InsurTech: The future of insurance is in partnerships

#1 InsurTech Bytes_PARTNERSHIPS, ACQUISITIONS & INVESTMENTS Card

2016 was all about InsurTech: cash flowed in, the incumbents sat up and took notice, and a slew of start-ups arrived on the scene to grab the insurance industry by the shoulders and give it a good shake. Now, as the hype subsides, FinTech Futures have launched InsurTech Bytes podcast series, inviting John Egan, strategy practice lead at Anthemis, Dan Smith, Managing Partner at Exponential Ventures, and Jannat Shah, Associate at AXA Strategic Ventures to chew the fat on all things InsurTech: where’s the smart money heading? Why should the big players partner with start-ups? What effect is Brexit having on InsurTech VCs?

Investor Insights The State of InsurTech by InsurTech Bytes Free Listening on SoundCloud

 

Following on from the first serving of InsurTech Bytes, the podcast for the future of insurance, we take a look at the top 10 takeaways:

  1. Hype is settling into the practical implementation and the focus is on where in the value-chain Insurtech innovators will focus next.
  2. The customer needs to be queen/king.
  3. Partnership is the way forward. Enablers are leading disruptors across the Insurance sector, presenting an exciting opportunity for insurers to drive forward their digital transformation. InsurTech has developed (largely) with a view towards partnership rather than disruption; there are only 3 end-to-end insurance propositions globally.
  4. Legacy issues persist, innovation from within large institutions is tough and Brexit sucks.
  5. It’s hard to leapfrog in the insurance sector.
  6. Timing matters. It has been 10 years since the crisis and the insurance industry hasn’t been under the same pressure as banking. The nature and complexity of the sector has kept competitors at bay.
  7. InsurTech requires patient capital, so it doesn’t fit with the aspirations of all funders.
  8. The elephant in the room is that disruption may come from unexpected and well capitalized competitors, for example, InsurTechs partnered with Reinsurers looking for a route to go to direct to consumers.
  9. Incumbents need to “be able to partner with many businesses of any size, at speed, at scale and simultaneously,” according to John Egan, strategy practice lead at Anthemis.

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Launching: “The Guarantors” Helps NYC Renters Qualify for an Apartment

theguarantor-homepage

As a blogger/analyst/entrepreneur, it’s a mixed blessing when someone delivers on a market need you’ve been ranting about (here and here). You feel vindicated and you have a blog post that writes itself, but it knocks one thing off the top of your businesses-to-start list.

So begrudgingly, I introduce you to The Guarantors, an N.Y.C.-based startup that is stepping up to meet the needs of renters trying to qualify for an apartment in New York City, and eventually other markets such as Boston, Chicago and California. I was directly involved in one such qualification excercise two months ago.

The company essentially acts as your parent (if your parents could fill out reams of paperwork within 12 hours, were extremely well heeled and backed by surety bonds), stepping in to co-sign and guarantee your rental agreement. To make landlords trust the stand-in parent arrangement, the startup backstops its guarantees with insurance from The Hanover Insurance Company. If the renter does not fulfill the terms of the lease, The Guarantors, makes the landlords whole. It is a brilliant idea, and perfect for financial institutions to license or build themselves.

The only problem is cost. Depending on risk profiles, The Guarantor charges U.S. citizens 5% to 7% and international renters 7% to 10% of the annual rent, about 3 to 4 weeks’ rent to backstop a 12-month lease; leases up to 18 months are a higher rate). But by eliminating deposits that can equal that amount or more, it can be cash-flow-positive to the renter. Though, unlike a deposit, that money is gone for good. So it doesn’t help first-time renters without the initial cash surplus of two-month’s rent. However, a financial institution offering the service could loan the renter all or part of that. There is no cost to the landlord.

The company, currently operating in NYC, is open only to renters with a 630 or higher FICO score and annual income at least 27x the rent. Alternatively, the company allows co-signers with at least 45x the monthly income, or liquid assets of 75x the monthly rent, to guarantee the guarantee. Applications are approved with 12 hours.

The company launched in 2014 and spent 18 months nailing down the insurance deal with Hanover. It has taken a seed investment of an undisclosed amount from nine investors (50 Partners, Alven Capital, Arnaud Achour, Fides+Ratio, Kima Ventures, Partech Ventures, Residence Ventures, Silvertech Ventures and White Star Capital).

