Tag Archives: trov

The Next Wave of Insurtech

At the recent International Insurance Society annual meeting, panelists laid out some intriguing thoughts on insurtech, saying that the first wave is ending and describing the outlines of the second wave that has already begun to form.

The key takeaways: 1) The industry is focusing too much on what panelists called “the shiny objects,” like artificial intelligence, and not enough on the issues that really matter to customers and to corporate bottom lines; and 2) incumbents will bear much of the responsibility for whatever success the second wave has, depending on how well they retool their mindsets and their processes to absorb the steady stream of innovations that smaller players will provide.

The best image: the mullet. That’s how Jamie Yoder, president of Snapsheet, characterized innovation in insurance to date. “There has been so much attention paid to the front end [basically, sales],” he said, “but there’s a huge opportunity to clean up the back.”

In addition to Yoder, whose young company digitizes and automates the claims process in personal lines, the panel consisted of: 1) Chris Cheatham, who founded a startup, RiskGenius, that uses AI to facilitate review of policies and that was recently acquired by a bigger startup, Bold Penguin; and 2) Jeff Berezny, SVP and general manager of enterprise products at Trov, which provides a digital technology platform for incumbents. The panel was moderated by James Maudslay, global head of insurance at Equinix, which operates a huge network of data centers. (You can watch the entire session here.)

Yoder argued forcefully that much of the focus for innovation is on the wrong issues. He said that the sexy part of what Snapsheet does is the computer vision that can analyze photos of damage in a car crash and use artificial intelligence to provide an estimate of the cost of repairs. But he said computer vision saves only maybe 15 minutes on estimating — in a claims process that can languish for days. He said he can get from a first notice of loss to a settlement in 30 minutes, but the computer vision only works in 1% of the cases. Why not, Yoder asked, focus on the big delays that happen as the insurers for those involved in a crash gather and exchange data, sort out responsibility and get money to clients so they can get their cars repaired?

He said the secret to innovation isn’t to have AI do the estimate. “Al will do,” Yoder said. [Lest his joke doesn’t come across in print: He’s saying that Al, as in someone perhaps named Albert, could do the work that everyone seems to want to assign to artificial intelligence and still allow for considerable innovation.]

“The real issue is all the handoffs,” Yoder said. The solution is to “have the claim be the captain of the process. It’s determining, what can I do myself? It’s assigning tasks to vendors, updating the customer, getting an issue to a person when it needs a person.” At the moment, he said, claims processes are managed “based on massive diaries and to-do lists, which don’t really foster efficient throughput of work. And this is in a piece of the business that is 70% of the cost.”

He said it’s also crucial to focus on all parts of the process, because so many can yield improvement. “We’d do all this work with carriers to speed their claims, then find they were still cutting paper checks,” Yoder said. “It’s like you decide to drink a diet Coke but then order a Big Mac to go with it.”

Berezny agreed that the beginning of the claims process “is just phone tag. Call me back, call me back, call me back….” So, having AI that manages the process, to reduce the administrative load on people, and that speeds the handoffs would matter much more than AI that prepares an estimate.

He said the second wave of insurtech that is taking shape now will be more about “selling picks and shovels” and not about the “gold rush” that is being capped off now with the huge valuations that Lemonade and Root achieved following their initial public offerings.

But he said the incumbents have a lot of work to do to prepare. While being cloud-based and digital are table stakes for being able to innovate these days, Berezny said, “Insurance just isn’t there yet.”

Yoder said incumbents need to develop modular processes, based on application programming interfaces (APIs), so companies can have “plug-and-play innovation.” Are information systems designed so “you can just plug your innovation in, or are you stuck with a new wave of IT integration projects every time” you see an insurtech whose software could improve your business? “Innovation isn’t about a point in time. This is a journey.”

