InsurOp-Ed: InsurTech Observations – Ten Years Later

Just over 10 years ago John Fees and I founded Next Generation Insurance Group (NGI) because we firmly believed the buying patterns of the next generation of consumers would reshape the industry.   After a decade of building two InsurTech companies, it is fair to say we were wrong about many things and right about a few.  Reflecting on the journey, here are some observations from an entrepreneur and long-time insurance agent coming off ten years of zigzags, pivots, wins, losses and second chances. 

Background

NGI created GradGuard in early 2009 to help families protect their investment in higher education.  Soon after, Jean-Marie Lovett joined us, and we launched MassDrive to enable Massachusetts drivers to compare rates online after auto insurance was deregulated in the state.  The companies were separated over time and I’m very proud of what they’ve become today.  GradGuard is the nation’s leading collegiate insurance platform providing valuable protection to students through partnerships with over 350 colleges and universities across the country.  The company that started as MassDrive is now doing business nationally a Bindable, an alternative distribution platform that provides technology, digital products and agency services to carriers, brokers, affinity groups and trusted brands.  

Building a Brand is Expensive

Over the last couple of years, we’ve seen InsurTechs expand their brand building and customer acquisition efforts to include traditional broad-based media such as radio, billboards, TV and direct mail.  Are they really taking on the big budgets of the industry leaders?  According to Coverager, 76% of the $5.59B invested in InsurTechs in 2019 went directly to distributors and it is hard to imagine how much they spend trying to acquire customers.  Only their investors have insights into these numbers, but my guess is the acquisition costs far exceed anything they expected.  Even if they have figured out how to make brand building work, the vital measurement will be whether or not their customers are profitable from an underwriting perspective.  If the aggregator/online shopping model is any indication, the answer is clearly no.

Building Unique Distribution is the Most Enduring Advantage

No matter how delightful the user experience, consumers still want convenience, relevance, choice and yes, a trusted brand.  The trusted brand doesn’t necessarily need to be an insurance name and some of the most successful carriers and brokers in the world have built very profitable companies by relying on the brand sponsorship of affinity groups and adjacent partnerships.  As an active member and Past President of the Professional Insurance Marketing Association, I’ve had the privilege to work with and learn from many of these successful companies.  We’ve also built our businesses under this premise and firmly believe that the most profitable customers will be acquired through preferred channels and the need for this access will be greater as the market hardens.    

Independent Agent Channel is Strong

Despite all of the disruption that McKinsey and others predicted, independent agents are still strong and continue to grow.  In fact, some of the new digital carriers and MGA’s are building agent distribution strategies since their growth through direct channels has fallen short.  The same companies believed online purchasing was more important than personal relationships.  Most importantly, the carriers continue to be committed to the IA channel because it delivers profitable customers.  

Carriers Provide the Opportunity and InsurTechs Require their Trust and Support

The InsurTech movement wouldn’t exist without the support of the insurance carriers even though many of the new entrants promised to disrupt and replace them.  In full disclosure, both of our companies are appointed by insurance carriers that provided us with the opportunity to launch and grow and we are grateful for their support over the years.  I would expect many of the new MGA’s and digital brokers feel the same way and rely on carriers to support their initiatives as a market, reinsurer or in some cases the capital provider to their ventures.  In the last ten years, it has been amazing to see how the carriers have evolved and invested in real change providing enormous opportunity to entrepreneurs trying to make their mark.

Purposeful Business

I recently listened to a podcast interview with the CEO of Lemonade , an InsurTech leader that quickly established “unicorn” status, and was disheartened to hear someone in that position tell listeners that the insurance carrier business model “at its core makes money every time it disappoints its customers”.   Lemonade does provide an impressive user experience and its progress is commendable but taking away the “social good” nature of all insurance companies is just wrong.  In fairness, I may be taking his words out of context but my point is that insurance is a purposeful business and all of us directly or indirectly help people during some of the worst moments of their lives.  If any start-up or established venture doesn’t realize this, they are in the wrong business. 

Value and Hype

I have enormous respect and admiration for so many of the InsurTechs and we’re seeing valuable changes in the underwriting, distribution and claims adjudication processes powered by many new entrants.  At the same time, there’s been a good deal of hype that may be creating unrealistic views of consumer expectations.  For instance, do consumers really want to buy episodic insurance every time an item is purchased or a new activity is started?  It’s probably easier and more valuable to just provide broader coverage on an annual home or renters policy.   There’s no doubt consumers expect more from the industry and we should embrace dynamic and refreshing approaches, but it is okay to challenge new ideas on behalf of the consumer.

Still a Relationship Business

The best part of the journey has been the relationships and friendships we’ve built with carriers, brokers, customers, investors and business partners.  It has been a privilege to work with so many great people that are dedicated to their profession and I’m grateful for the opportunity and support we’ve been given. 

Of course, I’m most grateful for John, Jean Marie and all of our amazing colleagues past and present who have built our companies and become dear friends along the way.

Thanks to Agency Checklist for this opportunity and best wishes to all for success in 2020 and beyond.