You’ve probably heard there is tremendous investor interest right now in technology-first insurance startups, or InsurTech firms. The first InsureTech Connect Conference in Las Vegas in early October attracted an estimated 1,500 tech entrepreneurs, investors and insurance executives from around the world.
The participants discussed how technology is already changing the insurance industry and shared their ideas for transforming it even further through technology. They talked about disrupting every link in the insurance value chain, digging deep to extract costs, improving the customer experience, maximizing transparency, simplifying all processes, lessening friction, empowering and delighting customers, minimizing moral hazard and fraud, employing big data, and even making the claims process pleasurable.
Young upstarts mingled with young and old executives of insurance carrier investment arms and venture capital firms. The result was a preview of the future of property/casualty insurance industry—if not of the whole, at least of an important slice.
What follows are some impressions from the busy two-day conference. These in no way reflect all of the ideas or themes at the conference—only those from sessions I attended and people I cornered. I haven’t yet figured out how to be in more than one place at a time, although I would not be surprised if there is a technology to allow that.
1. Here to stay. Even the most committed techies who are gunning to disrupt insurance distribution do not believe that insurance agents and brokers are going away completely. In fact, with so many set to retire within the next five years, there could very well be a shortage of agents, according to Jon Kelly, CEO of Kelly Klee, an online insurance broker for the affluent market. Where there is complexity, agents will be able to add more value than ever, Kelly said. Agents and brokers will survive and prosper in the lines and locations where they add value as trusted advisors. Smart agents will migrate to where they add value.
But disruption is coming. Many tech entrepreneurs and investors see distribution as the most promising link in the insurance value chain from which to extract costs. They argue that personal lines and small commercial lines agents are the most vulnerable and these agents may have to affiliate with large online agencies to survive. Bad agencies that do not embrace change, no matter their specialty, will struggle.
Brian Duperreault, CEO of Hamilton Insurance Group, an advocate of using science to transform the insurance system, advised the tech entrepreneurs not to underestimate the “tenacity” of agents and brokers. “You won’t get rid of brokers easily,” he said. They will be around “because they are the choice of the buyer” in commercial insurance, and also because businesses do not believe they pay more for using a broker. Larger complex risks want to negotiate across the table from a real person, he said.Matt Miller, CEO of startup Embroker, which is itself a broker offering automated insurance management for clients, also offers person-to-person contact for customers who want that. “We’re not going to dictate to our customers how to do business. A high percentage of commercial clients want to speak to a person,” he said. But he said this preference varies by individual client rather than by industry or business type.
2. Go big or go home. Unlike a lot of other InsurTech startups that are backend solutions or sellers that rely on traditional insurers to bear the risk, peer-to-peer (P2P) Lemonade is a licensed insurer. Lemonade’s New York license was approved on Sept. 15—only days before it launched. (The company shared results from its first 48 hours.)
Daniel Schreiber, co-founder and CEO, said that Lemonade went the more difficult route of becoming an insurer because it ultimately wants to be a vertically integrated company that is free of the legacy issues that traditional insurers have and is not dependent upon any of the existing players in the insurance value chain. He said companies “create value by solving big problems” and that just “sprinkling pixie dust on top” of an existing insurance company or system would not produce the change he and Lemonade’s founders are trying to achieve.
In the language of venture capitalists (and perhaps others), companies like Lemonade that opt to build an entire company or product are called “full stack” startups. They aren’t selling their technology to incumbents or adding onto existing systems; they are creating their own new operation from start to finish and completely controlling the customer experience. It’s a bigger risk—but the returns could also be bigger. Not everyone is enamored of the approach. The conference founder, Caribou Honig, questioned whether it was worth all the extra hassle to become licensed as an insurer, suggesting entrepreneurs are better off starting out as managing general agencies than as risk-bearing entities.
So entrepreneurs have to decide if they’d rather be Uber or a taxi industry technology vendor?
3. P2P skeptic. Brendan Dickinson, partner in Canaan Partners, downplayed the peer-to-peer model from the perspective of an investor. For one, he said the P2P models in lending and other financial services may not be translatable to insurance. Yet he also said that P2P is not really new; it is what the industry now calls mutual insurance or captives. (Editor’s Note: Canaan Partners led a $12.2 million May 2016 funding round for Embroker, which promises to deliver a technology-driven brokerage experience for small and midsize business owners.) He doubts the savings will be as great as P2P sites promise. Also as an investor he shies away because he does not believe the model is scalable. He lauded the leveraging of technology to operate more efficiently but said he doesn’t see P2P really offering major change. “We are reskinning it,” he said, suggesting he’s more interested in areas of bigger change that promise bigger returns.