He said the need to be able integrate innovation quickly is all the more important because so much is becoming available. Yoder, who until two years ago ran the insurance practice at PwC, said clients used to need to invent a host of capabilities to be able to pursue a digital strategy. “Now,” he said, “you can just pull together a list of insurtechs with those capabilities, and there you go. You should get there a lot faster and for a lot less money.”

Berezny said he sees the new wave of insurtechs leading to “not just direct but embedded” insurance. As a result, he said Trov is working with mortgage groups to embed home insurance in their sales processes, with new digital banks to offer insurance as part of their portfolios and with affinity groups to include insurance in their dealings with members.

“Insurance needs to meet people where they are,” Berezny said. “You can’t just assume they’ll come to your great, shiny website.”

Yoder agreed that embedded insurance has great promise. “People sometimes look for innovations that are way beyond what anyone ever thought of,” he said, “but sometimes the opportunities for innovation are staring you in the face.”

Cheatham said that, with “the first wave of insurtech coming to an end,” he hears a lot about how AI will supposedly eliminate human jobs. But he said the second wave will be about “augmenting humans, not replacing them.” In commercial insurance, where RiskGenius and Bold Penguin focus, “There are too many nuances for us to think that we’re going to get rid of humans in any part of the process.”

He said that innovation in commercial lines moves more slowly than in personal lines, where Trov and Snapsheet live. But he said, “We’ve shrunk processes from weeks down to days, and we can go so much further. I see a big acceleration going forward.

“We’ll catch up to you other guys soon enough.”

Stay safe.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

2021: The Great Reset in Insurance

A shift toward greater corporate and social responsibility and empathy in general is underway, and 2021 will bring a great global reset.

Innovating Our Way Out of a Crisis

Any requirement, process, delay or regulatory cost that does not serve insurer solvency or consumer protection should be on the table for retirement.

Ecosystem-Based Business Models

More insurers now see ecosystems as an effective, flexible and capital-efficient way to grow the business and promote customer-centricity.

3 Must-Haves for a Self-Service Portal

A hybrid approach to customer service appears to be the most appropriate strategy, smartly balancing self-service and human support.

Time to Move Climate Risk Center-Stage

Insurers face a steep learning curve in embedding climate risk into their enterprise risk management programs, but the climb will be worth it.

Free Insurance Data You’ll Need

I’ve been building and reviewing business plans for years and come across great free resources to help me along the way. Here they are.

Why Haven’t More Startups Failed?

We’re about five years into the insurtech boom, but we’re also in the middle of a pandemic. Excitement around emerging technology and startup innovation has taken a backseat as the insurance industry shifted its focus to COVID-19. 

Yet startups have not failed as quickly as the industry might have predicted. It’s possible that some startups will begin to outrun their funding and close their doors in the next year or two. But for the time being, the insurtech market and funding remain relatively stable. What’s driving this?

COVID-19 and Insurtech Partnerships

The pandemic has altered insurers’ approach to insurtech investment. Insurers appear to be focused on tactical initiatives that can produce more immediate results. This contrasts with the R&D that was more prominent pre-pandemic. 

Yet it turns out that startup activity and the global pandemic are not necessarily mutually exclusive. Insurer priorities most notably changed focus to cloud computing and digital strategy — with digital covering both external channels and internal workflows. Cloud and digital are two areas in which almost every insurtech excels and have led to additional opportunities in many cases. Insurers expect that these areas will continue to be prioritized even when the pandemic is over. 

Lemonade’s IPO and What It Means for Insurtech  

Lemonade’s IPO cemented one of the most notable insurtech players as a certified unicorn. IPOs validate the potential returns of insurtech and will help attract more investment dollars into the space, whether from venture capitalists or insurer investment arms. Few other startups have gained the investment attention that Lemonade has, but others — like life insurance startup Ethos or property insurer Hippo — have received funding over $100 million. Each of these startups’ successes helps attract dollars for the rest of the insurtech ecosystem.

