Salty owns embedded insurance—literally.
“EMBEDDED INSURANCE” is a trademark of Salty Dot Inc. Salty’s SaaS platform enables carriers and their distribution partners to offer policies to insure products or services during the purchase process.
The company, whose origins are in Oxford University, was launched in 2019 in Salt Lake City, Utah.
CM Guest Editor David Bradford spoke with Salty Co-Founder and CEO James Hall about a company that Hall says is in “hyper growth stage. So, it’s basically 24/7.
Q: Give us some background on what led you to launch Salty. What problem did you see that needed to be fixed or what opportunities did you perceive in the market?
Hall: I spent the last 10 years at Oxford University teaching in the business school as their executive director of entrepreneurship. And basically we put a team together—folks at a thousand-year-old institution thinking about the future of insurance.
We started this back in about 2015-2016, looking at what we called the frictionless insurance market. Essentially, how technology can create frictionless matching—matching the buyers to the providers of insurance coverage. And we started looking at this intersection of technology [and insurance]. We looked at about 300 InsurTech businesses between Europe and the U.S.
We felt like there was a better model that would serve the ecosystem around insurance on a more fulfilling basis. And that’s how we came up with embedded insurance, which was essentially looking at how to reduce all frictions and embed insurance at the point that a customer thinks that they’re most likely to need it. Technology can drive the right policy to the customer without any human biases. So, that’s the origin.
James Hall, Salty
We also were trying to figure out how to invert the underwriting table. What I mean by this is, if you look at the traditional underwriting practices, all are screening for adverse selection, moral hazard or collusion—the three destructive factors that distribution networks sometimes bring to carriers. So, as you build your pricing models for insurance, you’re always trying to figure out how to avoid those things, right? Because any increase in claims is a disrupter to your pricing model.
If you look at insurance, most of the insurance today is being sold as “switch and save.” Even if you look at the advertisements on television, there are basically billions of dollars spent that say “switch and save,” “switch and save,” ” switch and save.”
First of all, only customers that have a reason to shop, shop. And the reason is usually an adverse reason. They’ve had a premium increase. They’ve had infractions to their claims record. Something has occurred where they’ve had a premium increase and suddenly they say, “Oh, we should shop this.” Those are higher-risk customers. And we inverted that, saying “how can we come in at the top of the funnel and spread the risk against good classes of risk,” which is what embedded insurance does.
So, if you’re embedding insurance and you come in at every single transaction, you’re spreading that risk against a broader risk class versus just those that are interested in switching and saving. That’s how we came up with it.
Q: How does the platform actually work?
Hall: A customer is going through the journey and we are collecting data—basic information on that customer. We enrich that data, so we know exactly who they are and what their needs are. Think of it as using AI and ML to build out an algorithm to determine what type of policy that person needs. We shop that out in the marketplace. We find the best policy for the consumer and then we push that out through a mobile device. So, it’s a mobile-first platform, and they can click, find and pay for coverage, right from their mobile device.
Q: So, are you essentially an MGA or an automated agency?
Hall: We consider ourselves a third-party administrator and an MGU—a managing general underwriter. Many InsurTech businesses started as an MGA and then moved to become a full-stack insurer. We don’t think moving to a full-stack insurer is our path. We like enabling the ecosystem, and we hope that we can continue to do so and still be innovative.
The question is, will the incumbents keep up with advancements in technology and the commitment to driving a frictionless insurance transaction? I think so. My belief is that existing carriers need to make a digital transformation, and we’re an enabler of that. We view it less as disruption and more as enabling the ecosystem to make the leap to the great digital transformation.
Q: So, let me understand this. You’re not licensing the platform itself; you’re not licensing the software. You are providing a platform to distribute business to your insurance company partners. Is that correct?
Hall: That is correct. We’re writing other people’s paper at this point in time.
Q: What lines of business are you covering at this point?
Hall: We started with what we call wheels. So, think of this as auto, everything within the wheel space—so, from auto to power sports to motorcycles to e-bikes, RVs, just anything in the wheels category.
One of your questions was, “What’s the problem you’re trying to solve by launching the company?” And for us it’s that nobody likes to buy insurance and yet everyone needs it. What we’re trying to solve is the problem that nobody really feels comfortable buying insurance. It makes the customer stressful, and yet everyone needs it. We are creating a technology platform that takes out all biases and drives expertise so that the customers get the coverage that they actually need.
Q: What was the response from investors when you took this to the marketplace? Did they get it?
