New entrants seem to be coming out of the woodwork in insurance. The insurtech movement, the advance of emerging technologies and the appetite of the global tech titans are all contributing to new entrants, new partnerships and new business models. A few recent examples illustrate the new interest in insurance from those both inside and outside of the insurance industry.
WeWork partners with Lemonade. In what seems like a very natural partnership, WeWork plans to offer its WeLive members renters’ insurance through Lemonade. WeLive members rent fully furnished apartments from WeWork for short-term situations.
Credit Karma enters insurance. This fintech intends to build on customer relationships to expand into auto insurance. While the initial focus will be education – helping Credit Karma customers understand how credit and adverse driving affects insurance rates – the longer-term goal is to provide yet another shopping/comparison site.
BMW and Swiss Re partner for ADAS scores. BMW Group and Swiss Re will collect telematics data from vehicles related to the use of ADAS (Automated Driver Assistance Systems) and build scores that can be used by primary insurance companies.
Lending Tree buys QuoteWizard for $370 million. Fintech Lending Tree, which has been on a buying spree, moves into insurance with the acquisition of insurance comparison shopping site QuoteWizard.
Travelers partners with Amazon for the smart home. Travelers will set up a digital storefront on Amazon featuring smart home devices for a discount (especially security-related devices) as well as discounts on homeowners’ insurance.
JetBlue invests in insurtech Slice. This appears to be a pure investment play, but it is still interesting that an airline would be following insurtech and seeking investment opportunities.
Something is going on here. It is not as if there have never been new entrants or that companies from other industries have ignored insurance. But the flurry of activity and innovative partnerships, investments and market approaches may represent a bigger trend. Insurance is transforming, and, despite some of the doom and gloom warnings, a case can be made that there is more opportunity than ever for the industry. Even in the examples provided above, the emphasis is more on new opportunities than displacing incumbent insurance players. Indeed, in the Swiss Re and Travelers cases, the incumbents are part of the new partnerships – and these are just two of many examples.
One of the main themes of the examples highlighted above is the attention on distribution and customer relationships. While insurtechs are working with insurers on many opportunities to improve underwriting, claims, and other areas, so far the new entrants from outside the industry don’t appear to have the appetite to underwrite risk and handle claims. This may change, but it is likely that there will be even more interest from outside insurance in capitalizing on customer relationships. Above all, these new entrants and innovative partnerships serve to accelerate the transformation of insurance.
In a meticulously planned operation, we filed for a license in 47 states simultaneously. We’ll be revealing the first states in which Lemonade will become available in a couple of months. One thing’s for certain, 2017 is going to be an interesting ride! Stay up to date with news about our progress here…
Now that I got this off my chest, I can add some color to why we’re doing this.
Many tech startups go through the famous Local vs. Global debate as they start to plan a market penetration strategy. This dilemma was born with the arrival of modern internet commerce and became even more prevalent with the emergence of SaaS companies that provide global coverage right out of the box.
When you’re selling a digital product, going global may seem like small overhead. Reality is a bit different, though, and, more often than not, small startups that take a bigger bite than they can swallow get into trouble.
When feasible, startups should consider aiming their launch beams at a single city or even a town with population that represents their typical customer.
1. Know thy users, and design for them
It always amazes me how often startups overlook usability testing during the initial design phase. Having videos of random people playing with your (barely working) mockup is priceless. We learned more in a couple of days of testing than we did in months working in our office.
The cool thing is that you only need about five testers to get value out of a session like that, so there’s really no excuse to not doing it. The smaller the area you launch in, the better the chance of getting valuable data in a user testing session.
We spent hours in WeWork and Starbucks with our early stage, smoke-and-mirrors version of the Lemonade app. We would show it to people, ask for their feedback, ask them some questions and record the entire session. We would then sit in the office and analyze the videos to figure out what worked and what didn’t.
Our early Starbucks user testing sessions allowed us to launch a relatively mature product into the market and achieve faster adoption by our New York customers.
Product launches require spending some money. To improve the chances of success, it is recommended to fuel the organic interest generated by social noise and PR efforts with some paid channels. Got a story in TechCrunch? Bloomberg? It will probably die down quicker than you think.
