Is construction insurance the Moneyball of on-demand services?
“Billy, this is Chad Bradford. He’s a relief pitcher. He is one of the most undervalued players in baseball. His defect is that he throws funny. Nobody in the big leagues cares about him, because he looks funny. This guy could be not just the best pitcher in our bullpen, but one of the most effective relief pitchers in all of baseball. This guy should cost $3 million a year. We can get him for $237,000.”
‘Moneyball’, the Michael Lewis book and Brad Pitt movie, tells the true story of the way Oakland athletics manager Billy Beane rewrote the rules of baseball management by identifying a team of players who were undervalued because they didn’t look “like a baseball player should”.
While the Moneyball approach has now become widely adopted in sports, it’s not always appreciated in VC investment. Some industries still attract less attention because they don’t look new enough or edgy enough to have disruptive potential.
One of these industries might be construction insurance. Construction insurance is a — let’s admit it — clunky, boring industry, without the appeal of a new app you can hold in your hand or a new way of driving or even holidaying. But when looked at more closely, it seems ripe for a new approach.
The challenge for insurance to adapt innovatively is not only its image of course. It’s also the fact that it seems to be unadaptable for the current trend of moving to on-demand models. Whether it is pay-as-you-go phone services or SaaS software, the attraction of no-commitment pay-what-you-use has become a defining feature of multiple industries. More and more physical products, which were long regarded as not suited for an on-demand model, are finding ways to adapt, with Airbnb providing on-demand accommodations and a variety of car-sharing services enabling on demand automobiles.
Until now, the construction insurance industry has been regarded as being immune to this trend. This is partly due to the difficulty in creating an on-demand model for a product like insurance which in and of itself, is affected by the demand. Clearly dividing the annual premium by the number of days in a year won’t work since the insuree will only choose to be insured at times of higher risk. Even if one adds a premium, how do you consider the different levels of risk involved in different projects?
Jones, a refreshing, young thinking company, has been looking at this challenge in a different way. Rather than simply using standard parameters such as location and a three-year historic background check, they drill down into the nature of specific construction projects, and draw on data available for parallel projects to assess the risk involved.
The ability to access and analyze this data is creating a new opportunity to adapt the on-demand model for a multi-billion-dollar industry ($5.6B in the US). But still, one has to ask why so few have been looking at this space. It seems like it’s been a Moneyball blind spot. That’s a missed business opportunity, and also — with 40% of the US construction workers without insurance — a case of missing social value too.
So even in the search for the next shiny app, it’s worth pausing to think what clunky wallflower industry with great potential might have slipped under our radar.
