We have often written about Small Business Finance, both debt and equity. It is a window big enough to drive a truck through. The reason the window is so big is that small business has suffered from the middle child problem. It is neither the youngest child (consumer, where it is easy to get scale in aggregate) or the oldest child (Corporate BigCo, where it is easy to get to scale one client at a time). Serving small business historically had a Customer Acquisition Cost (CAC) similar to a BigCo with a the LifeTime Value (LTV) of a few consumers – an ugly part of the quadrant. In short, judged on the most critical metric of CAC/LTV, serving small business was historically a lousy proposition. This was true if you were serving them finance or software or….Insurance. That is why today we look at the 4 ventures that we found in our Insurtech database that aim to profitably serve Insurance to Small Business.
The 4 Small Business Friendly InsurTech Ventures
CoverWallet looks like a Robo Broker and they offer hybrid support, with phone support as well as a digital service. This makes sense as Insurance is too complex and mission critical for a pure digital service. They aim to cut through the complexity by offering Insurance that is tuned to the specific type of business. As they put it:
“The coverage you need depends on the type of business you run. A restaurant owner needs to be covered against customers possibly getting food poisoning while an accountant needs to be covered against calculation errors.”
FounderShield focus on high growth startups and are based in New York where they can find many of these close to home (although I noted some high trajectory Silicon Valley firms in their customer list). This makes sense on the “get them young” approach to marketing. When you are starting a high growth venture you know you need insurance but want to spend very little time thinking about it. You will sign with whoever makes it easy and as long as they work with you as you grow they can get some big clients for a low CAC. I also noted that they offer phone support.
They focus on the application process. This is similar to how ventures like Ondeck and Kabbage won in Small Business Lending – by making a cumbersome process simple. For example, they note how paper intensive the Insurance application process is – the last bastion of the Fax machine.
Insureon also focus on the application process and the fact that offering Insurance needs to be tuned to the specific type of business by offering a multiple choice tree structure type application process that reduces form filling time.
All 4 ventures are based in America
This is not surprising. America is a big market and highly regulated. Just looking the range of insurance to conside gives one empathy for a small business owner. You need all of these (while also needing to be 100% focussed on customer acquisition and service):
- General Liability
- Workers Compensation
- Commercial Property
- Business Owners Policy
- Professional Liability
- Errors & Omission
- Medical Malpractice
- Directors & Officers
Within America, we noted geographical diversity with 2 from New York and one each from Chicago and Silicon Valley.
If anybody knows Insurtech focussed on serving Small Business that are based in Europe or Asia please tell us in comments. Note, we can see many ventures that offer insurance to Small Business as part of a different offering. We are particularly keen to hear about those ventures that have a laser focus on the Small Business market.
The Zenefits and Health Insurance Elephant in the Room
Health Insurance is different from the types of Insurance that these 4 ventures offer. They are offering Insurance to the business. Health Insurance is something that the business now has to offer to their employees. Both are admin headaches for that small business owner already spending 100% of their time on customer acquisition and service.
We covered the dramatic rise and fall of Zenefits a few months ago. The takeaway is that agents/brokers need to have a reasonable understanding of what they are selling. These 4 ventures may be the tortoises that beat the hare story (not implying that they are growing slowly, only that every venture looks like a tortoise compared to Zenefits in it’s glory days).
We can see ventures trying to get into the space vacated by the Zenefits retreat, such as Gusto moving into Insurance. Meanwhile, the new Zenefits CEO is being as boring as possible by talking earnestly about Compliance.
InsurTech is in its Cambrian Explosion phase, with lots of new ventures being created. It is still early days for InsurTech. Within InsurTech, the Small Business Insurance market looks nascent with a few serious entrants and a big window open but no standout successes yet.