Insurtech Drives Distribution Innovation
Balancing technology and insurance expertise is the key to innovation—and success—for insurtech MGAs.
- Kate Smith
- December 2020
Tim Attia, Slice Labs (pictured)
Rick McCathron, Hippo
Phil Edmundson, Corvus Insurance
Tim Attia has been the face of Slice Labs since the managing general agency launched in 2015. He is an in-demand speaker at insurance industry events and regularly finds himself listed among the top global insurtech influencers.
With more than two decades of experience in the insurance industry, Attia, the co-founder and CEO of Slice, has insurance chops. His co-founder, Stuart Baserman, however, is the epitome of all things tech.
“He is straight out of central casting,” Attia said.
It's that combination—hardcore insurance expertise and hardcore tech expertise—that drives the most successful and innovative insurtech MGAs.
“You need equal leadership in both areas, not just to get the vision and the strategy right, but also to build a team,” said Attia, whose company offers on-demand insurance for the on-demand economy. “You need to have strong teams on both sides, and the best people are only going to enjoy working with a leadership that they are confident will take them to big success, and that's going to require both sides of the equation.”
Attia recently joined Hippo President Rick McCathron and Corvus Insurance CEO Phil Edmundson for a panel discussion on insurtech MGAs assuming a leading role as insurance innovators. Their panel was part of a three-part series on entrepreneurial agents and brokers put together by Best's Review and AMBestTV.
From our perspective, [MGA] was a way for us to be able to experiment, test and learn quickly. ... We’ve been agents in the past. This is one way where we can have a little bit more control over product, pricing, operations, without having to have all of the infrastructure and the weight of being a carrier.
The sweet spot for innovation lies in the push-and-pull between tech and insurance.
“I actually think the slight friction that exists between the two in an organization actually creates innovation because the tech guys push the insurance guys to try something different, [asking] 'Why do you do it this way?'” said McCathron, who was an insurance veteran before he became an insurtech executive. “At Hippo, an acceptable answer is never, 'Oh, that's just the way we've always done it.' We have to rethink things.
“When you bring tech people into the mix, as an insurance person I think their constant challenging of the status quo makes you think creatively about different kinds of things, and so I think that the friction that exists creates innovation.”
Striking a balance between the two is a differentiator, Edmundson said.
“I think the mistake many insurtechs make ... is the fact that they often fail to recognize insurtech is made up of two words—insurance and technology,” Edmundson, a former area chairman of broker Arthur J. Gallagher, said. “And you really do have to have equal energy and emphasis in both.
“You have to have strong insurance pedigree because it's a heavily regulated business; there's lots of guardrails and barriers that you need to be aware of. On the flip side, you have to have strong tech prowess to build your own tech stack to make sure it's nimble, flexible, to take advantage of all the varying things that can be done in a modern tech world.”
Finding a happy medium leads to the best of both worlds. But in the infrequent case that push comes to shove, Edmundson said, he leans toward the tech way of doing things to attract talent and effect real change.
“It's Google, rather than Microsoft. It's Macs, not PCs. It's stock options, rather than big 401(k) matches. That's a very important part of our culture,” said Edmundson, whose company offers cyber insurance. “Even for the insurance people we're trying to attract to our team, we want those people who are excited about being in the tech world, and who come in eyes open to that culture that we're trying to build at Corvus.”
We spend a lot of time with data, with IoT, with segmentation and pricing to try to help make the average customer a better customer by stuff we do in the background.
If there's a secret to disruptive innovation, it's not a well-kept one. All three panelists said their transformational ideas came from putting customers front and center. For Slice Labs, which pioneered on-demand insurance for the sharing economy, that meant approaching insurance with a blank slate.
Slice's first customers were Airbnb hosts, and their needs did not fit within traditional lines of business.
“We wanted to leave everything behind. Blank sheet of paper,” Attia said. “We thought, 'Do we really care if there's a difference between personal insurance and commercial insurance?' If we got rid of that, we could save one tower.
“We don't have an application for insurance on any of our products, so we don't ask anybody to rep and warrant anything they say to us. We don't support bind and issue. We don't support renewals. Our products are dynamic, so they're always moving. We try to make policy a second-class citizen in our system, and focus primarily on customer engagement.”
To that end, Slice tries to make insurance protection as simple as ordering a ride-hailing service or streaming music.