As for the appeal to millennials of many InsurTech startups, Dickinson sees this as a “moment in time” to create a brand but not by itself a long-term fundamental value. Tim Kunde, founder of German peer-to-peer startup Friendsurance, said the P2P insurance movement is just getting started. He explained how his organization is a hybrid—relying on the peer-to-peer community for small claims and a traditional insurer for large and unusual claims. This hybrid model might help it attract different risks and achieve greater scale, even allowing Friendsurance to become its insureds’ broker for other products. “P2P is a starting point,” he said.
4. Not just your grandkid’s tech movement. While the InsureTech Connect crowd was definitely younger on the whole than the audience at a typical insurance industry gathering, there was plenty of gray sprinkled throughout. And traditional insurers are very much active participants in this entrepreneurial scene as investors and partners and corporate entrepreneurs.
Insurer-affiliated strategic funds attending included: Allianz Group (Ruth Foxe Blader), Amtrust Ventures (Aleem Lakhani), AXA Strategic Ventures (Drew Aldrich), Liberty Mutual Strategic Ventures (Russ MacTough), American Family Ventures (Kyle Nakatsuji), Munich Re (Andrew Rear, Robert Mozeika), XL Innovate (Martha Notaras), and the Global Insurance Accelerator out of Iowa (Brian Hemesath) to name some.
Insurers participating as panelists included: AIG (Jeff Oberstein, Faye Sahai), Generali (Troy Thompson, Moshe Tamir), State Auto (Kim Garland), Erie (Leo Heintz), Willis (Geoff Werner), Markel (Trent Cooksley), Generali (Moshe Tamir), Hiscox (Kevin Kerridge), Zhong An (John Bi), QBE (Ted Stuckey), Farmers (Deborah Aldredge, Mariel Devesa), and USAA (Jon-Mike Kowall). Garrett Koehn of wholesaler CRC Insurance Group also participated. (Editor’s Note: Koehn is also a managing partner of The Batchery, a Berkeley-based global incubator for seed stage startups.)
Insurance Hall-of-Famer Brian Duperreault, chair and CEO of Hamilton Insurance, was a featured speaker. Not to mention some familiar names among the consultants, lawyers and tech vendors—former N.Y. Superintendent of Financial Services, Ben Lawsky of The Lawsky Group, for example. And, um, at least one young-at-heart insurance editor in the mix.
5. Duperreault’s dream. Insurance Hall-of-Famer Brian Duperreault, CEO of Hamilton Insurance Group, said the whole point of his coming out of retirement to head Hamilton was to do to insurance what Two Sigma has successfully done to hedge funds, using artificial intelligence, machine learning and other advancements. He said the current insurance industry is “grossly over-expensed” and marred by inefficiencies and inadequate use of data. Thus Hamilton is dedicated to using science and data to transform insurance and bypass some of the industry’s legacy systems, costs and even relationships.
“The natural clinging to what you have inhibits real change,” he said.
Last month, Hamilton announced that in the fourth quarter it will launch a digital platform for small-to-medium insurance called Attune. Hamilton’s partners in the venture are Two Sigma and AIG. Duperreault was asked if there is one technology, invention or science application he would love to see introduced to the insurance world, one for which he would “write a check.” Looking around the cavernous convention hall, he thought of one. He said he’d be willing to invest in a program that would move beyond traditional building inspections to give him a constant diagnostic of a building like the convention center including its structure, health, security, traffic and other variables. A tool like this would change an underwriter’s view of a risk, he said.
No word on whether he was approached by any entrepreneurs.
6. Spock vs. Homer Simpson. Asking customers to sign their names to affirm that the information they are about to provide is truthful at the beginning of the claims or other form dramatically improves the accuracy, or honesty, of the information they give compared to asking about them to sign at the end, after they have provided it. That’s according to Josh Wright, a behavioral scientist and executive director of Ideas42. (Editor’s Note: ideas42, a company that grew out of research programs in psychology and economics at academic institutions, says its mission is to uses research insights to design scalable ways to improve programs, policies and products in the real world—applying behavioral science to problems in economic mobility, health, education, consumer finance, energy efficiency and international development.)
InsurTech startups are intrigued by how they can influence customer behavior in ways that build trust and reduce fraud. Startup Lemonade actually has a behavioral scientist, Duke University Professor Daniel Ariely, on its management team to help it design “insurance that doesn’t suck.”
Ideas42’s Wright asked if humans are more like robotic Mr. Spock or the emotional Homer Simpson? The answer is humans fall somewhere in-between, like hybrids—both “rational and quirky.” He said context affects how humans behave and thus the design of insurance systems matter. Humans are bad with probabilities and risk, often ignoring reality. Ask a married couple the chances of them getting divorced and they will say zero, even though the real world probability is 40 percent.
