InsurTech Comparison Sites transform to Robo Brokers as Insurance value chain shifts

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Sometimes, the simplest innovation wins. Delving into the 156 InsurtTech ventures in our database, we see a lot of comparison sites. These clearly work well markets such as India, China, Africa and Latin America where lots of consumers are buying insurance for the first time. Comparison sites also have a proven revenue model. However we see pressure on this model as Insurance value chain shifts thanks to P2P and Blockchain. In this post we look at where the puck is headed in more mature markets and why these comparison sites will have to morph to a more sophisticated Robo Broker model.

How much better are you at SEO?

If I give you a comparison of prices from different insurance companies, I can make money sending the resulting click to the insurance company. This proven model works in many industries and the venture does not need to be regulated.

This model relies on the comparison site being better at attracting traffic through SEO, paid search, affiliate marketing, social marketing and all the other traffic building tools. This will come under increasing pressure as the 3 layer Insurance value chain (Broker to Insurance to Reinsurance) shifts thanks to P2P and Blockchain (as we explore here and here). So there will be pressure on Insurance companies to control more of the end customer experience. At some point Insurance companies get better at online traffic building and the comparison site loses their advantage. Like all arbitrage games, this takes longer to play out in practice than one assumes from theory. So we expect comparison sites to thrive in different geographic markets for some time. However, at some point the comparison sites will have to morph into regulated Robo Brokers. This is already happening in mature Insurance markets

Will you be there when I need you?

Insurance is not a particularly price sensitive market. Consumers care more about whether Insurers will be there in the stressful event that they will need insurance. That is also why it is such a regulated market. The old fashioned local agent was a phone call away in those stressful times and they can help you to navigate the claims process.

This is a sales job at one end and a customer service job at the other end. This means that Robo Brokers have to a) be regulated b) have some real expertise and c) offer an omnichannel customer service experience (because even the digital natives want to speak to a human when dealing with a stressful event).

One can witness Zenefits getting into trouble for focussing too much on sales and too little on the customer service.

Knip is a Robo Broker in a mature market where consumers love buying Insurance. They are one of the few VC backed Swiss Fintech ventures to have raised a Series B, so they are clearly executing on their plan.

NextGenIns This Boston based company was founded in 2009 and we see no VC funding, so we assume that they are bootstrapped. They focus on Affinity marketing.

SurelyGroup. This London based company sells direct as a Robo Broker in niche areas (eg caravan insurance). They also have a line of business helping Insurance companies sell direct.

White Label services for existing brokers

Another strategy that we see is providing White Label services for existing brokers. These traditional brokers are the lion’s share of the business today. So it makes sense to offer them services that bring them into the digital age. We found three interesting companies in this category:

  • Massup This German venture is a recent graduate of Startup Bootcamp Insurance. They focus on helping brokers sell annex insurance (translation all those things you might forget to insure because they don’t fall into the obvious categories).
  • MiEdge This Boston venture sells prospecting services that are compliant with form 5500 (governing employee benefits in America).
  • Premfina This Boston venture sells cash flow financing services to brokers (so they can get paid upfront despite the customer paying monthly).

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.

 

Google clos­­ing Compare may signal bigger ambitions in Fintech

Apple_and_Orange

Eons ago, in November 2014, Daily Fintech looked at Google as part of a series on big tech ambitions in Fintech (Apple, Facebook, Alibaba, Google). Our TL;DR summary on Google at that time was “quietly plugging away with massive ambition. This is the story of the dog that did not bark (yet)”. 15 months is officially an eon in a market developing as fast as Fintech. The Google big dog is about to bark in Fintech and the apparent retreat – closing Compare – may signal greater ambition that should worry incumbents and startups alike.

Misdirection, failure or tactical retreat?

From WSJ (paywall) one assumes the story is one of failure:

“Google is shuttering its comparison-shopping site for auto insurance, credit cards and mortgages after one year.”

Other financially oriented sites led with the same failure story. You can almost hear the sigh of relief as incumbents in Insurance, go “phew, thank goodness our business is too complex for Google”. Insurance Age reports on the losses:

“Compare site, reported under the Beatthatquote.com brand, also reported financial losses. In 2013 it posted a £12.64m loss after costs exceeded turnover. In 2014 it also posted a loss for the financial year of £19.4m.”

Lets put that in context. Google profit in 2014 was $3,720m. Convert that £19.4m at a generous rate of 1.55 (pre Brexit talk) gives us a $30m loss – which is about 1.24% of their profits. Given the scale of the opportunity Google could have patiently stayed the course as they have done in so many other big markets.

The best site on search is SearchEngineWatch and for this story they interviewed an expert (Carl Hendy) who said:

“I wouldn’t open the champagne too soon. Google has a habit of misdirecting everyone.”

 

I am with Carl Hendy on this one. It is time to dig a bit deeper. As we reported last year,

Banks can buy the Fintechs it is the Bigtechs they have to worry about.

Rounding errors and big needles to move

Google spent £38m in 2011 to buy  Beatthatquote.com, which became the Compare offering and that division has lost money since then.

Google has a big needle to move. Google revenue in 2015 was over $74 billion. To get 10% growth (the prized double digit growth rate), Google has to find $7.4 billion of new revenue each year. The law of large numbers is unforgiving – and needs huge markets.

Now look at the size of the markets that Compare was going after (US only):

Auto Insurance: $186 billion in premiums
Mortgages: $13,700 billion in total loans outstanding

Credit Cards: $2,210 billion in total value of transactions in 2012

Compare could have also entered:

  • Health Insurance
  • Other Lending
  • Other Property and Casualty Insurance
  • Savings & Investments & Brokerage

It seems odd to exit massive markets when you need to move such a massive revenue needle.
Insights from the Google Ventures portfolio 

Look at the Google Ventures Fintech portfolio. This gives them insights into these massive markets.

Oscar – health insurance

Ondeck – lending

CircleUp – crowdfunding

Gusto (if Zenefits stumbles badly, this is a similar model)

LendUp – lending

Google understands Fintech. It is only a question of time before they make their move. Expect it to be a game-changer.

Beware those European regulators

In Fintech we often contrast the unregulated Tech with the highly regulated Fin. The BigTechs are different. They are so big they attract regulatory attention, particularly in Europe. Google is particularly in the regulator’s sights. Insurance Age has the story as it affects Fintech:

Google may be thinking “if we are going to be regulated, we might at least go for a bigger prize”.

Adblockaggedon

If Google’s core advertising business is threatened by adblockers, as this site reports, it would be smart to go to a more direct revenue model.

When Stacks Collapse

Compare was doing what Brokers do. As we reported on the story on Lemonade, the big value is further down the Insurance stack. Google could become a regulated Insurance company.

Key to a direct revenue model is a fully functioning payment system. Think of iTunes. In our analysis an eon ago in November 2014 we concluded that

“Google will keep plugging away at this until they crack it, like they have done in other markets. One statement from Omid Kordestani stands out:

“We’re developing a fully functional payment system.”

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.