Bottom line: Renter financing/assistance is a promising new lending/customer service for financial institutions. You not only get new customers, new loans, new checking accounts, a foothold in the millennial market, a unique service to offer employers, satisfied renters (and their parents), but also become a local hero with write-ups in every newspaper, blog, and housing forum in your market. And, with a phone call or two, you will be on the nightly TV news every fall when it’s “apartment hunting” season.

Contact The Guarantors now and offer to be their first distribution partner outside New York City, or their first strategic investor. And if you are Wells Fargo, Capital One, American Express, or Chase, just buy them outright already.

Have a fantastic weekend all!

Oscar Ties Health Insurance Premiums to Fitness Tracker

imageAs we speculate about the usefulness of wearables in payments and money management, an insurance startup has already launched a direct tie-in. Buzzy health insurance startup Oscar is paying customers $1 per day, up to $240 annually, when they hit their step- goal tracked on a Fitbit-like tracker from Misfit.

imageOscar has attracted $150 million in venture capital and is looking to bring modern ecommerce thinking to the massive health insurance market. The company is looking to be on the forefront of insurance tech trends, such as mobile help from physicians, easy access to records, digital communications, and transparent costs (see app here).image

How it works
Customers who buy health insurance through Oscar (available in NJ/NY only, but coming to California and Texas in 2015), are given a free Misfit step-tracker (retail value = $50, currently discounted 50%). The tracker syncs to Oscar’s mobile app (see inset) and credits customers $1 each day a step-goal is achieved. Goals start at a relatively easy 2,000 to 3,000 per day and ratchet up to the 8,000 to 10,000 per day recommended by fitness experts.

The bonuses are paid in Amazon gift certificates in increments of $20. The Amazon credit is likely bought at a discount to par value, reducing costs to Oscar (more details here).

Significance for FIs
Oscar can pay out $200 per year because it’s selling a big-ticket item, health insurance. And it stands to benefit from healthier customers who use less medical care. Unless you are in the health insurance business, you can’t copy this dollar for dollar. The important thing is making a game out of healthy habits by keeping score and delivering tangible rewards (previous post).

2015 Digital Banking Strategic Planning (Part 1)

imageI was on a call today with the digital strategy committee of a large U.S. bank. It was clear from their line of questioning that they are grappling with how to prioritize among the many major opportunities on the digital side.

I won’t list any of the specific topics here, but you could guess most of them (though one would surprise you I think). But the conversation got me thinking about what I’d recommend for next year if I was working in a bank, credit union or consumer fintech company.

In semi-prioritized fashion, here are my first three recommendations for 2015. More will follow.

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1. Insurance
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How are you going to replace NSF fee income once the CFPB gets around to capping it? (Timing hint: There’s a big election in 27 months.) One place to look: Insurance. It’s one of the last frontiers for retail banks, especially in the United States. FinovateSpring 2014 alum Insuritas (demo here) says it can launch your very own insurance store within 90 days. So if you move fast enough, you could have this running by end of year.

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2. Lifetime transaction archives
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I believe digital services will increase bank loyalty two or three-fold. So instead of accounts turning over every 7 years or so, it will be 15 or 20 years for digital-first households. Why? Once banks come to their senses and start archiving all your transactions like Google does for email, it will be much more of a pain to move.

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3. Subscription fees
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Back to the Gmail example. How much could Google charge me now that I have 100,000 messages archived there? $100/year easy. Probably more. Banks should be thinking the same way. Get #2 done, then charge $4.95/mo for a Peace of Mind package that includes lifetime archives, mobile document/receipt capture, priority customer service, and so on.  

 

To be continued………..

Winning Checking/Deposits from Established Small Businesses

imageI was asked recently what it would take for me to move my business deposit relationship. My immediate answer: “There is nothing you could do to get me to move.”

We have changed banks only once in our 20-year history, moving to Washington Mutual (now Chase) in 2007 in order to get a better line of credit (which ironically, was never granted, as WaMu was about to go into a death spiral).

We’ve been happy with Chase for the most part, and now have so many services and payees connected to it, that I can’t imagine going through the headache of changing. Even if another bank or CU offered a fee-free account that matched Chase feature for feature, it’s just not worth the considerable investment in time and energy to switch.  

