Why Start-Ups dislike Insurance?

The ibott team has and continues to work with many start-ups in the sharing economy and new mobility space globally, as well as Insuretechs looking to support these companies. Through this work, we have met some amazingly innovative individuals. Often we liaise with the poor soul that when the topic of insurance came up at their board meeting, they admitted that they had just renewed their home insurance and were subsequently announced as the person responsible for insurance procurement for the company. It’s no surprise then that often these individuals, some being founders or other industry experts outside of insurance, find the process of procuring Insurance frustrating.

The Insurance industry largely does a wonderful job of making our products very complex and hard to understand. I appreciate they are legal contracts but this is a major reason why the customer experience for industry is so loathed. People typically dislike what they do not understand. At ibott we try to remove the fa?ade form the process and attempt to be transparent, showing clients what the process of insuring them is. We try to make the process simple, no matter how disruptive or innovative the company we are dealing with are.

 We start with trying to avoid the long list of insurance acronyms that we expect the world outside of insurance to know – FGU, FNOL, SIR, IBNR, IBNER and MGA to name but a few that are clients often pull their hair out trying to understand.

 However, the purpose of this article is not to slate the insurance industry and cry out for modernisation (that we all know must happen). It is not a call for Insuretechs who we know are working hard to change the industry and improve customer experience at every turn. Insurance should be an enabler for start-ups and not a blocker. Subsequently, here is some advice to anyone trying to procure insurance on behalf of their company. Hopefully this will make your experience of the insurance industry a little better:

You don’t need to kiss 1,000 Frogs!

 Spend some initial time vetting the insurance intermediary and the carriers that you want to work with. Ask them what the core business is that they are targeting and make sure you fit within that criteria. Once you have selected the partners you want to engage with, invest time in building that relationship.

For instance, the ibott team are focussed on creating manuscript solutions for companies looking to take their insurance to the next level. We are not motivated to provide insurance just to satisfy a contractual obligation that a company may have. This type of insurance is better achieved within a Small-Medium-Enterprise (SME) team or an insurer focussed on Business Owner Policies (BOPs).

Don’t underestimate the human side of the business

Insurance is more than just the numbers. The ibott team fully embrace the digitalisation of many insurance functions and with more actuaries than underwriters in our team, we are embracing advanced algorithms within pricing models, although we are not at the AI stage just yet. We are also embracing digital distribution models but face to face interactions are still, in many cases, hugely important.

With most relationships, and certainly true for an insurance one – what you put into the relationship, you get out of it! So invest time in your insurance purchase. If you can build comfort and trust with underwriters surrounding your operations and how you manage risk, it will be reflected in your pricing. If it is not, the relationship is not working or you are likely with the wrong carrier.

It is not just about Risk Transfer

Too often we find that start ups are motivated at ticking the insurance box so to speak and thus focus purely at risk transfer. They seek the lowest possible deductible at an economically viable rate. But there is a much broader spectrum to risk management and insurance.

Firstly, you need to take time to understand your company’s risk tolerance. Sometimes retaining risks and focusing on risk control is a much better solution than risk transfer. This is the typically the case for low severity, high frequency claims (attrition). Transferring this portion of risk is not economically viable and will only hurt your company’s unit economics. A better investment would be in risk control measures internally.

The ibott team looks to work with its clients on all risks faced rather than those being transferred. We look to help price retention costs so that a company can budget accordingly and introduce vendors that we have great relationships with that can help control and lower internal risk costs. That could be background checking vendors, tech-based claims handling and verification software, online arbitration’s to solve low value disputes and insurance certification checking. We look to create tailor-made comprehensive insurance solutions that will help a company grow and flourish. That is why Partnerships are the key to the way we operate

Account for insurance spends when budgeting and capital raising

For a start-up, it’s understandable that they may not be motivated about their insurance purchase but it is a crucial purchase for any business. The cost of which should be factored into any capital raising and budgeted for accordingly. For innovative companies challenging traditional industry models, an off the shelf insurance product may not be suitable and you may need to approach an insurance carrier that can create a specialised manuscript product. Unfortunately these types of products are more expensive but purchasing a non-fit for purpose insurance product is only going to cost you more in the long-run!

Be willing to share

It is a common misconception that the more you share with insurers, the more they will hold it against you. Underwriters will and do price for uncertainty in all risks. The more data that can be shared with underwriters, the more comfort you should build and thus remove unnecessary uncertainty loading in pricing. I have seen insurers likened to data vampires in the publications of late. I don’t think this statement is completely unfounded. Some insurers ask for lots of different data metrics and often do not explain to their clients why they are making the data request. 

When an Insurance carrier asks for data, question each request. This will help you understand what is driving the pricing of your risk and it will help you understand, what is the actual data the insurance carrier will need. Ultimately though, we find the more that you share, the better pricing should ultimately receive.

Intermediaries are not the enemy!  

Whilst I see many innovative tech start-ups highly motivated to cut out any middle-men and save on costs, do not make the mistake of undervaluing the role of the intermediary. We as any insurance market are tasked with controlling commission costs but when intermediaries do their job well, the savings they can provide a client by helping access the right markets that can create a fit for purpose insurance product to meet your risk appetite and exposures, can far outweigh the cost. You need to find the right intermediary for you and as with anything understand the cost of their services and do your best to control it but also make sure the level of service is right for your insurance needs.

My hope is that taking this advice on board may change people’s perception when purchasing insurance and remove any current feelings of negativity or frustration. The Insurance industry certainly needs to embrace a better customer experience but as a buyer being prepared and understanding what you want from your insurance product will only make this process easier and will assist in obtaining a better outcome.