Over the course of the last six years, Next Insurance has adapted its business model, its distribution method, and its product offerings. Coming up next, the InsurTech aims to offer “adaptive insurance,” the CEO reported recently.

Speaking at the InsureTech Connect conference last month, Guy Goldstein told other InsurTech founders attending his session about his company’s history and evolution from a digital agency to an MGA and then to a one-stop small business insurance carrier, and about the need to tailor its insurance coverages to the specific needs of 1,100 different types of small business professions.

Looking to the future, Next wants to deliver embedded insurance and coverage that is “proactive and adaptive,” he said.

“Small business owners want to run their businesses—and they want, somehow, the insurance in a magic way [to] run in the background and cover them for what they need,” he said, explain the thinking behind the “proactive and adaptive” concept.

To Goldstein’s mind, insurance has three layers in it. The “adaptive” layer is the third one.

“There’s the functional layer. I sold you insurance. There’s a price. There’s claims. There’s servicing…It needs to work,” he said, explaining the first basic layer.

“The second thing is automated. Everything that the customer wants to do, or the agent wants to do, needs to be 100 percent digital. So, they never need to speak with anyone else.”

“The third layer—this is the next thing that Next is going to do—is being proactive and adapting as the [insured small] businesses grow and change,” he said.

“Small businesses are very dynamic. It’s not something that starts and doesn’t change.” When a business first starts, it may not have any jobs, he said, referring to a contracting business. “It doesn’t get any jobs, so it doesn’t have work. And then it gets some jobs. And then it’s winter, so it doesn’t have any work. And then you buy a car. And then you have two employees. And then you get an office…

“It’s constant change,” he said.

In the insurance industry, by contrast, “we are not that dynamic, to say the least,” Goldstein said, referring to the fact that insurers check in for business updates from the insured “maybe once a year” at renewal time. That lack of engagement may mean that the business is underinsured or over-insured. “Both cases are not good.”

To avoid this, the business has to do a lot of work. “When the business does have a change”—they add a car or a new employee or a new office—”they need to speak with the insurance company.”

“Small business owners want to run their businesses—and they want, somehow, the insurance in a magic way [to] run in the background and cover them for what they need.”

Guy Goldstein, Next Insurance

But “constant engagement with the insurance company [is] not what the business want to do,” he said, going on to describe the idea of the coverage magically updating to reflect the business changes.

Next Insurance aims to identify all the events that happen to the business, he said. “There are a lot of data points that we collect about the business. We know what’s happening with the business,” he said, explaining that this data should allow Next to adapt the insurance product constantly for its customers. He offered the example of pay-as-you-go workers compensation insurance that adapts to payroll changes to illustrate the concept further.

“This is where the insurance is heading forward. And this is helping the business [customer]. It doesn’t need to deal with anything. And it’s also helping us,” he concluded. (Editor’s Note: Another InsurTech startup, Vouch, also aims to adapt to the needs of its niche customer base—high-growth startup technology businesses. Vouch and its co-founders are profiled in the fourth-quarter edition of Carrier Management’s magazine.)

We Were Wrong [About Agents]. We Learned

Goldstein began his presentation taking his audience through the history of Next Insurance, which began as a digital agency in 2015, recounting lessons learned that fueled decisions to ultimately become an MGA, and then a carrier that offers coverages specifically tailored to individual types of small business.

Midway through his discussion of product changes, he paused. “I want to say a word about agents,” he said.

“When we started, we said we are never going to work with agents. And then a few years later, I said, actually we should work with agents. And frankly, everyone in the industry poked me, ‘Ah, you were wrong. You were wrong.’ I said, ‘What’s the big deal. We were wrong. We learned. We’re fixing it.'”

He continued: “The reason we decided to work with agents is because there’s a lot of customers who prefer to work with agents. They trust them, they trust their advice. The agents are smart. They know exactly what the customer needs, and can help them. We wanted our products to be available to those customers as well.”

“As a result, we change[d] our policy, decided to work with agents and today it’s a thriving business,” Goldstein said, stressing that the experience between agents and Next is “100 percent digital for the agent. The agent doesn’t need to go and speak with an underwriter. Although sometimes they love the speak with an underwriter. But we don’t have underwriters. So they have to deal with our online solution.”