See also: How Startups Will Save Insurance

New Growth Paths 

Many insurtechs, especially startup MGAs, are exploring new revenue streams. For some, this means selling a wider variety of coverages directly online or embedding at different points of sale. Some MGAS are also moving to become full-stack carriers, like Buckle and Clearcover. Still other startup carriers, like Slice, Trov and Metromile, have gotten into the software business and are licensing their platforms out to other insurers. 

Platform and analytics players are also finding success proving value to insurers in the current environment. Atidot, for example, partnered with Pacific Life to analyze product and pricing changes to help optimize market penetration for the insurer. In addition, Principal is licensing Human API’s medical records platform to circumvent paramedical exams for disability insurance during the pandemic. 

Many startups have interesting ideas but haven’t thought through long-term financial or regulatory hurdles. The goal of many startups is to validate a business model first, then work out the details later. It’s possible that some startups will start to outrun their funding and eventually close their doors. But it will be interesting to see how insurtech evolves in a post-pandemic world, especially as new realities cause insurers to rethink processes that were manually intensive. For startups that can show value to insurers, this new normal may be an opportunity.

Can Insurtech Rescue Insurance?

Is insurance broken and in need of rescue?

That was the question I recently asked myself while hiring a rental car to visit the infamous “White Line” mountain bike trail in beautiful Sedona, AZ.

When I discovered the full Hertz insurance cover was going to cost me double the price of the actual car hire, I couldn’t help but relay my shock to the salesperson. She proceeded to tell me about customers’ typical reaction to the accompanying insurance cover purchase, and three things, from the conversation, stuck in my mind:

  1. Many customers opt not to take the liability cover even though it leaves them quite exposed.
  2. A surprisingly high percentage of customers ask for a refund on their insurance payments, at the end of the rental period, if they didn’t need to make a claim!
  3. Customers are generally very distrustful of the insurance product they are buying. Customers are often unsure whether it will actually cover their needs if they have to make a claim.

To my mind, this random conversation captured three big problems the insurance industry currently faces:

Problem #1: Consumers often don’t value insurance

Insurance is quite an unusual product. Except for maybe a coffin and a fire extinguisher, it’s the only purchase I can think of that you make but hope to never have to use.

Let’s face it. Buying insurance is usually an uninspiring “grudge purchase.” Tedious paperwork, arcane questions, having to think about what can go wrong in your life. Is it any wonder that the experience is up there with a visit to the dentist? Of course, the reality is that should your home be destroyed in a storm or should you be involved in a car accident deemed to be your fault (especially with third-party injury) insurance can be the saving grace preventing potential financial ruin.

Problem #2: Consumers don’t always understand insurance

After going through the pains of considering the potential financial impact of personal tragedy, you are rewarded with the product: a paper contract. Not just any old paper contract, but a long-winded, very conditional and often confusing document. How exciting! Again, is it any wonder that insurance customers can’t or don’t want to take the time to understand the precise nature of what some deem to be the world’s most boring product?

Problem #3: Consumers generally don’t trust insurance companies 

To highlight the trust issue, I turn to the most popular definition of “insurance company” from the crowd-sourced Urban Dictionary:

Insurance Company: “An affiliation of pirate-gamblers who accept bets called premiums. The dollar amounts of the premiums are non-negotiable, but the amounts of the claim settlements, should the company lose the bet, are rarely delivered without argument.”

While the quoted source may be a parody, I believe the underlying inclination signifies the typical level of distrust that consumers have of insurance.

See also: Where Will Unicorn of Insurtech Appear?  

Don’t get me wrong. I believe insurance plays a critical role in our lives, and insurance companies can provide a great service as well as a very rewarding career path. But, when it comes to the general consumer view of insurance, there seems to be an issue.

Ask 10 random people on the street to describe “insurance” in three words, and you can be nearly sure at least one person will allude to issues of distrust

Insurtech to the rescue?

So what is the industry doing to solve these problems?

