raised $931 million. It accounts for more than a third of the global insurtech funding in 2015. It is also worth mentioning TongJuBao (peer-to-peer) insurer and FWD (Asia’s second-richest family’s insurance venture, which is re-positioning itself from traditional insurer to an agile digital insurance competitor).

India, another vibrant insurance market, has seen its insurtech innovation focus mostly on distribution. Not surprisingly, two of the major aggregators come from India: Policy Bazaar and CoverFox have seen healthy level of customer take-up as well as sources of funding. CoverFox has recently expanded its service proposition, now assisting customers with their insurance claims.

Being based in Singapore, I have a particularly detailed view of the insurtech landscape in Southeast Asia. So far, I have gathered the following mapping of Asia insurtech startups as they fit within the insurance value stack. There’s a mix of very-early-stage as well as more mature Series A and listed ventures. The list keeps growing.

Please feel free to comment and reach out if you come across any additional startups that I’ve missed out in the list below, and I’ll update it.

Area:

Distribution

Actual Losses

Operating Insurance Co.

Value:

20%

55% Losses + 5% Fraud

20%

Role:

Aggregators

Leads Generation

Customer Transactions

Improving risks

Fraud detection

Rewarding healthy

Risk assessment

Loss adjustment

Operational/Service Efficiency

Start-ups: Policy Bazaar (Aggregator)

CoverFox (Aggregator)

Health/House-front

Latize (Fraud) JustMove (Health)

Uhoo (Health IoT)

Harti (Health)

WaveCell (Comms platform)

Fixir (Finding repair garage)

MyDoc (Health claims)

Stash.ph (Health claims)

GoBear.sg (Aggregator)

Cxa (Employee benefits)

PolicyPal (Policy mgm.)

UEX (Group policies)

Zhong An (General Insurance) CH

TongJuBao (Peer to Peer Insurance) CH

DirectAsia (Direct General Insurance) SG

FWD (General / Life Insurance) HK

Singapore Life (Upcoming Life Insurance Startup) SG

 

Corporate insurtech

Singapore, with its advanced infrastructure and innovation-supportive financial services regulator (MAS), has secured a leadership position for Asia’s corporate insurance innovation as reflected by the high concentration of insurance innovation centers. Eight of 10 Asian insurance innovation centers are based in Singapore. The innovation centers are powerful corporate change catalysts and typically include elements of awareness building and cultural transformation.

Firm Innovation Center Country Focus Status
Aviva Digital Garage Singapore Digital Transformation Active
Manulife Loft Singapore Digital Transformation Active
MetLife LumenLab Singapore New business models Active
Allianz Digital Labs Singapore Digital Transformation Active
AXA Data Innovation Lab Singapore Big data Active
AIA Edge Singapore HealthTech Active
Munich Re Innovation Lab China General Insurance Launched Q1 2016
Swiss Re

India IoT, AI, Big data Planned July 2016
IAG

Singapore

Rumored 2016
NTUC

Singapore

Rumored 2016

 

In summary, Asia is a region to watch when it comes to insurtech. Whether it be the home-grown insurance innovation from China and India, corporate innovation from Singapore or innovation concepts imported from elsewhere and deployed in Asia, the region is likely to deliver a vibrant insurtech ecosystem during the course of the next two to three years. And when the dust and excitement settles down five years down the road, we’ll have a fundamentally stronger set of competitors.

Wanting to accelerate insurance innovation, we’ve created InsurtechAsia, an action-oriented community of insurance practitioners, entrepreneurs and industry stakeholders across Asia. We are aiming to attract the best minds to tackle the challenges and opportunities in insurance, connect entrepreneurs with the best enablers, validate concepts and help business scale rapidly.

See also: New Insurance Models: The View From Asia  

A dedicated and company-agnostic insurtech accelerator, such as Startupbootcamp InsurTech, which was launched in London in late 2015, would go a long way to spur further insurance innovation here in Asia. We eagerly await the day when Startupbootcamp InsurTech will come to Singapore.