Going forward, Next also aims to offer insurance embedded in online platforms that small business customers use, Goldstein said at ITC, noting that that work already started with Next’s acquisition of digital agency AP Intego, announced in March. AP Intego provides a suite of small commercial insurance products to some of the largest small business software ecosystems in the U.S., including Intuit, Gusto, Square, embedding insurance offerings alongside these partners’ core products. With a foundation built around some leading payroll software providers, AP Intego already delivered a digital buying experience for pay-as-you-go workers compensation insurance to tens of thousands of small businesses, prior to the deal with Next.

“Customers want to buy their insurance from the point of sale. If you’re doing payroll with a company, you want to buy the insurance with the payroll [company]. If you’re doing e-commerce with Amazon, you want to buy the insurance from Amazon,” he said.

“You don’t want to go to different locations and try to find how to buy your insurance,” he told the ITC crowd. “So, we believe that you need to embed your insurance within those tools. And now those companies are, most of the time, digital companies. They have a digital solution. Customers are using them digitally. And those companies need a digital solution because if you deliver a solution where the embedding is a phone call to an agent, it’s good, but it’s not enough—because the customer wanted to be embedded and come together with the insurance product.”

“We are investing a lot in this,” he said, highlighting the AP Intego acquisition. “We see it as our third channel” for distribution, he said.

Root’s Technology Development Engine

At a separate session, Root’s CEO Alex Timm didn’t talk about his company’s move to work with independent agents, but he did offer another reason for InsurTechs to partners with providers of other products and services to embed insurance in those providers’ buying experiences.

“Talking lizards on [television] screens that cost billions of dollars aren’t really doing a lot for the consumer,” Timm said. Responding to a question from Prashanth Gangu, chief operating officer and president of Insurance Services for SiriusPoint, who asked Timm what he and his company did in the days following Root’s IPO last year, Timm said they started working on an embedded insurance partnership with Carvana. “How do we meet [customers] at a time that’s right for them? And how do we build our technology over the long term to make sure that we’re always meeting those consumers where they are?” were top-of-mind questions as Root started planning its post-IPO future, he said.

“That’s also when we started to launch our initiative to drop the credit score,” Timm said. Allowing credit scores as a rating variable, “just basically allows insurance companies to charge folks for a mandatory government product based on their income category. We don’t think that’s very good for consumers either—or society,” he said.

As Goldstein did during his presentation, Timm spoke about Root’s decision to be an insurance carrier, offering the desire to fully control of the consumer experience as a key reason. Having built the carrier from the ground up that prices auto insurance based on a mobile telematics platform, Root can now leverage the enterprise technology its created, and its data insights into driving behavior, to modernize the rest of the industry, including competitor incumbents, Timm suggested.

“We’re able to develop products and we’re able to develop technology that other arms dealers to the insurance industry can’t. And there’s a lot of them….”It’s very difficult to go and create a best-in-class rating engine, if you don’t have your own rates…. You can’t actually test your own products.”

Alex Timm, Root

“As we’ve created these tremendous technology assets, that actually allows us to onboard more insurance carriers onto that platform and onto that product, which allows them then to meet consumers where they are. And a lot of these guys have crumbling infrastructures. They’ve spent hundreds of millions of dollars with Guidewire, Duck Creek, and now there’s even more vendors out there and there’s new ones every day. You look at the infrastructure and it’s fundamentally broken,” he said.

“By being an insurance carrier, we’ve been able to create a fully integrated system that runs insurance in a modern way. And that’s why we [believe] there’s a huge value to actually bringing on board more [carriers], so that we can reach more consumers and that we can modernize more of the industry.”

“You’re running an insurance company that works really well, but you can reach a lot more customers by being the platform provider,” Gangu said, restating the premise and suggesting that Root is “still tiny compared to the big guys” and that it might make more sense to use the money raised in the public markets for this purpose, rather than aiming to build a $20 billion insurance company. In one part of the business, Root, the insurance company, is “addressing consumer problems and solving their needs in a very direct way, while in the second part, as a technology company, Root is “playing a backstage role of providing a platform that others provide insurance services,” Gangu said.

