Since I began a quarterly discussion of U.S.-based InsurTech carriers’ financials based on their public filings last year, many have responded that these players needed to be evaluated on other metrics too. I agree, so let’s look at one of those measures and talk about some questions to determine if the measure really stacks up.
Misleading Vanity Metrics
The insurance value chain is complex and difficult to compare across models. This can lead to comparisons between very different companies. Take these two hypothetical companies:
A “vanity measure” could easily make one of these companies look better than the other.
The startup, for example, may claim performance several times better than the incumbents on a “policy per human” KPI, considering in the count of “humans” agents and brokers.
Why does a policy-per-human number matter at all? And why is more policies per human better than fewer?
Company A and Company B are two different business models, with two opposite approaches about humans—neither of which is necessarily best. I say this despite the fact that I wrote a heartfelt defense of the model based on agents, brokers and other distribution partners a few months ago—”At Long Last, an Insurance Company Proud of Its Human Agents—and Telling the World,” co-authored with Steve Anderson.
To measure efficiency, I prefer to use the two traditional components of the expense ratio:
I love numbers and, as I shared in an interview with Carrier Management, the absence of quantitative elements in self-promoting website articles, conference keynotes, white papers and social media exchanges has been one of the reasons for starting the publication of articles about the full stack U.S. InsurTech startups.
Although I’m sometimes described as a “critic” or “cynic” about InsurTech companies, I’m only critical of the misuse of numbers. I’m a big fan of those who get the old-school insurance KPI right. I’d love to see the innovation succeed in the insurance sector, and I wish all the best to these three players and their investors.