It appears that the nimble insurance technology startups (insurtechs) are playing a large part in leading the way in attempting to overcome these issues.

Below are three insurtech companies focused on addressing these issues and arguably changing the insurance world for the better:

Solution # 1: Improved Value – Metromile

Telematics has been around for a few years now, particularly in Italy, the U.K. and the U.S.

Onboard car technology is used to monitor and potentially assess the driving behavior of each individual driver, thus moving insurance from a pooled pricing model to a more individual specific model, one where the underlying policyholder risk is more closely monitored.

These telematics technology devices (also known as a “black box”) are able to pick up a number of diverse driving metrics such as:

  • mileage
  • location
  • time of day
  • driving frequency
  • behavior around hazardous zones
  • speed
  • rates of acceleration
  • braking habits

This information can then be considered in a more accurate and individualized pricing model, one that potentially allows the previously trapped (i.e pooled) policyholder to break free from his or her age or gender (non-EU) status, etc. and prove worthy as a safe driver that is a good risk and unlikely to have an accident and hence claim.

Low-mileage drivers, as well as young male drivers, can benefit, and this is the market that Metromile has targeted.

The usage-based customization of insurance certainly seems to be keeping customers happy, with policyholders reporting they feel like they are getting a fairer deal. After all, should a low-mileage, safe driver really be subsidizing a riskier driver just because they share common old-school rating factor characteristics?

Metromile has been forging ahead with this lifestyle app-based continuous digital engagement model since 2011. And the company shows no signs of slowing down. In late 2016, the company raised a further US$150 million in funding through which it acquired a carrier enabling the company to now underwrite its own policies.

Solution #2: Simplicity and Understanding – Trov

The Trov promise:

“As simple as Tinder and as beautiful as Airbnb” — Scott Walchek: CEO of Trov

Trov provides on-demand insurance for personal items that can be toggled on and off via a few simple taps from your phone. The company aims to give the mobile generation easy protection that they can enjoy “without worrying about rigid policies and confusing fine print.” 

In addition, Trov seems to be jumping on the personalized cover bandwagon – treating policyholders as individuals instead of an average risk within a cohort. The flexible app gives customers the option to tweak their cover toward their own personal circumstances. As one customer put it: “Why pay for an expensive insurance plan designed to cover your worldly belongings when all you really care about is your mountain bike and your laptop?” 

“Protect just the things you want – exactly when you want – entirely from your phone” — Trov website

This simplicity and flexibility seems certain to appeal. I personally like the idea of being able to quickly and easily protect my mountain bike by getting temporary insurance for the times when I do actually take it out and use it. And if a claim is required, it’s all handled via an in-app chatbot. Insurance for the smartphone generation indeed!

While I do wonder how Trov counters fraud (given the ability to so easily turn the cover on and off), as we are living in the age of convenience, it would seem that this model is sure to appeal beyond just tech-savvy millennials.

Solution #3: Enhanced Trust – Lemonade

Lemonade is the poster child of insurtech, or at least the king of savvy insurtech marketing. When the company shouts about paying a claim in three seconds, using AI not actuaries and bots not brokers, it certainly makes one stand up and take notice. Lemonade began selling insurance nearly two years ago and has now amassed a sizable level of funding and following. The companyy promised to bring trust back into the insurance world – the way it should be and how it was in the beginning.

The tools of their trade: behavioral economics and artificial intelligence.

The promise to the customer: simplicity, convenience and affordability.

But back to the trust issue. How is Lemonade approaching it? The business model attempts to disrupt the cycle of distrust between the insurer and the insured. This is done by separating the pool of risk capital from the company’s own 20% flat fee. Essentially this model aims to remove the incentive for the insurer to minimize claim payouts on the basis that doing so will not affect its bottom line (the remaining 80% claim pot gets paid out to small peer groups under a giveback scheme, after some unavoidable expenses such as reinsurance cover).