Timm expanded on Gangu’s assessment. “The way we look at our current insurance carrier is that it’s a product development engine—that because we have it, we’re able to develop products and we’re able to develop technology that other arms dealers to the insurance industry can’t. And there’s a lot of them,” he said, referring to technology providers that don’t have the experience of an insurance carrier.

Timm continued, “I do think, longer term, you are going to see us placing more risk, whether it’s with reinsurers, whether it’s with other insurance carriers and really creating an integrated platform that allows them to move much quicker, allows them to service their customers better and allows them to move much more efficiently.”

“Right now, there’s so much inefficiency in the entire system. And by the way, the customer ends up paying for all of it. So, that’s really the future we see,” Timm said.

Gangu contrasted Root with other technology providers in the ITC expo hall. “You are eating your own cooking, but you are also providing it to a larger base,” he offered.

“It’s very difficult to go and create a best-in-class rating engine, if you’ve never, actually—if you don’t have your own rates. …You can’t actually test your own products,” Timm agreed.

“You’d rather use the capital that you’re raising from the markets to build better technology so that consumer needs can be met, and the technology can then be used by other players, including the incumbents,” Gangu said.

“Absolutely,” Timm said. “That’s what we know—our competitive differentiation. It’s technology. And because that’s our competitive differentiation, what we need to do is continue to use our shareholders money to continue to invest and make our technology best in class—so that we truly can build and the best-in-class operating system for insurance.

“We will have a large insurance carrier. I think [Root’s insurance portfolio] will continue to grow. And it is growing. And it’s continuing to improve its profitability profile as well. But really that’s only a piece of this—of the broader consumer puzzle,” Timm said.

Where The World is Going

Gangu asked Timm for a crystal ball look at the future of telematics-based pricing.

“I think it’s got to increase, and it’s going to increase in size dramatically, whether it’s from embedded insurance offerings like what we’re doing with Carvana where we can actually start to get vehicle technology, or whether it’s because the world’s waking up and starting to say, ‘Wait a minute, how does this whole insurance thing work,” Timm said, suggesting that the murder of George Floyd in 2020 moved regulators and actuaries to start looking into biases in insurance, including those in carrier rating algorithms.

“Regulators for a long time, on credit, were able to look the other way. Now, it’s not politically tenable to hold that position. So, I think as all of these variables go away that are highly discriminatory and that have a really perverse impact on our society, that’s really where you’re going to start to see folks [carriers] be forced to use more modern data that is fair, that is controllable by the consumers….That’s really where the world is going,” Timm said.

For many carriers, “it’s going to be hard because a lot of the industry is still on crumbling infrastructure,” he said. Specifically, he said it would be difficult for incumbents “to pivot to use something like smart vehicle technology,” and to ingest associate “high-frequency data. “You can imagine once there’s more autonomous vehicles, ingesting LIDAR data—very few insurance companies have actually done that. That’s going to present these significant challenges and I think very few are prepared,” he said.

“The beauty of what we’ve done in marrying insurance and technology is that we can actually build that platform so that we can prepare for that next journey,” he said.

Root or Swiss Re?

For carriers struggling with technology infrastructure or with data analysis, help is available from another source that’s neither an InsurTech nor a technology “arms dealer”—Swiss Re P&C Solutions.

“We run a full-stack telematics company,” said Pranav Pasricha, global head of P&C Solutions for Swiss Re, during a separate ITC session titled, “Reimagining Home and Auto with Swiss Re.”

“It’s not just about selling telematics. We built a proper modern generation insurance product, including behavioral economics—working on the user interface. Because a lot of people have deployed telematics. Has it grown? Probably not. Have we really made the world safer? Have we really impacted driving safety? Not really.”

“Somebody has to take a lead in trying to crack in these difficult problems for the industry. “At Swiss Re, we believe that innovation in the industry is our responsibility.”

Pranav Pasricha, Swiss Re P&C Solutions

Pasricha started his talk emphasizing the reinsurance giant’s role in making the world safer and helping the rest of the industry to innovate during a period of unprecedented change. Referring to extraordinary developments in technology, social regulations, complex risks, and climate change, he said, “The industry is being reinvented as we speak.”

“That’s why we’re here,” he said, explaining the reinsurer’s presence at an InsurTech conference after co-presenter Keith Wolfe, president of U.S. P&C at Swiss Re, explained that Swiss Re neither runs a VC fund or makes a lot of equity investments in InsurTechs.