But a few minutes later I changed my mind. Yes, there is one thing that would make me move my entire business account. And it’s so basic that it seems ridiculous that I’d even have to ask for it.

It’s the one thing that Chase, or any bank that I know of, isn’t currently delivering to small business owners:

Guaranteed safety of our funds against all fraud/theft

Chase has state-of-the-art security as far as I can tell (e.g., two-factor authentication for all the risky moves). And we’ve never had a problem. However, every time I read about some nonprofit or small business having their account drained after a successful key-logging attack, I get that queasy feeling.

And I’m not even asking for the fraud guarantee to be free. I’d be more than willing to pay for it. How about $25/month for the first $100,000 covered, then $10 to $15 per $100,000 thereafter? That should be enough to make it a decent profit center for the bank and I could sleep better (note 1). A win-win.

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Note
1. Two years ago, I was encouraged by the new offering from EFTGuard (see post). They were offering coverage of $100,000 per account up to $500,000 total per customer. Insured customers were required to use fraud-monitoring software from Trusteer, Iron Key or Webroot. The price was $25/mo to the end-user with $10 of that pocketed by the bank distribution partner. But I haven’t run across any banks currently offering it.

Fintech Funding Bubble: April Fool’s Day Edition

Bubbles

Photo credit: pedrosek

To prove that last week’s post where 10 fintech fundings were announced in a single day, I submit for evidence yesterday’s April Fool’s Day activity. 

 

Seems as if companies might want to avoid announcing new fundings on April 1, but that sometimes inauspicious date didn’t faze the pace yesterday as seven fintech players revealed total equity investments of $33.5 million. Adding to that figure is $22.5 mil in debt, for a total of $56 million in new capital. 

  • $22 million to BIMA Mobile to expand its mobile micro-insurance services in developing markets. The company says it already has 7 million customers. 
  • $20 mil in post-IPO debt to Identive Group to further its identity-management platform (NASDAQ: INVE)
  • $4 mil to Citizen.VC in advance of its April launch of an AngelList-like service for funding startups (link to temporary launch page)
  • $4 mil to OpenFin to expand its financial trading platform 
  • $2.5 mil Series A for WealthForge to build out its securities-issuing platform, currently used by Realty Mogul among others
  • $2.5 million in debt to ID.me to expand its digital identity network
  • $1 mil seed-round to PayStand, a Santa Cruz-based digital POS system that accepts credit cards and Bitcoin (of course)
Again, I’m not saying this is a bubble, but it certainly is a LOT of activity. Then again, if you count insurance (not including health), the financial sector is 8.4% of U.S. GDP in 2011, up from 4% in the 1970s. And it’s ripe for improvement in many, many areas. 

Why I Want My Auto Insurance Company to Track My Every Move

imageOur family has been lucky. Extraordinarily lucky. Eighty-plus years of mostly city driving, combined across four drivers, and not a single auto insurance claim (note 1). That means we’ve paid more than $100,000 (2013 dollars) in premiums for nothing, so far (note 2).

Actually, that’s not at all fair to the insurance providers. We’ve paid $100k for the peace of mind and potential financial help had we needed it (not to mention staying on the right side of the law). And it’s been worth it.

That said, I wouldn’t mind paying less for the same peace of mind. And that’s why I love the idea of mileage- and behavioral-based insurance (note 3). I haven’t always been a model driver, but I was the first person in my extended family to regularly wear a seat belt and I’ve grown to be a relatively conservative driver, especially after becoming a parent.

And I’d love to be compensated for that.

That’s why I’m all for the next generation of “smart auto insurance” that connects to your on-board computers to measure:

  • Speed
  • Miles driven per day
  • Time of day driven
  • Acceleration
  • Braking
  • How hard turns are taken
  • Seat belt usage
  • GPS tracking

And eventually, even more difficult concepts such as:

  • Driver distraction
  • Driver impairment

Not only will I qualify for lower premiums (hopefully), the feedback from the tracker will be interesting (e.g,. historical maps of your routes) and could have a significant impact on the quality of your driving (since it will directly impact your rate).  I know there are serious big-brother concerns here, especially in light of the NSA scandals of the past few months. But it can all be opt-in, though eventually, those not opting in will face higher premiums.