Basically, the deal is: Trust us to pay out your claim quickly, with minimal fuss and without any sneaky “catching you out in the fine print” shenanigans, and we will trust you to only claim if it’s genuine.

“Knowing that every dollar denied to you in claims is a dollar more to your insurer brings out the worst in us all… Since we don’t pocket unclaimed money, we can be trusted to pay claims fast and hassle-free. As for our customers, knowing fraud harms a cause they believe in, rather than an insurance company they don’t, brings out their better nature too. Everyone wins.” — Dan Ariely, chief behavioral officer at Lemonade

The behavioral implication, with the removal of potential conflict, is that the enhanced two-way trust will drastically reduce fraudulent claims. This, combined with the operational cost efficiency savings from AI and technology will allow the company to have happy customers and still make a sustainable profit.

At least that’s the theory.

See also: Convergence in Action in Insurtech 

Now, while I love what they are doing, I’m not entirely convinced their model is altogether different from some of the smaller mutuals, especially those that still maintain some level of social bonds. Maybe I’m biased because Lemonade doesn’t seem to like actuaries, but I also wonder whether the company’s pricing, underwriting and risk management will allow its loss ratios to stay low enough to not affect their 20% flat fee over the long term. It takes some time for reality to test the theory, in insurance. So I, for one, will be watching the Lemonade space with interest.

Conclusion

So is insurance really broken and in need of fixing?

Let’s not forget what insurance is all about. In essence, insurance is about the pooling and sharing of risk. Swapping an uncertain, and potentially large, outgo for a small(er) more certain outgo (the premium). This is unlikely to change, and insurance companies obviously already do this.

But, I do believe, there is a need to modernize, especially in relation to the customer experience. I don’t see insurtech companies causing a complete revolution. But they are likely to play a big part in the evolution of insurance.

What do you think? Does insurance need to evolve? Is insurtech the answer to the customer experience issues? Are these insurtechs all marketing talk and lacking substance? Will the asset-rich insurance incumbents ultimately lead the way in the unfolding tech world evolution?

This post first appeared on the ProActuary blog here.

Will Amazon Disrupt Insurance?

In the last months of 2017, I wrote – together with my friend Andrea Silvello – “All the Insurance Players Will Be Insurtech,” and the book was published in the first days of 2018.

See also: Is Insurance Really Ripe for Disruption?  

I included all the foundations of my insurtech thoughts; the elaboration of many discussions I have had since I published my article “Will fintech newcomers disrupt health and home insurance?” in August 2015; and a review of my five insurtech predictions from a year ago. Here is that look back, followed by a prediction on the hottest discussion at the start of this year: whether Amazon will enter the insurance industry:

Prediction: Exit

Not everyone will prosper. Although many amazing insurtech companies are seeing great results and scaling up—and many will continue to enter the field—some will surely leave the game, as well.

Result

I was dreaming of an insurtech unicorn’s exit. Well, dreams become reality sometimes: Well Zong An – the Chinese full stack insurtech – made its IPO with a $10 billion evaluation in fall 2017. Also, Travelers acquired Symply Business for $400 million.

On the other hand, Guevara left the game in the second half of the year. This winnowing down, a Darwinian “survival of the fittest,” should ultimately strengthen our industry.

Prediction: Reconversion

This is the other side of the moon. I saw many initiatives doing a great job putting together a fantastic team and a sexy equity story, and some raised relevant capital, but their business models look (to me) not sustainable from an insurance perspective. I don’t want to claim that no one of them could succeed, and history has already shown how skepticism can be wrong. But I’m expecting to see some players use their great skills and the funding raised to change radically their business models.

Result

In spring 2017, Trov did a round of financing of more than $40 million with a valuation higher than $300 million, but, from what we heard from the CEO at different conferences, the company is focusing its efforts on a back-end system that insurers can use on their customer base rather than on growing its customer base and portfolio of on-demand risks. Also, Zenefits went through a difficult 2017, stepped back from the brokerage business and started to license its technology as an SaaS (software as a service) player.

