Silicon Valley is building the new-world insurance agent. My grandfather started selling insurance in the 1950s and insurance eventually granted him the American dream. Today, the industry accounts for 7 percent of U.S. GDP, with more than $1.1 trillion of net premiums paid annually. The aged way of conducting business is pushing the Valley to disrupt all layers of the value chain.
Insurance agents are under the most visible attack because the profession has not changed or adapted since my grandfather was in business. Buying a policy is still a pre-PC experience. There are 1 million insurance agents in the U.S. today, the most in history (even though the profession is largely replaceable with software). Agents sell 100 percent of commercial policies, 95 percent of home policies and 70 percent of auto policies.
Why isn’t your broker made of silicon yet? Channel conflict. Incumbent carriers cannot turn their backs on the agent and go direct-to-consumer without the risk of offending their agent networks. So much existing and referral-based business is at stake that most carriers do not allow consumers to purchase insurance online — they make consumers purchase through an agent.
To keep the peace with agents, most carriers will provide an online quote, then direct you to the nearest agent instead of an online checkout (driving you from online to a retail location, what a horrible experience).
The online opportunity
Insurance carriers’ channel conflict is the Valley’s gain. Online intermediaries like PolicyGenius, The Zebra and Insurify have emerged with venture funding and a mission to sell insurance online (this is a natural, because 50 percent of consumers begin their insurance research online). Online originations is a much cheaper cost of acquisition than an insurance agent, allowing the carrier to compete with lower prices and higher underwriting losses. But these originators cannot yet transact policies directly, and still pass the consumer to the respective insurance provider to complete a purchase.
PolicyBazaar is an Indian startup that can sell policies direct-to-consumer. They recognized that only 4 percent of Indian consumers have any non-health insurance and only 2 percent of that 4 percent bought their insurance online. Just look at the U.K. for inspiration, where more than 50 percent of auto policies are originated online and the online intermediaries are to thank for this. But intermediaries can come in much more creative forms than standard quote generation and policy comparison.
Cover (a graduate of the 2016 Y Combinator batch) built an app that quotes insurance for any personal property (jewelry, car, house, drones, etc.) based on a picture of the object. The app currently routes customers to a broker, but Cover will be licensed in the next few months to provide an end-to-end in-app solution. It’s a compelling solution that lets consumers interact with insurance in a very different way.
“Today’s brokers are not suited for mobile-sourced customers who expect instantaneous results from interaction: namely quotes and the ability to convert,” says Cover CEO Karn Saroya. “Our goal is to do more for the mobile consumer, because they expect more. If they have downloaded our app and entered their information, their intent is very strong and we want to satisfy that intent.”
Saroya also mentioned getting creative requests that Cover never envisioned, like people taking selfies to try to get a life insurance quote or insuring a racehorse with a snapshot: a glimpse into the possible future.
Circumventing the broker
Some startups are getting rid of brokerages entirely. Trov is building a cloud-based, end-to-end mobile insurance platform, scheduled to launch later in 2016. Today, the Trov app keeps track of your valuable possessions (bicycle, skis, laptop, etc.).
Soon, with the introduction of on-demand insurance, you’ll be able to insure your laptop, skis, bicycle or other possessions, for however long you like, with a single swipe in the app. Premiums for these micro-duration policies are paid in-app, and claims are filed using a simple, mobile chat interface.
Trov CEO Scott Walchek explains, “Trov’s on-demand insurance gives unprecedented control to the mobile generation — empowering them to protect just the things that are important to them, whenever they want, and for as long as they need — entirely on their smartphone.” This is only the beginning of what could be possible after on-demand insurance is introduced in the market. In the future Trov might enable people to insure their things by date, (skis are insured during winter), locality (laptop insured when it leaves the house) or by event (golf clubs insured when traveling).
The spotlight is on consumer insurance, but commercial insurance also presents a large opportunity. Embroker is a tech-enabled commercial broker built on the premise that it can serve small and medium businesses better than the status-quo insurance broker. “Broker workflows and processes are all manual in nature. Because manual processes don’t scale, smaller customers receive worse service outcomes,” says CEO Matt Miller.
Embroker is currently focused on improving efficiency, transparency and UX of commercial insurance for SMB clients. “Brokers serve as market makers, but each individual broker manually calls or emails carriers based on their intuition about which one will be a good match. It’s an extremely inefficient market,” says Miller. Embroker uses predictive analytics to recommend coverage and optimize pricing. Clients save time and money, and get coverage that’s better matched to their actual risks.
Incumbent carriers are asleep at the wheel of innovation and will likely stay asleep for the next few years. But taking a selfie to get life insurance is not far away — the innovation will come from the Valley. I’m bullish on insurance startups. New carriers will be born and incumbent carriers will hopefully wise up.