“We want to move away from tap on the button, go to a website, fill out five pages, call a call center, wait two weeks for paper to show up,” Attia said. “We're really focused on the first part of that—on-demand—bringing insurance into the experience the same as a Spotify or an Uber, where you just tap on the button, and you're protected.”
Hippo, which offers homeowners insurance, also takes a customer-first approach. Its philosophy is that the best claims experience for customers avoids the claim in the first place. And it uses smart home devices to do so.
By using technology to reduce claims, Hippo says, average customers become great ones from an underwriting profitability perspective.
“In homeowners insurance, everybody always talks about, 'How do you get the best customers?' The problem is, everybody wants the best customers. So why don't you increase the pool of what equals best customers in homeowners insurance?” McCathron said.
“We spend a lot of time with data, with IoT, with segmentation and pricing to try to help make the average customer a better customer by stuff we do in the background.”
One example of that is the use of internet-connected devices within the home.
“We went through the hard work of working with every regulator in every state that we're in—and we're in 33 states now—and explained that, if we can provide the customers risk mitigation devices, IoT devices, water shutoff, leak detectors, smart smoke detectors, motion, all of these different kinds of things, we help the customer protect their home,” McCathron said. “By doing that, we eliminate or at least reduce certain segments of claims. We take that average exposure, and we make it a better exposure.”
Corvus, like Hippo, relies on collaboration with its customers. As a provider of cyber insurance, Corvus uses its own software to evaluate the information technology security of businesses within minutes. It uses that information not only for pricing, but also to produce a series of recommendations for how the business can improve its IT security.
“We're monitoring the IT security of these organizations and integrating information about new threats,” Edmundson said. “New vectors of ransomware, for example, are big news in the business world. Seeing the new ways that the cyber criminals are infiltrating organizations means that we're in a very active conversation with our policyholders.
“We send them alerts about changes in their own protection, or updates to software that might be required, or general advice about how to better prevent claims from happening.”
I think the mistake many insurtechs make … is the fact that they often fail to recognize insurtech is made up of two words—insurance and technology. And you really do have to have equal energy and emphasis in both.
For tech-driven startups looking to transform the insurance process, the MGA model is ideal.
“From our perspective, it was a way for us to be able to experiment, test and learn quickly,” Attia said. “You don't have a risk on the balance sheet. We've been agents in the past. This is one way where we can have a little bit more control over product, pricing, operations, without having to have all of the infrastructure and the weight of being a carrier.”
McCathron said flexibility and options are incredibly important.
“When you're writing products like homeowners insurance, different balance sheets have different risk appetites; different reinsurers want different exposures,” McCathron said. “You want to make sure you're spreading out and creating maximum geographical diversification, all things that we believe the MGA flexibility provides.”
Having your own paper also offers some flexibility, which is why Hippo acquired a carrier, Spinnaker Insurance Co., this year.
“When you are beholden to one or two large carrier partners, if their mood, appetite, management, whatever, changes, you have a significant threat to your organization,” McCathron said. “We, at Hippo, fully embrace the MGA model. We're going to continue to function as an MGA. We have acquired Spinnaker to give us flexibility and optionality in the event that moods change from other partnerships, but we do continue to use other balance sheets. We'll continue to grow that and do that as we move forward.”
For insurtech MGAs, fast growth can be tricky, as it is often met with skepticism from risk capital providers, particularly traditional ones.
“I see it most in the guise of 'You're growing too fast. We here at ABC Insurance are very used to supporting program managers and MGAs. You're growing [at] more than a single-digit pace. How can you be growing at 200% or 300% year over year? You must be doing something irresponsibly. We want to slow down and put a check on your growth,'” Edmundson said. “Perhaps nonconventional or other sources of risk capital are just as important in making sure that innovation gets to market, because those folks understand technology better.”
Of course, maintaining an entrepreneurial spirit is also a key to innovation.
“At Hippo, we still view ourselves as an insurtech startup, even though as an organization we're much larger than that,” McCathron said. “We have the DNA that we're constantly moving the ball forward. We constantly have a sense of urgency. We're constantly challenging each other, understanding what individual conviction is.
“That's something that is critical for any company. I just think the entrepreneurial spirit of insurtechs [makes them] better at that level of innovation and moving the ball forward than the incumbents.”