A nice trick is to use content recommendation tools like Outbrain and Taboola to promote content to users who may be interested in it. Google Ads are another obvious choice. Choosing the right outlets is one thing, but there’s a huge difference in costs between a global campaign and a local one.
This becomes much more dramatic when your company requires additional resources to operate in each region like Groupon and Uber. Lemonade recently closed its third round of financing ($60 million in one year of operation) from top VCs such as Google Ventures, General Catalyst, Thrive, Sequoia, Aleph and XL Innovate. We’re going to use this money to drive our expansion throughout the country and activate specific markets the way we did in New York.
3. Surgical use of media coverage
Getting great media coverage takes a lot of attention and time. Whether you can afford an agency or not, you’ll have to choose your battles well. Launching in a specific city allows you to focus on the outlets that are most relevant and will simplify your pitch to journalists.
If you’re creating something exclusive for a certain region, reporters who cover that region usually have a hunger for tech stuff that is happening, or launching in their hometown before everywhere else. BTW, there’s a case for launching in unexpected places like Portland or Philadelphia, which usually don’t get much attention from the tech and consumer industry for new products. There’s a good chance that media reach (which expands far beyond just the place you’re starting from) will be much stronger.
We chose New York for Lemonade’s home. We see NY’ers as an ideal representation of our target demographic and personality. So we invested our efforts in a select few outlets that are read by our first wave of early adopters of the city’s financial workers and young professionals — NY Post, Bloomberg and Wall Street Journal.
4 . Brand and messaging
Building a great brand involves a lot of consumer psychology. You spend weeks trying to figure out the best tagline, the perfect ad and the right illustrator to do your art. If you get this right, you have a real chance at grabbing your customers’ attention.
The first few months of brand activation are critical. Limiting yourself to a select region or demographic allows you to be laser-focused on framing and positioning.
Building an insurance company from scratch, in New York, one of the toughest regulatory environments in the country, is a huge undertaking. The sheer complexity and investment required to get to the starting point includes raising a lot of capital and hiring the right people to be able to get licensed by the state’s Department of Financial Services.
This is the life of a company that operates in a highly regulated industry, and it’s unlike anything I’ve ever seen in the tech space. For Daniel and me, the decision to start in one state was simple. There’s no other way. Insurance carriers have to choose a state. Just one. And then maybe, if you play nice, regulators will let you go for more.
We wanted to launch Lemonade in one state — NY, and even more so when we realized we had no choice 🙂
In the last three months since our New York launch, we’ve had overwhelming demand coming in from all over the country to open up for business in more states. This was very encouraging because it showed us hints of initial demand and product market fit to people and age groups that we never thought would be our early adopters.
But what surprised us most was the excitement coming from unexpected places, such as government offices and regulators. Having a favorable regulatory environment is a great opportunity to bring an honest, affordable, transparent and fun insurance experience to everyone in the U.S.!
Be the first to know how we’re making progress with our nationwide expansion.
Here’s the list of states where we will gradually launch in the coming year or so:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin
* States in bold represent the ones most requests to launch came from
This article originally appeared here, and you can find more about Lemonade here.
Everything-as-a service is transforming the economics of establishing and running a company. Product-as-a-service will fundamentally change insurance product design and delivery.
Before recently joining insurance fintech start-up Instanda, I spent the last 15 years working within the insurance industry for U.K. FTSE 250 companies — such as Hiscox, Capita and, most recently, Xchanging. For the up-and-coming executive, there is something very comforting about working for a big, established company during the early part of your career. You are able to immediately plug in to a brand, revenue flow and customer base that is already well-established. There are lots of people with well-defined roles to support you, and you will undoubtedly benefit from a significant investment in physical infrastructure (whether that be a branch network of offices around the globe or big, heavy IT infrastructure sitting in your own data centers).
But that level of comfort comes at a price for the big corporation. There is an enormous amount of capital in the business tied up in “stuff” (office furniture, leases, servers, etc.), and there is an inevitable restriction in the ability to move quickly to respond to changing customer needs. We all know, when a company gets bigger, it becomes more unwieldly and bureaucratic. What has really struck me since joining Instanda is how technology and service provision have moved on to such an extent that you can gain access to the same benefits and capabilities of the infrastructure of big companies at a fraction of the cost — and without losing your agility and flexibility to respond to the needs of the business.