Are you passionate about making a change to the insurance industry? If so, join us at www.insurtechasia.com and follow this great team of like-minded people on Twitter: @insurtechasia.

digital innovation

The 7 Colors of Digital Innovation

InsurTech is now established in a class of its own, no longer a sub category of Fintech. In 2015, $2.65 billion of venture capital was invested in InsurTech. We now have InsurTech-focused accelerators, with the excellent Startupbootcamp in London, the Global Insurance Accelerator in Des Moines, Iowa, (about to start its second cohort) and Mundi Lab announcing its start-ups for its insurance program in Madrid.

In the past year, I have interviewed more than 50 InsurTech start-ups, and I have seen the full spectrum of characteristics and common themes that run through these innovative digital insurance businesses, which i call:

From Distribution to Data, the Spectrum of InsurTech

Red – Distribution

Distribution is all about making insurance easier to buy, consume and understand. Innovators put the customer first and build their insurance proposition from the customer out (unlike incumbents, which organize their business around internal capabilities).

These start-ups are all about the customer, and their propositions are characterized by convenience, on-demand, personalization and transparency (and, of course, digital).

Examples include;

  • Bought by Many
  • Knip
  • Cuvva
  • Insquik
  • PolicyGenius
  • Moneymeets

Orange – Enterprise

Here we see a new breed of enterprise-class software providers. These are software as a service platforms running on the cloud. They have consumption-based pricing models that replace the traditional, million-dollar, up-front license fee and multi-year implementation.

In the main, these InsurTechs have taken hold of the small and mediums-sized business (SMB) space, but it is a matter of time before they prove themselves as genuine enterprise solutions for Tier 1 insurers.

Examples include:

  • Vlocity
  • Zenefits
  • Insly
  • Surely
  • Riskmatch

Yellow – Mutual 

New peer-to-peer business models return insurance to its roots of mutualization and community. The model relies on the notion that social grouping and affinity will change behavior and address moral hazard (thereby reducing claims payouts and premiums).

The question of scalability still hangs over P2P insurance, but, if it succeeds as a business model, it could form the foundation of a new breed of insurer. Just as kids call to their parents in their hour of need, customers will call to the insurer in theirs.

Examples include:

  • Friendsurance
  • Guevara
  • TongJuBao
  • Lemonade
  • Uvamo
  • Gaggel

Green – Consensus

Blockchain technology will fundamentally change the way the insurance industry works (as well as banking and society as a whole, IMHO).

The promise is huge although as yet unproven. From smart contracts to identity authentication, from fraud prevention to claims management, blockchain technology will provide the underlying technology foundations for a trustless consensus that is transparent to all parties.

Examples include:

  • Everledger
  • Tradle
  • SmartContract
  • Dynamis
  • Blockverify

Blue – Engagement

For me, this is the most significant of the characteristics from InsurTech in personal lines. The product becomes integrated in the customer’s lifestyle. It becomes sticky and overrides the annual buying exercise, where price is the key buying criterion. Digital natives are responding well to lifestyle apps that sit on top of the underlying insurance product.

Examples include:

  • Vitality
  • Trov
  • Oscar

Indigo – Experience

The true value of insurance is only realized when the customer makes a claim. New tech solutions that improve the customer journey through the claims process will not only improve the customer experience, they will also reduce the cost of claims and claims payouts.

Examples include:

  • 360Globalnet
  • RightIndem
  • Tractable
  • Vis.io
  • Roundcube

Violet – Data

This is all about new sources of data to rate and underwrite risk. This is about using data science, machine learning, artificial intelligence and high-performance computing to process data in completely new ways.

While distribution is vital to change the way customers interact with insurers, it is the data players that hold the key to fundamental change in the way insurance is manufactured, especially in personalisztion of insurance premiums and policies.

