What should companies wanting to enter the space think about?
Be mindful of the trade-offs you face when originating transactions, especially the trade-off between “customer servicing” and owning the end customer. Will it be valuable enough for you to bear the cost of servicing a customer regularly if you can own the relationship, or are you going to build a platform based solely around volume?
Understand and Stay Compliant with Regulation
Like many ambitious startups trying to disrupt highly regulated industries, there can be a temptation to trailblaze first and check on regulations later. This puts your business at risk of setbacks, as companies like Relay Rides, now Turo, discovered. Turo faced an uphill battle with New York for not being compliant with insurance regulations necessitating licenses for the sale of third-party insurance policies, and faced a suspension of service because of it. Zenefits came under similar scrutiny and threat. Staying on top of regulations can be especially challenging — but important — when scaling a company quickly.
Luckily, Washington is beginning to call for more simple and consistent requirements for insurance regulation across the state and federal levels, but, for now, insurance is regulated on a state by state basis. This can increase the cost of expansion considerably for new entrants into the insurance space. When evaluating entrepreneurs in this space, we look for deep industry knowledge and a recognition that there’s little opportunity for one-size-fits-all innovation. Know all of the stakeholders for your product or platform, especially if you’re trying to innovate on the policy side. It may be a big market, but it isn’t an easy one.
Maximize Impact in the Value Chain
Do you want to be an agent or a carrier? It’s easier to get started as an agent, but, over time, there are greater margins to be made from being a carrier, especially at scale. For either option, how do you put your company in the best position to own the customer relationship? Being strategic around this increases your company’s leverage and defensibility.
Traditional carriers, as well as entrepreneurs, have an important role to play in improving insurance for consumers.
Web apps have historically been 10-100x worse agents at cross-selling other products, and we believe this is because they have a hard time building a relationship with the customer. Even with a digital interface, when you own the relationship with the customer, you can have frequent but non-intrusive interactions that allow you to be there at important life events and capture “opportunity-driven” customers at a low CAC.
Recognize, also, that there are many access points along the value chain for innovative solutions for some of traditional insurance’s stickier and more costly problems. Application of blockchain technology for insurance is a perfect example of this, and will be hugely lucrative for companies that can create solutions for insurers, even though they won’t be a part of the agent versus carrier dichotomy.
Traditional carriers, as well as entrepreneurs, have an important role to play in improving insurance for consumers. Many are already taking steps to improve their processes, and those looking to stay relevant and keep customers should be thinking ahead.