Hall: We have some of the best investors in the world. It took very little time. We raised about $31 million so far. And I don’t think I’ve had to handhold anybody. I think this is a business model that attracts the brightest and the best talent.
Q: The concept of embedding insurance has been around for a while, but it has gained a lot of traction in the last several years. Do you think that this is an idea whose time has come? What’s the real trigger behind all the interest in embedded insurance?
Hall: I think the first thing is customers and their desire to do things more simply, more effectively. Customers demand a frictionless experience, so they demand a digital experience. From there, I think you could say that the regulatory environment and the competitive environment have all moved forward and we’re now moving at a rapid pace.
Q: Do you see a division in your customers along age lines? Is this something that’s going to be more appealing to a millennial than somebody who’s perhaps more accustomed to buying insurance the traditional way?
Hall: We just looked at that data a couple of days ago. Our age band on the platform ranges from 17 to 81. These are people who are purchasing their auto insurance through an embedded platform on their mobile device. While we think that the younger people definitely are digital natives, we find that all demographics are demanding a more simple experience.
I think people are losing patience with calling an insurance agent, entering into a lengthy sales process in which they provide lots of data and then wait for them to perform. I think that dissatisfaction is across all demographics.
Q: So, walk me through how somebody actually acquires a policy on your platform.
Hall: We started in the auto space, mainly with automobile dealers. So, if you think of that customer journey, generally somebody has done some online research. They know what kind of car they want to test drive. They walk into a retail dealership, if they’re buying through a retail experience. They go for a test drive. They come back and they negotiate their payment price or the lease payment, whatever it might be. From there, they have a waiting period before they go into the F&I [Finance and Insurance] office to sign their completion paperwork on the vehicle. Once they agree on their payment, we release a text message to the customer. We get a consent form over their mobile device to collect a little bit of information from them. And then we provide a quote right to the mobile phone, and they can click bind and pay from the mobile phone. And then we feed the certificate of insurance directly into the dealer’s system.
Q: How have regulators responded to this?
Hall: You’re seeing the need for blue ink signatures changing, which used to be required on all applications. So, there’s lots of progress from regulators as they adopt to digital experiences.
We haven’t come across any [major regulatory roadblocks] yet, but we’re always cautious. We always comply with all regulatory environments—and all of them are different—about the way you deal with data. Think of it as privacy issues within the state of California versus the state of Minnesota.
We have a team dedicated to making sure that everything’s in compliance. And the U.S. is a difficult marketplace; we have 50-plus regulators in our market. Now, our market is the largest insurance market in the world, but the regulatory requirements are heavy, being a state-regulated industry.
Q: Are insurance companies concerned about channel conflict? Do they view Salty as a competitor of their traditional distribution sources?
Hall: That has to be a valid concern for carriers. How do they serve their traditional marketplace while they make the digital transformation? It’s happening to all of them. So, whether that be Progressive, GEICO, State Farm or any of the others, they have to find answers for how they make this digital transformation. That’s why you see the new entrants, like a Branch, like a Root, like a Lemonade. The incumbents are tied to an old school, traditional distribution model. That makes it difficult.
What we are trying to do is partner with the ecosystem and help insurers through that process as they make a transition. I strongly believe that it’s all going to change at a very rapid pace. Customers are demanding a digital experience and a frictionless experience, and they deserve it. Technology is going to drive the friction costs out of insurance and produce greater transparency and a better user experience.
Q: What do you see as the future of embedded insurance, and what do you see as Salty’s role in that future?
Hall: I think the future of insurance is embedded insurance, which is why we attempted to create this category of insurance. We not only copyrighted [the term “EMBEDDED INSURANCE”], but we’re also building lots of moats around it through patents and everything else that we can do.
Embedded insurance is an expansion of the marketplace. If you can make insurance more convenient and less stressful for the customers, then customers are more willing to insure things that they haven’t perceived a need for insuring. If you look at it from a supply and demand curve basis, this moves your equilibrium out to the right, as you make it more convenient.
This is an opportunity for companies to leapfrog the competition and the traditional marketplaces. And we think we’ll have an opportunity to lead this marketplace of embedded insurance in all categories. We’re building out the platform so that it can be scaled to that capacity.
We are insurance nerds. We’re innovators and nerds and geeks about insurance. It’s fun trying to figure out how to drive a better user experience for a product that everybody needs in the world. The world is better when there’s a more efficient insurance market, and we just keep trying to solve for that.