Examples include:

  • Quantemplate
  • Analyze Re
  • Meteo Protect
  • The Floow
  • Fitsense
  • Influmetrics
  • RiskGenius

P2P Start-Ups From Around the World

Before the advent of underwriting in London’s coffee houses in the 1600s, civilizations used various mechanisms to provide financial protection within their communities. For example, in the Middle Ages, tradesmen learned their skills through apprenticeships in the guild system. These guilds collected fees, and the wealthier guilds used these fees as a kind of insurance safety net.

If a member of the guild was robbed, if his house burned down or if he died, the guild used money from the safety net to rebuild the house, support the family or settle any financial obligations.

The world of insurance has changed a lot since those times, but the fundamental definition of insurance as “the mutuality in the sharing of losses” hasn’t.

Which brings us to emergence of the new generation of peer-to-peer (P2P) insurance firms. These InsurTech start-ups want to address the conflict between the insured and insurer, because the insurer is betting that the insured won’t make a claim, while the insured is betting he will. The P2P InsurTechs also want to address human behavior and moral hazard.

P2P insurance protagonists around the world

Friendsurance – Germany

The pioneer of P2P insurance in 2010, Friendsurance pools its users into small groups and gives its customers a cash-back bonus at the end of each year if they remain claim-less. Friendsurance operates as an independent broker in Germany. See here for an interview with CEO and founder Tim Kunde.

Lemonade – U.S.

Claiming to be the “world’s first P2P insurance carrier,” little is known about Lemonade other than that it is coming soon. The company hit the press when it was reported it had raised a massive $13 million in seed funding (a strong indication where the puck is heading).

Inspeer – France

Here, customers form friend-and-family groups to share the deductible (aka excess) element of a claim. This enables high deductibles, thereby reducing premiums from the insurance carrier. The group shares the benefit of lower premiums and provides each other with financial cover for the higher deductible if there is a claim.

PeerCover – New Zealand

This is a friend-and-family savings scheme to provide financial cover for deductibles in the event of a claim. Like Inspeer, the higher deductibles result in lower premiums for everyone in the group. However, unlike Inspeer, in the event of a claim, members get as much as three times their initial contribution back to cover their excess.

Guevara – UK, TongJuBao – China

For Guevara and TongJuBao, I spoke with the founders to find out more about how P2P insurance works and why it is different from traditional insurance. The two companies have two very contrasting stories.

I’ll start in China—or Shanghai and Hong Kong, to be precise. Recently, I skyped with Tang Loaec, founder of the Community Risk Sharing platform, TongJuBao (aka P2Pprotect).

Tang is on his third financial business launch after a career in banking and risk management. In his spare time, he writes fiction books!

TONGJUBAO EN+CN
Like most involved with InsurTech start-ups, Tang wants to disrupt insurance.

Tang explained, “We all want protection, but nobody loves insurance. And our insurance providers have not done a good job. In China, customer satisfaction is low at around 19%. Something needs to be done.

“People think the process is unfair. Consumers pay premiums regularly and on time, but, when it comes to the claim, insurers often delay and deny the amount to be paid out. This just leads to a breakdown of trust.”

Often, an InsurTech startup builds a business model that relies on a traditional underlying insurance business model. Tang aims to build a P2P insurance model that is more than a social group sharing each other’s exposure to deductibles. TongJuBao, like Guevara and the recently announced Lemonade, plans to go further and completely redefine the end-to-end insurance model.

This is not just a distribution play built on some social novelty factor. This is the start of a new wave of insurance business!

With TongJuBao, there is no underlying insurance carrier. Its model separates the underwriting process from the claims process, thereby removing any conflict of interest. First, TongJuBao creates social communities or groups that customers join. The company then creates a deposit account for every member.

All members pay two sums of money into their deposit accounts. One is the fee for administration. The other is, effectively, a guarantee deposit to cover the risk being insured. All members pay the same amount into the deposit account to buy units of protection — in other words, if one unit provides £10,000 of cover, and I want £50,000 of cover, I buy five units.

Tang explained that his first-year focus is on launching a range of social risk products into the Chinese market:

– Marriage cover is typically not insurable because divorce is a human-based, not event-based, decision. TongJuBao’s product will launch with a flat-rate premium and a short-term, no-claims period (to guard against early payout on someone buying, marrying, divorcing and claiming in a very short period). Effectively, this is selling an insurance product as an alternative to a pre-nup.

