Nine Four Insights

Digitally Native, Direct Insurance

Anyone that has purchased insurance knows just how opaque and painstakingly slow the process is. The status quo typically requires working with multiple agents from different carriers over several weeks to gather a range of policy quotes. The lack of price transparency, long turnaround times, and offline experience across all insurance lines isn’t pleasant, to say the least, and is par for the course for hundreds of millions of policy holders around the world.

For centuries, agent networks have played a critical role in the current insurance paradigm helping carriers 1) acquire new customers, 2) service claims and 3) renew existing policy holders. Throughout history, as the number of policy holders has increased, insurance incumbents have traditionally hired more agents rather than leverage technology to scale with and service those growing volumes. Although agent-centric workflows have worked until now, they weren’t designed for a digital first world and the overhead needed to service the sheer number of new policies and requests has had an adverse impact on margin expansion, policy holder pricing and service quality. With the advent of the Internet, the secular shift from Baby Boomer to Millennial asset ownership, and COVID-19 driving rapid digital adoption, agents may no longer be the most efficient channel to acquire, service, and renew policyholders. Industry “outsiders” have recognized this opportunity and have applied a new perspective and technology to the age-old agency model and are starting to turn it on its head.

GEICO was one of the first carriers to successfully utilize the “direct” model to circumvent agent networks and sell directly to potential policyholders online. Subsequently, newer InsurTechs, such as Next Insurance for small business insurance, Root Insurance for auto insurance, Lemonade for renters insurance, and Hippo for homeowners insurance, have all recognized the benefits of the direct model and leveraged it to underwrite hundreds of millions of dollars in premiums to date. What makes the online direct model advantageous is its lower cost structure compared to traditional carriers. By supplementing agent networks with technology, InsurTechs are able to reduce overhead costs and re-allocate savings to 1) research and development to improve customer experience, 2) claims servicing and preventative maintenance to reduce loss ratios and/or 3) policy holders in the form of lower premiums.

Selling direct is advantageous in theory, but it’s important to keep in mind that by removing agents, InsurTechs potentially expose themselves to unique risks and costs which have to be taken into consideration. First, agent networks are typically used as a first line of defense in identifying and preventing fraud and high risk underwriting. Second, it’s difficult to replace the trusted, inter-personal relationships built over time between carriers and policy holders which are typically preferred by customers for when something goes wrong, a claim has to be filed and guidance has to be provided.

Although technology can help predict and identify bad prospect and/or policy holder behavior and streamline the claims process, there is no fully digital alternative that’s more effective than human-in-the-loop, at least not yet. That’s why many digitally native, direct insurance companies are not completely abandoning agents and leveraging omni-channel, hybrid approaches, at least to start. This way, InsurTechs can acquire, service and renew policy holders either digitally or through agents – whichever channel the prospect or policy holder feels most comfortable with, whereby optimizing for cost structure and without sacrificing risk and long-term policy holder relationships.

This is why Nine Four Ventures is excited to partner with Steadily, a new digitally native, direct landlord insurance company. Leveraging technology, it offers lower and more transparent prices, faster turnaround times and a more pleasant experience for landlord insurance policy holders. When something goes wrong, it offers 24/7 support to answer questions and guide policy holders through filing claims. Steadily also uses technology to prevent claims from happening in the first place. Its ability to keep customer acquisition costs and loss ratios to a minimum while providing a seamless claims servicing experience is dramatically raising the bar.

With the recent success of Lemonade in the public market, and Hippo and Next Insurance in the private market, it makes customers and investors hopeful that new innovative InsurTechs have staying power in the marketplace. While the jury is still out on whether the underlying fundamentals actually support the valuations of those InsurTechs, there’s general consensus that if executed appropriately, there are many long-term strategic benefits to operating digitally. It doesn’t come without risks and considerations though so it will be exciting to watch how technology will continue to impact the evolution of the insurance space!

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