Insurance Distribution is Like a Dating Service

Image: CC0 Public Domain

One of CB Insights’ recent most shared stories came from the headline “Insurers put financial backing behind insurance-distribution startups”. So that got our attention.

Distribution is the most crowded sector of #insurtech, by far. Venture Scanner tracks 242 companies in a “Comparison/Marketplace” sector, 29 companies in “P2P”, and 61 companies in “User Acquisition”.

It stands to reason that distribution is the most active venture space. After all, the very nature of insurance requires effective distribution (of risk).

Without effective distribution, risk carriers can take on too much risk in a particular category, such as weather. Here in coastal Virginia some carriers restrict by proximity to tidal water, for example. Good luck getting some of the most prominent carriers to cover anything within a mile of the Atlantic Ocean or Chesapeake Bay.

Distribution sectors as defined by Venture Scanner are just one way of looking at insurance distribution. CB Insights seems to look at the space a little differently. Peer-to-Peer, On-Demand, and Digital Agency are their apparent groupings. Never-mind for a moment that within any of these categories the differences among what the companies actually do are vast. It’s not as if they are all competitors of one another, except, perhaps, for VC dollars.

Given all of the funding and activity flowing into distribution we can’t help but wonder: why isn’t anyone getting it right?

Admittedly, we don’t know most of the 300-odd companies in Venture Scanner’s #insurtech categories but we pay attention to what and who everyone else is talking about.  There’s a gaping hole where we fit. As far as we can tell, no one is focused what we think is most important factor in insurance distribution: the shopping experience.

Peer-to-peer, just-in-time coverage, and a better web+mobile strategy may have value but they don’t address distribution at scale and insurance is massive. Practically everyone has property and casualty insurance. Assume a few million friends and family decide insuring one another is a good way to go. Assume a few million want to itemize their property and buy insurance a la carte or only when they need it. Assume all insurance agencies will be successful at going digital (and those who don’t won’t survive). Of these three models, only peer-to-peer helps buyers decide who is best to cover them. Every year in the U.S. five million people buy a home. When people are juggling 50 things associated with a buying and moving into a new home, do they want to consider the existential nature of insurance or do they just want it to be easy to compare options and buy? You can probably guess what we think.

To disrupt insurance distribution at greater than niche scale, a radical, new model for the shopping experience is needed.

Specifically, three things are needed:

  1. Shopping must be easy for buyers to compare across carriers for their unique risk profile
  2. Quoting must be free or low-cost for sellers
  3. The total transaction must be seamless from application through purchase.

Put another way:

  1. Buyers must be able to fill out one application and get back multiple underwritten quotes they can easily compare
  2. Sellers must only pay for leads that convert
  3. There can’t be brokers or “middle men” who collect only part of an application and can’t complete the transaction

To most people we speak with these seem like impossible requirements to meet. Surely some part of the market will reject it, they’ve said. But there’s a good reference model. We think key to effective insurance distribution at scale is match-making. Buyers and sellers want to get to know more about each other before they commit to marriage. Moreover, when buyers and sellers are empowered with better information about one another and have some level of individual control over the commitment, they both make better decisions. Like a dating service, but for insurance.

Go ahead and call us crazy. But think about it:

Insurance carriers (sellers) want to know that each person seeking insurance is, in fact, insurable by the carrier according to the carrier’s underwriting restrictions. I touched on restrictions above with coastal restriction – just one on a long list of what some carriers can’t insure. Every carrier has their own list of restrictions and restrictions change over time. Mass media advertising and billboards are terrible at targeting ideal customers, and worse in the case of insurance because of underwriting restrictions. Lead generators who sell contact information in exchange for estimates are awful, too. Imagine an agent buying a lead that’s been sold 8 times, racing to get the client to fill out their application first, only to discover a loss claims history disqualifies the client. Effective targeting is vital.

An insurance buyer wants to know that they’ve seen all of their best available options and are getting the appropriate coverage for the best price. This is practically impossible in today’s marketplace (without Comparity, that is). There’s no way for a prospective customer to fill out one complete application, not have their information sold a dozen times, and get back multiple underwritten offers that are easy to compare.

What buyers and sellers both need is a simple, efficient, and transparent way to get to know one another through an exchange of basic information. Buyers and sellers also want control over how their information is used in this exchange and control over the buying decision. We think there’s a straightforward way to give both parties what they want in a way that can transform the entire marketplace for the better. Providing buyers and sellers with better, more actionable information about one another will enable smarter policy transactions that will benefit everyone.

Separate but related: Another important factor in risk distribution is the number of risk carriers. Risk is most distributed in a market that supports the most risk carriers. Any trend toward fewer carriers requires an accumulation of risk. Our approach is to level the playing field for everyone and enable smaller, niche carriers to participate more effectively.