Wright revealed that humans are less likely to cheat if they are told that 75 percent believe it is unfair to do so. Limiting forms and rules affects the customer experience. He shared research showing that a customer’s final experience matters. If the end of an insurance buying or claims experience is a good experience, customers are more likely to return.
7. Data commercial. It’s no secret that commercial auto has been a loser for insurers for years. Experts suggested that telematics technology could be the key to returning the line to profitability. Commercial auto insurers can learn from the experience of personal auto insurers that use telematics.
Telematics data can reveal more than just how the vehicle is being driven; it can relay conditions, time of day, weather, geography, frequency of driving, patterns in following distance between vehicles, and much more. There is in fact more mileage data collected with trucks than on cars, according to Chris Carver of ATG Risk Solutions, however, one problem is that most of the data remains in closed systems, owned by the customer or proprietary to a single insurer. He argued for more transparency and sharing of the data to improve safety and underwriting. The challenge is how to incentivize trucking clients to share their data.
Leo Heintz, Erie Insurance, said brokers can play a critical role. “The broker is the key to working with fleets to improve,” he said.
Research suggests that consumers are willing to share their data if there is something in it for them.
Geoff Werner of Willis Towers Watson said too much attention is paid to the device and not enough to the quality of the data. Kim Garland of State Auto Labs said the right data can help carriers better understand a risk and get the right rate at the point of sale. Also the data can be used for much more that rating, including identifying bad driving behaviors, turning a bad driver into a good driver, and driving the losses out of the system.
(Editor’s Note: ATG’s mission is bringing an open platform of telemetry data of the insurance market through a telematics clearinghouse of connected vehicle data and proprietary vehicle safety scoring resources for P/C underwriting and claim.)
8. Trust in change. Agents can’t be afraid to change and if they are to succeed they must embrace technology. Panelists said it is agents’ responsibility to find and use technology and also data that helps them add value and makes them look smart, even when carriers and their legacy systems get in the way.
“Agents are entrepreneurs. They must understand what they can do and what technology can do for them,” said Moshe Tamir, global head of digital transformation for Generali. Several experts noted that data can be used to simplify the process for customers and to better understand what is happening between agent and customer. Joey Giangola, representing the Grow program that helps agents build online brands, said agents and brokers who prosper will be those who find ways to put trust-building first, ahead of price. Building trust first builds customers who do not even question the price, he said.
9. Third-party data. Experts addressed the value of using data, especially third-party data, to streamline and improve underwriting and claims. Third-party data can shorten application and claims forms and speed up the process for customers. It can also provide more accurate and honest information for underwriting and claims. It’s like using motor vehicle records versus asking drivers for their histories—but on steroids. For example, China insurer Zhong An uses big data from online sources, including the giant data trove from Alibaba, to determine 10 dimensions of a buyer’s trustworthiness. Cyberpolicy.com asks only 12 questions to underwrite a cyber policy for a small business.
On the claims side, claims under Sure’s travel insurance are automatically triggered by airlines’ actual cancellation announcements. Zhong An sells an app that automatically senses damage to smartphone screens and proactively sends the insured credit for replacement. Caribou Honing, venture capitalist founder of the InsureTech Connect Conference, said this type of claims handling can eliminate adjusting costs. He said he expects investments in these systems, which he called parametrics, to gain momentum.
10. Home sweet home. “It’s important to ask: What do customers want to do and what obstacles do they face?” said Jeff Oberstein, Chief Customer Officer for AIG’s Consumer Insurance business. Apparently people want to share their homes while also protecting themselves and their property. In 2015, AIG’s Lexington Insurance began offering LexShare Home Rental Coverage that enhances protection for losses from property damage, theft, furnishing, even watercraft liability for homeowners sharing their digs.
Insurtech startup Slice has gone further, building technology to support the purchase of insurance policies that last for the period of time one is acting as a business, and going further to actually design products that reflect the risks. Slice’s first product applies to homeowners renting their homes on various homeshare platforms including Airbnb, HomeAway, OneFineStay and FlipKey. Once signed up online or via app, the homeowner’s commercial lines coverage is triggered with a tap on the Slice mobile application and covers the time period the host is renting their home, whether an hour, days or weeks.
Slice’s on-demand homeshare product has been released as a private beta to select homeshare hosts in Des Moines and Iowa City. The coverage is primary insurance (thus no requirement to report claims to another insurer) with commercial liability coverage limit of $2 million plus defense costs; full replacement cost coverage for the home, other structures and contents; and no limit to the number of covered properties. There are 18 specific coverages including vandalism and malicious damage; host liquor liability; excessive use of utilities; valuable articles and electronics; infestation; and municipal citations, fines and penalties.
Andrew G. Simpson is Chief Content Officer for Wells Media.