Prediction: Connected Insurance

My two cents are on any insurance solution that uses sensors for collecting data on the state of an insured risk and on telematics for remote transmission and management of data on the insurance value chain. A crazy prediction: Let’s consider the most mature use case, auto insurance telematics in Italy, which represents one of the best practices globally. In the country, I’m forecasting more than 7.5 million cars connected with an insurance provider by the end of 2017 (compared with 4.8 million cars connected at the end of 2015).

Result

In line with the expectations, Italy’s insurance telematics policies had reached 7 million by the end of third quarter 2017, according to the IoT Insurance Observatory.

Prediction: Culture Shift

Incumbents are becoming always more interested in debating innovation and concretely testing new approaches, including collaboration with startups. I expect to see this new breeze surround old-style insurance institutions, with a growing awareness on how all the players in the insurance arena will be insurtech players.

Result

A board member at one of the largest global reinsurers recently summarized the essence of insurance as assessing, dealing and accepting risks using the latest technologies. That’s one sign that the industry is coming around. We saw 3,800 more signs at InsureTech Connect, the world’s most prestigious insurtech conference. In 2016, the conference had 1,200 participants; in October 2017, it sold out with more than 3,800 attendees. Andrea and I were there on the stage and witnessed the incredible energy of those insurance professionals, regulators and startups.

Prediction: Sustainability

Many value propositions are bundling risk covers and services, thus allowing the insurer to influence behaviors and prevent risk, contributing to the sustainability of the sector. In the next months, I expect to see some insurers becoming more relevant in the life of their clients and act as partners and not only as claim players.

Result

The speeches of top insurance executives show the sector’s ambition to go in this direction. A slide projected on a wall is just that, however: in the field, we see very few examples of implementation.

What will happen in coming years?

Unfortunately, I damaged my laptop a few days ago so my crystal ball for the 2018 predictions is also not working…but I want to provide my middle-term view about the issue most-discussed at the end of 2017: Amazon activity in the insurance sector.

I predict Amazon will not disrupt the insurance sector. I believe it will do something – especially around insurance coverages on the products it sells – but will not be able to touch the core of the insurance profit pool on either commercial lines or personal lines (auto, property, life, health). My view is based on two main beliefs:

  • One of the key elements to be a successful insurer is underwriting discipline, as highlighted by Mario Greco recently or some famous Warren Buffett sentences in the past. Well, I believe that underwriting discipline conflicts with the culture of any tech giant. Amazon could buy an insurance company or hire talented people to close the gap on insurance knowledge, but the corporate culture doesn’t fit with the insurance business fundamentals.
  • In insurance, each market has its particular characteristics. One size doesn’t fit all — the opposite of how things work in social media or in internet businesses. I’m speaking about what the customers want (need) to buy in the different markets and how they want to buy it. In life insurance – the usual push product, which needs to be sold – digital channel at global levels represent less than 1% of new sales. But even look at auto insurance. The U.K. auto insurance market is controlled by online distribution, and, 10 years ago, insurance executives assumed that all Western European markets would follow the U.K. path within a few years. But auto insurance distribution in Europe continues to be dominated by traditional channels. You can argue that local carriers executed poorly, but even branches of U.K. insurance groups, with their great expertise, couldn’t duplicate the success that was had in the U.K.

I don’t think things cannot be changed. In fact, I believe there are a lot of opportunities to do things in a different way. But “one size fits all” doesn’t work, and I’m skeptical about the tech giants’ ability to deal with those local insurance characteristics. A tech giant based in Silicon Valley or with a European hub in Dublin will dirty its boots on insurance distribution (or other steps of the value chain).

It is an interesting time to be in the insurance sector, but I’m pretty confident GAFA (Google, Amazon, Facebook, Apple) and BAT (Baidu, Alibaba, Tencent) will not disrupt this sector.