As a business, Instanda is a firm believer in consuming “everything-as-a-service.” We are a technology company that does not own a server; all of our IT infrastructure is procured from Microsoft Azure, which gives us access to almost instantaneous unlimited storage and processing power from our desktop dashboard. For office and email suite, we use Microsoft 365, where are able to tap into the many years and millions of dollars of Microsoft’s investment for a small monthly sum per employee.
“As-a-service” is often thought of as being a software service provided out of the cloud, but, of course, it can just as easily be physical infrastructure. The sharing economy is full of examples where physical infrastructure is available to be purchased at a fractional cost. Uber is “transport-as-a-service,”and through the good offices of property services firm wework, we are able to procure very high quality workspace as “property-as-a-service.” Our newly built offices are sitting on the edge of London, close to our customer base and fitted out to the highest standards.
In the past, for a small company like Instanda, these offices would have simply been beyond our means, but in the new “as-a-service” economy, we can purchase as many (or as few) desks as we like — with only a monthly notice period required to add seats or to exit the space, all while still benefiting from the full range of office facilities of a multimillion-pound company.
Similarly, our accounting, payroll and CRM systems are all consumed as cloud-based services where we only pay for what we consume. Yet it was not long ago when the idea of placing your key customer data on a system and servers you didn’t own or control would have been seen as a crazy business risk. Imagine going to your CEO today and saying, “I want to build our own bespoke CRM system, buy some physical servers and store them in our own operated data center.” You would soon be shown the door. So, what was considered risky and unthinkable in the past can very quickly move to business-as-usual when the competitive advantages become undeniable.
So what all this means is that a relatively new business like Instanda can purchase all the key services it needs to operate as a business on-demand with “everything-as-a-service” and, most importantly, at an incremental cost completely aligned to the size of the business. The ability to buy all these capabilities “as-a-service” fundamentally shifts the cost dynamics of operating a business and allows a much smaller business to effectively compete with much bigger, longer-established businesses on equal footing. In fact, it gives you a strong competitive advantage because you can operate at a price point and with a degree of flexibility that bigger companies cannot match because of their past significant investment in physical infrastructure.
In the insurance industry, capital is becoming increasingly commoditized as surplus capital seeks better returns in this sector. Underwriting and insurance products have become harder to differentiate because of increasing competition, so the battleground is now in distribution. Whether you are a reinsurer moving into insurance, an insurer opening new global offices or trying to dis-intermediate your broker channel by going direct, a broker establishing your own branded products or an MGA reaching into new markets, the overriding business challenge is: “How do I get my products out to my customer quickly and cost effectively?”
So what we have done at Instanda is to take all the benefits and advantages of “everything-as-a-service” and applied the same concepts to “products-as-a-service,” establishing a platform to facilitate the manufacture and global distribution of insurance products. The benefit of this approach is that we can get our customers to market anywhere in the world — 10 times quicker and 10 times cheaper than the traditional approach of building products within an installed back office software system. Our configurable toolkit allows our customers to quickly assemble any type of insurance product and completely control the look and feel of the online and mobile product. Our customers can build their products themselves without the need to code or deploy IT staff — combined with a commercial model completely aligned with the success of the products on our platform.
By fundamentally changing the cost dynamics of insurance product manufacture and distribution, “product-as-service” opens up new sales opportunities that simply were not possible or justifiable before.
Do you want to create a different look and feel for the same product for each of your agents or distribution channels? Do you want to launch a micro-insurance site for single items that are bought by the hour? Do you want to offer a short-term insurance product for a single event? Do you want to test the attractiveness of a new product before investing in worldwide distribution? All these become simple and cheap when utilizing a “product-as-a-service” platform.
Of course, the real test is whether this “product-as-a-service” approach delivers the tangible benefits promised to the customer. Already, large insurance organizations such as Sompo Canopius and U.K. retail insurer LV, are utilizing the benefits of “product-as-a-service” to shorten time and costs to get to market. The approach also works for smaller organizations like Compass Underwriting.