“When you look at the sheer scale and complexity of these changes, it’s pretty difficult to stay on top of these things. Even if you have the deepest of pockets, it’s really hard to innovate on all of these things,” Pasricha said. “And what makes it even worse [is that] it’s not just a question of investment skills are hard to come by.” There are other questions: “What is the underwriting impact of all of these things? How do you write climate change? How do you write autonomous vehicles? How do you do you actually build an insurance product that performs well in the market?”

“Somebody has to take a lead in trying to crack in these difficult problems for the industry,” Pasricha said. “At Swiss Re, we believe that innovation in the industry is our responsibility,” he said. “Given our enormous tech and data assets and the fact that we are a backstop to such a large percentage of the industry, puts us in a natural position of leadership where we should be leading the industry through this change,” he said, referring to Swiss Re’s “unparalleled global risk and deep data insights,” as well as its product and R&D capabilities.

“We’re not a vendor. We’re not here to sell you a solution, take some license fee and run away.” Instead, Pasricha said, “for the large part of the industry,” including both carriers and InsurTechs, “we are a true partner in your business. If you don’t make money, if you don’t have underwriting profits, we don’t have profits. If your platform is not growing, ours is not growing.”

A few day later, speaking at a Carrier Management videotaped roundtable about innovations in satellite technology and geospatial analytics, and Swiss Re’s investments in the GIS space, Pasricha described the P&C Solutions unit he heads as “the InsurTech data and consulting arm of Swiss Re.”

“We are an innovation and development partner for our cedents and for the industry at large. And we exist to bring together all the product innovation, risk knowledge, tech and data assets, platform capabilities, and underwriting capacity of the Swiss Re Group to drive innovation in the market,” he said, listing auto and mobility as one of eight areas where the Swiss Re Solutions works to help its partners to innovate.

At ITC, referring to ACE trends in auto and mobility space—autonomous, connected, electrification and shared—Pasricha observed, “The industry is going through a huge amount of change. Nobody’s ever built [insurance] products for autonomous vehicles. Nobody’s ever dealt with exploding car batteries… How do you model these things? How do you build not just the insurance product, but the tech and data that feeds those models, and how do you do it well?”

In addition to the telematics company, Swiss Re P&C Solutions has developed an ADAS risk score, for advanced driver-assistance systems. “What we are trying to do is create a frictionless experience. One API call, you put the VIN number in and get the complete precise, bottom-up safety score for that car. Does it have blind spot? Does it have antilock brakes? [It’s] precise to that specific car that you drove out of showroom… “It’s not a generic score built, three years later, with model losses,” Pasricha said, adding that Swiss Re is currently working with three of the world’s leading autonomous providers in anticipation of the transition from ADAS to fully autonomous in years to come, investigating how the industry can build new products as connected cars evolve.

In the shared mobility space, Swiss Re recently partnered with BlaBlaCar in Europe, Pasricha said, referring to the creation of BlaBlaCar Coach, a smartphone app powered by Swiss Re’s telematics technology for driving coaching and assessment (called Coloride).

On the data, analytic and risk modeling fronts, even more recently, the analytic consulting team for Swiss Re P&C Solutions launched Impact+, which Swiss Re describes as “the first B2B App store for the insurance industry.” Listed in the storefront are app titles such as “Home Owners Market Analyzer,” “Motor Insights,” “Motor Market Analyzer Risk score,” “Repair Cost Index,” among others. The “Motor Insights” apps delivers “high resolution geospatial insights on motor insurance market and risk landscape,” while the homeowners app offers “ZIP code-level attractiveness scores for smart insurance expansion,” according to the app descriptions.

“We’ve been able to deploy these leading-edge models for a whole range of lines of business and the entire policy lifecycle on Impact+,” Pasricha said. “You go on. You browse the library of models from Swiss Re, and you know they’re coming from a very strong heritage of underwriting. They’re fully tested. Our team is there to support you. You can just basically deploy them at speed and we help you,” he said.

During the session, Pasricha also described a smart claims app—a model for damage detection from customer auto accident photos—and extended warranty insurance products for car batteries used in electric cars, among other automotive solutions.