There is a similar product in the U.S. market from Safeguard Guaranty, which claims to offer the “world’s first divorce probability calculator.”

– In China, child abduction is a massive social problem (see this report from the Guardian). Nobody knows the true scale of the issue, but it has been a problem since the 1980s and is possibly an unintended consequence of the “one child” policy.

TongJuBao’s policy will provide immediate support to the family through an agency that will offer emotional support as well as initiate search-and-rescue activity in the critical early hours after abduction.

How does TongJuBao work?

Tang explained, “The members of each community pay premiums into a large pot, and then members draw on the pot when they claim. Essentially, everyone in the community signs a contract with everyone else. The members all share the risk and reward.“

This is a mutualization model, but there is a capital limitation with this model, so all payouts are restricted to a capped amount. In many ways, you could look at the TongJuBao model as a marketplace more than as an insurance carrier. However, unlike the Uvamo model, members are not speculative investors looking to get a return on an investment.

As for regulation, TongJuBao operates under a civil law contract and not as a regulated insurance business. This is the model that has been working for P2P lending over the past eight years, and Tang expects it to work just as well for P2P insurance.

Can this business model scale?

Tang believes he can get the same rates of growth in protection as the ones China has seen in lending. He told me, “The model will scale. Just look at P2P lending in China, which has scaled to over 2,000 platforms and [where] total volume of lending is four times more than [the] rest of the world put together! And how did this happen? Because, in China, banks were not meeting customer needs. It’s the same story for insurance; they are not serving customer needs.”

In many ways, TongJuBao’s business model takes us back to the roots of insurance. Way back in 1696, Hand in Hand Fire & Life Insurance,  the predecessor to Aviva, the UK’s largest insurer, was created to provide everyone in the community with protection in the event of a fire. Members paid a subscription, and Hand in Hand owned its own fire brigade. Everyone in the community enjoyed the collective support of all the other members in the event of a fire.

Moral hazard

A common theme when talking to InsurTech firms is “the moral hazard.” The long form definition of moral hazard can be found here, on Wikipedia. In the modern context, the term is used to define the actions and choices of the protected party when it doesn’t carry the financial consequences of those actions. If an insured party knows it is protected financially should it crash a car or drop an iPhone in the street, does it act with the same level of precaution as it would without any financial cover? And why should it? That’s what the insured party has bought insurance cover for, isn’t it?

5479639_orig

(Source: http://www.lifetonic.co.uk/articles/moral-hazard)

Leaving personal responsibility and the moral dimension of this debate to one side, the fact is that a riskier attitude ultimately leads to higher premiums for everyone.

This is why P2P insurance offers the potential for lower-cost insurance. By having you join groups or communities you have an affinity with—whether family, friends or people with common interests—the business model relies on a socially responsible attitude to risk-taking, as well as a financial one.

If the insured knows the deductible is going to be funded by family members, is she less likely to make an exaggerated claim, especially when she is also taking the deductible from her own pocket?Guevara_Logo_black

Hanging out with Guevara 

One sign of success appears when your name is regularly dropped as a pioneer in your field, which was the case when Guevara and Friendsurance were prominently named when the story about Lemonade hit the press

So, it was my absolute pleasure to spend time with three of the four founders of Guevara at their London headquarters—Paul AndersonRich Philip and Mike Greer. (The fourth founder is Kim Miller.)

Anyone who spends time in the investor community, especially during early-stage investing, will tell you it’s all about the team. And there’s no better example than the team at Guevara, with a wide range of backgrounds, skill sets and experiences.

Everything about Guevara is incredibly professional, from the cool branding and young Turks’ positioning to the grey-haired underwriting and pricing experience in the back office.

Formed in 2013, Guevara started offering motor insurance in late 2014. As the founders explained the origins of this digital insurance business, they relayed their personal experiences in buying insurance, from paying high premiums to having no idea with whom they were insured.

