— because “safety first” sounds as German as it is
Most people still link a neat dark blue suit and a leather suitcase to a typical representative of the insurance business, so you can imagine how much this industry has to change since Millennials define the new way of buying and therefore selling products. There are numerous successful attempts to create an online accessible, paperless and flexible insurance. Companies like FinanceFox, Clark, Guevara, Friendsurance or Lemonade are not only offering a more suitable way to communicate, but also create new business opportunities themselves. That explains why FinanceFox received a total funding of $33.5m in 2 rounds from 9 investors, Friendsurance $15.3m in 3 rounds from 3 investors, or Lemonade $13m, just to name a few. As in almost every online business, customer acquisition is crucial for success and will therefore define which online insurance players will give the new image of the typical insurance representative its face.
The first obvious approach to reach the market of Millennials is to build a bridge between them and established insurance companies. Digital brokers like the ones of Clark, Knip or GetSafe work like traditional consumer facing brokers which are focused on creating a real value for the customer by showing in plain words what the insurance is about, what it covers and what it does not. The challenge though is to reach the customer exactly at the moment he needs to purchase an insurance. This is in most cases once a year and not easily predictable.
While acting as a digital broker Friendsurance sets itself apart with its P2P tweak that allows its customers to lower the cost of the insurance. This is in fact more of a marketing method that is designed to lower customer acquisition costs. Although according to economics’ theory insurance exist because pooling risks allows to create a situation of well-being that is better for each individual of a community compared to individuals taking care of themselves, which makes the idea of P2P insurance a very intuitive one, different regulations make it quite hard to fully make this principle of microeconomics become reality. Startups have to implement that approach step by step and have so far not gone places.
The other business model is to build a fully licensed insurance company like Guevara or Lemonade. This gives much more flexibility as well as it allows to capture the complete value from the customer. Obviously the development of those need more time and much more money which significantly extends the time until market entry. Other challenges are to be found in underwriting and risk assessment. Unlike in other markets it takes a lot of time to test your model in insurance. Until a relatively long period of time passed and you see the predicted insurance events happening, you can’t really know if your underwriting works, so it requires a significant leap of faith from everyone involved in order to scale the company while not knowing if the underwriting model will really prove itself and the hit might be substantial in case it does not. Additionally the question of customer acquisition costs still remain a challenge. In contrast to all these risks, there is definitely a larger potential in value creation as this model captures the whole value chain.
With the intent to lower customer acquisition costs a different type of model emerged that may be classified as a B2B2C approach in the field of online insurance. Although the best model is still to be found out, so far it looks like this approach might be superior compared to the previously mentioned ones as it allows to significantly lower CAC through being included in already pre-existing channels and therefore scale faster. Based on this model is FinanceFox that allows brokers to deliver superior service to their customers — in line with that of those who are trying to disrupt brokers like Clark, Knip or GetSafe. It’s a pretty expensive battle to fight with traditional brokers, so why not give them a super efficient tool to communicate with their customers via app and offload all the back-office work instead, so they can focus on selling their product. Simplesurance, also based on B2B2C model, sells insurances for electronics by implementing a “buy insurance” button at check-out in online stores, whose approach might be comparable to what Klarna did in lending by creating built-in check-out solutions which allow to acquire borrowers from the already existing channels relatively cheaply.
A downside of the approach is that a company implementing the B2B2C model shares a substantial part of commissions with the distribution channel, be it an e-commerce shop or a traditional offline broker.
As Insurtech is developing very fast, new models will definitely emerge in such a huge market. So far it looks like the digital broker and the B2B2C models are the ones to keep an eye on, but what the next generation will link a typical representative of the insurance business to is still to be found out.
by Mike Lobanov / Target Global