SmallTicket, a Korean InsurTech, has found a great way to cut Customer Acquisition Cost (the dreaded killer of B2C ambitions).
SmallTicket does this by selling their products online to groups rather than to individuals.
You could call this P2P or Affinity Marketing or Bulk Buying. Whatever the buzzword, it is the underlying economics that are interesting and that we explore here.
This is also a Femtech story and an Asia story, but first…
Make it up on price what you lose in volume?
It is no secret that Millenials are buying less Insurance and that both Agents and their customers are ageing. In a sentence, that is the big problem facing Insurers. It is one we see again and again as we survey the InsurTech landscape.
Some data from Julie Kim, founder and CEO of SmallTicket, reveals the rather destructive strategy employed by many Insurers – hike up fees to motivate agents to sell more. As reported in this Malaysian publication, Julie Kim details the hidden fees such as operation fee and fraud detection fee as well as the normal commissions and marketing costs. The staggering claim:
“With all these fees, the value of the coverage is actually less than half the premium”.
The obvious solution, as many others have discovered is to sell directly online. The question is how to do this efficiently, how to reduce Customer Acquisiton Cost (CAC). The answer, similar to what we have seen in other ventures is using the “birds of a feather flock together” principle behind techniques such as cohort analysis and affinity marketing. SmallTicket takes that a step further, right to the buy button.
SmallTicket acts as a risk-sharing network, allowing each group to pool their premiums so as to mitigate individual losses. Any funds left in the pool when the coverage ends are given back to the group in the form of bonuses or cashback.
Anyone can open an account on Smallticket and create their own groups. While the members are free to determine whether the group is private or public, it must not exceed 200 members. The platform currently has seven groups of more than 280 users each.
“It is like a Facebook page — you can join a group or create your own with people who have similar lifestyles. And we curate the insurance products for you to choose from,” says Kim.
Kim, clearly a pet lover, uses this example to explain more:
“For example, if you want to buy pet insurance for your French bulldog, you can create a group with your friends who also own French bulldogs and buy a policy from one of our partners. Thus, members will have to try their best to keep the loss ratio low. In the case of pet insurance, members will have to keep their pets healthy by giving them regular vaccinations, better food and sufficient exercise.”
Smallticket currently provides insurance policies from Samsung Fire & Marine Insurance, Hanwha General Insurance, Kyobo Lifeplanet Life Insurance Company, Shinhan Life Insurance, Meritz Fire & Marine Insurance and Axa General Insurance Korea. So, I would put Smallticket in the Robo Broker category, but with far more value than first-generation comparison sites.
Smallticket is targeted at South Korean youths — the age group that is buying the least amount of insurance products and that rejects the high pressure sales tactics of the traditional agent. Millennials want to buy, rather than be sold to, particularly if they can buy those products with their friends.
Smallticket’s initial focus is travel insurance.
Smallticket also allows individuals to create their own groups — comprising family members, friends and even other people with the same insurance needs to collectively assume responsibility of the group’s risk profile.
Kim outlines how peer pressure reduces claims:
“And since this is a group reward, people will be pressured into making sure they do not get into situations that require them to make a claim. For example, if we are in the same motor insurance group and I keep getting into accidents, you can warn me to be extra careful to make sure we can still get some good rewards.”
This is also a Femtech and Asian story.
Julie Jung-Eun Kim, Founder & CEO at Smallticket, is American educated (Northwestern University) but she is Korean and built the company in Korea. As women are woefully underrepresented in tech startups (as we explore here) it is great to see an Insurtech venture in Korea led by a woman. We have earlier covered Insurtech innovation from Singapore, but this is the first venture from Korea (strategically located between China and Japan, superb infrastructure and education, strong diaspore ties in USA).
Despite the business being based in South Korea, the programming and development team is based in Singapore. Kim plans to expand her business to Singapore before establishing a presence in Hong Kong and Malaysia.
Bernard Lunn is a Fintech deal-maker, investor and thought-leader.
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