Progressive Insurance is an early leader in this area. It’s opt-in Snapshot tracking device (inset) has been used by more than one million customers (see screenshot below). Prospective customers can install the device free of charge for 30 days and track their potential savings online. You don’t even have to be a Progressive customer to get the free trial. 

Bottom line: Unless regulators get in the way due to privacy concerns, it’s inevitable that auto insurance, along with other types of property/casualty, will use behavioral metrics to price the risk. That will be a big change for the industry and will likely provide good openings for new entrants. 

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Progressive has 1 million drivers using its plug-in tracker (7 Aug 2013)

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Snapshot tracking log (via RoverGuide.com here)

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Notes:
1. There have been a few altercations with concrete pillars and such, but nothing severe enough to involve the insurance company. 
2. I know that I’ve now completely jinxed this, sorry family, and whomever we collide with.  
3. See previous post on Street Owl’s safe driving app and Metro Mile’s pay-as-you-go insurance.
4. For more on banks opportunities in insurance, see our full report here (Dec 2011, subscription)

Bank Opportunity: Online/Mobile Travel Insurance Sales

imageWhen your core business has been around for hundreds of years, it’s harder to find new sources of revenue. One area ripe for expansion at many banks is insurance. Wells Fargo, for example, put more emphasis on the area by separating insurance from investments in its June 8, 2013, homepage remodel. See our full insurance report for more info on the market size and opportunities for banks.

While auto, life, health and home are the biggest in terms of overall premiums, they are also highly competitive with hundreds of thousands of established sales agents in the U.S. alone. But dozens of niche insurance-markets exist that might make it easier to find a foothold.

Take travel insurance.

You’ve seen these policies pitched when you are checking out at Expedia or other travel sites. While it’s tough to compete with the convenience of buying during the travel-booking process, financial institutions still have an advantage that Expedia doesn’t: Trust.

I’ve been using Expedia for 15 years and have booked 100+ trips there with few problems. So I trust them with travel arrangements. But does that trust extend to insuring my travel? Not so much. It’s hard to understand exactly what is included/excluded in their insurance upsells. And the one-size-fits-all approach rarely covers what I’m looking for in travel insurance (which is “no questions asked” cancellation). And often I’m exhausted after making complicated travel arrangements and have no energy left to figure out whether their insurance makes sense.

I’d much rather purchase a policy from a trusted source where I can get answers to specific questions, review policies after the fact, and be able to come back year after year for consistent choices. And since I don’t have a direct relationship with an insurance carrier (everything is bought through a small broker), I would be very interested in buying from my bank.

imageI’m not sure how many U.S. financial institutions offer travel insurance, but I suspect it’s a small number. But there is one major player with a comprehensive travel insurance offering, BB&T (see screenshots below).

Getting a quote is easy. You simply tell the bank how many travelers you have, their age, travel date and cost. Within seconds, three options are presented (screenshot #1) covering basic trip interruption to one that covers medical evacuation and much more (screenshot #2, note 2). It even allows you to upgrade to “cancel for any reason” for a reasonable additional fee ($63 per person for my hypothetical $3,000 per person trip).

Actually buying the insurance requires a few more fields to be completed (see screenshot #3). But at that point, I already know that it’s worth my while and am not put off by additional data entry. And if I was already logged in, these fields should mostly be prefilled.

Bottom line: With a captive audience of authenticated online and mobile users, banks and credit unions could be the biggest providers of travel insurance. And with the added advantage of seeing travel-reservation charges appearing on debit and credit cards, you can cross-sell the service while the trip-reservation process is still fresh in the customers’ mind. 

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1. BB&T produces three options for travelers (24 June 2013)
Notes:
1. Live Chat option in lower right
2. Total cost shown for two travelers going on a $3,000 trip that begins 60 days from now

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2. Detailed coverage of BB&T Deluxe Protection Plan

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3. Complete application for each traveler

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4. BB&T is one of a few financial institutions to include “insurance” as a primary navigation item

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Notes:
1. See our full Online Banking Report on “Banks in Insurance” here (Dec 2011, subscription)
2. To earn my business, I’d want to mix and match some of these benefits. The policy I want is basic interruption, but with the ability to cancel for any reason and with a deductible to bring the premium down.   
3. Picture credit: 1938 vintage travel poster at eBay

Metrics: Mobile Banking, Payments, Insurance and Investment Usage

imagecomScore is compiling a wealth of digital usage data, both for desktop and mobile (see previous post). And luckily, they have agreed to let me share some of it here (see note 1).