The best story came from Anderson, who is from Australia. When he first came to the UK, he bought car insurance based on having an Australian driver’s license. It cost him £1,000.

Close to renewal time, his insurance provider reminded him that his Australian driver’s license was only valid for a year and that he needed to switch to a UK one. However, there was an unintended consequence of swapping. He was recategorized as a new/inexperienced driver of less than a year! His premium shot up to £4,000. Same driver, same car, same location.

Sadly, this is an all-too-real illustration of how motor insurance works today and why there is real market opportunity for a new approach.

‘Old insurance is rubbish’

Guevara offers a standard motor insurance policy that is underwritten using traditional rating factors (ABI rating, driver history, location). The premiums are competitive, although drivers are unlikely to find Guevara on the aggregator sites.

This is because Guevara is different. Here’s why.

New customers are offered a choice of groups to join. Their base price (which is what Guevara calls the premium) is split in two, with one portion going into the individual group (called the protection pool) and the rest going into a single pot that supports all of the groups (called the insurance fees).

The amount of the split is anything up to 50% and depends on the number of members in the group. For groups of fewer than 10, the pool contribution is 20%, with 80% going into insurance fees. But when groups get to be larger than 100 members, the base price is split 50-50 between the two pots.

Claims are first paid from the money collected in the protection pool associated with each group until it runs out (or doesn’t, in which case there is a surplus). In the event that the protection pool runs out, claims are covered out of the collective pot (insurance fees). And in the event that the collective pot runs out—i.e. the combined ratio exceeds 100%—Guevara is reinsured by a traditional carrier.

The key here is that any surplus is redistributed back to the members. At renewal time, all money in the protection pool stays where it is, and the renewal premium is discounted accordingly.

The model works so that members can achieve 100% discount on their protection pot contribution and only pay the insurance fees element if everyone in their group does not make a claim. For larger groups, this is 50% of the originally quoted motor premium.

To affinity and beyond!

What makes Guevara work is affinity. Having an association with the group is really important, because this model relies on keeping claims expenses down. Even if there has been an accident and a claim needs to be made, the member has direct incentives to minimize the claims expense.

Guevara screen

For example, following an incident, how frequently does the insured go and arrange a hire car instead of letting the insurer do it at a much lower expense? If the Guevara customer knows that a claim will directly affect friends or family or will hurt its affinity group, the customer is more likely to only claim what is necessary.

What you see is what you get

Guevara also wants to tackle the continued complaint of customers is that there is no transparency with motor premiums — How are they calculated? Why do they vary so much from one insurer to another? Why do they go up from one year to the next?

Guevara not only lets customers make their own choices about the group they join but always lets them see who is in the group, how much money is in the protection pot, who is making a claim and, most importantly, how much is left in the pot at renewal time.

Philip, one of Guevara’s founders, said the company’s aim is to “encourage customers to engage and understand our insurance product. … Insurance is such a large proportion of household discretionary spending. By giving our customers accountability within their groups and making that transparent for everyone, we can reduce the cost of motor insurance for everyone.”

What next for Guevara?

For now, the team is totally focused on the UK motor market, but I can sense they won’t stop there. And this is more than a distribution play. Guevara is building a full-stack insurance model, and building an insurance business is no small feat. It takes time and a lot of capital to do that. Plus, there is the whole subject of regulation, which has to be embraced and fully adopted into the business model.

Guevara’s product is ultra-sticky because the upsides come at renewal time, just when buying decisions are being made. For Guevara to succeed, it has to show, over time, that it can deliver a better trust engagement, a change in driving behavior and, ultimately, lower, fairer premiums for group members (which is the goal for all the P2P InsurTechs I’ve listed).

Insurance evolution

Evolution-Of-Travel-Insurance1Jeff Bezos is credited with saying, “What is dangerous is not to evolve.” The traditional insurance model is not in good health, and this is creating the dynamic for change. The emergence of P2P insurance is evolution in action, even if it is taking us back to the roots of the industry!