The following chart is financial services usage data across 230 million U.S. mobile phone users aged 18 or older (note 2) in the United States as of year-end 2012. It includes any type of financial content, secure or public (i.e. this is not limited to secure access by account holders).

The data shows that 62 million (27%) of mobile users accessed financial content during the prior month (Dec. 2012 figures). The vast majority of those (87%) accessed bank content. Credit card or electronic payments (e.g. PayPal) were each used by about half the segment. And brokerage or insurance content was accessed by about 20% of mobile financial users.

Observation: The banking numbers have been widely circulated, but I hadn’t seen recent breakouts in insurance and brokerage. Both were surprisingly high, especially insurance. If you assume there is generally one mobile financial user per household, that means that about 10% of all U.S. households are using mobile insurance info. Same on the brokerage side.

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Source: comScore, compiled Dec. 2012

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Notes:
1. If you have requests, drop me a line and I’ll see what I can find.  
2. Users of any type of mobile phone, smartphone or otherwise. Also includes text-message queries.

FinTech at TechCrunch Disrupt

imageThis past week, NYC hosted TechCrunch’s semi-annual tech event. TechCrunch Disrupt covers the entire tech spectrum from software to 3D printers to gaming and ecommerce. Generally, the financial vertical accounts for 2% to 3% of the companies involved. That said, several notable fintech companies have done well there. Notably, Mint won the first event in 2007. And in 2011, both InvoiceASAP (demoing at Finovate next week) and BillGuard (see post) made it to the final round, (with BillGuard finishing second overall).  

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Startup Battlefield
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This year, three of the 30 "battlefield" companies that made it one stage were in fintech. One of those, Zenefits, was one of seven finalists called back to demo again to the judging panel. Enigma a public-dataset discovery and analytics startup, was the eventual winner.

1. OK’d by PaidPiper (description | demo)

  • Kids payment tracking and authorization service
  • Partnering with Vantiv
  • Mobile first…team has mobile background
  • Can also be used by small biz with their employees
  • Charging parents 5% of value transferred (non-starter…needs to get to monthly subscription)

2. Trustev (description | demo)

  • "Social fingerprinting" to provide a "Trustev score" pulled from social media and other data sources
  • $20 billion lost in 2012 by online merchants
  • 27% of all online orders are reviewed by humans for potential fraud
  • Call themselves "Stripe for fraud"

3. Zenefits — Battlefield Finalist (description | demo)

  • Free, comprehensive HR-benefits platform, monetized with health insurance commissions only
  • Displaces client company’s health insurance broker to fund the free HR services
  • Co-founded by Wikinvest’s Parker Conrad
  • Y-Combinator alum
  • Typically, small customers can pay up to $2,000 per year for similar services

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Startup Alley Tradeshow
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The "startup alley" is the tradeshow floor where more than 100+ startups and event sponsors have tables to talk to interested parties. There were eight more fintech companies there:

  • ePaisa: Mobile POS startup
  • EXP Commerce: Futures market for consumer products
  • PayTango: YC company authorizing payments with fingerprint biometrics
  • Peela: Brazilian gift card provider "gift cards on steroids"
  • Purchext: Parental spending control system using sale receipt capture/OCR (now) and/or NFC (soon)
  • Taclaro.com: Brazilian online insurance supermarket
  • TouchtoPay : Fingerprint-based payment system
  • YourCapital: Algorithmic financial advice for DIYers

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Panel Discussion
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Financial subjects come up throughout the program, for example three VCs over the three days mentioned that they were putting money into Bitcoin. But there was only one focused financial-services session, a panel entitled, Show Me the Money.

Panel members: PayPal (Hill Ferguson, VP), Stripe (John Collison, Co-founder), Gumroad (Sahil Lavinga, Founder)

  • PayPal launched "login with PayPal" today
  • Stripe is powering Walmart’s new Goodies food-subscription service
  • PayPal used to buy $7 billion annually in digital goods (music, online gaming, etc)