A note from the author – I’ve been a property & casualty actuary for nearly 10 years, the last four as a fully credentialed CAS Fellow. During my tenure, I’ve served in a number of financial reporting and product pricing roles for personal and commercial lines. My professional experience has largely focused on niche insurance programs such as personal aviation, coastal condominium, surety, and solar panel warranties. Working as a program actuary requires one to wear multiple hats at different stages of the program’s lifecycle. A program actuary will thoroughly review the numbers supporting the program, work side-by-side with compliance and underwriting to gain regulatory approval, and ultimately monitor and audit program performance. It’s a full view of the insurance sausage factory from start to finish. When I moved into the role of Chief Insurance Officer of BriteCo, I brought deep experience in program implementation with me.
Starting an InsurTech company – For an outsider, the insurance industry is a disruptor’s dream. There are the hundreds of billions of dollars of premium written by an archaic industry of legacy carriers. There’s the slow pace at which carriers have adopted consumer-friendly technologies, which a new generation of policyholders expect. However, the introduction of an innovative piece of technology in the insurance process is just one measurement of success in the industry. You’ll still need to manage the set of traditional challenges an insurance intermediary faces. This includes:
- Identifying market competition and opportunities
- Establishing partnerships with goal-aligned organizations
- Navigating a minefield of regulatory hurdles
- Monitoring book performance and responding to the market
Figure out if your idea has legs – The genesis of establishing an insurance intermediary is similar to any other fledgling company. You need to identify market need for the solution you’re constructing and make sure that need is sufficient in size. If you are addressing pain points for a market that currently exists, make sure that you are solving for major problems, not minor headaches. If you’re addressing market shortfalls, make sure that those shortfalls translate to a sufficiently large premium basis.
When we first established BriteCo, we identified pain points for jewelers, consumers, and insurance carriers. Chief among those pain points was the frictional claims process for jewelry replacements. Insurance carriers proved to be poor appraisers, offering jewelers and their customers fractional values versus the actual values needed to replace the claimed items. In some cases, policyholders had neglected to update their appraisals for several years. In those scenarios, policyholders were underinsured and didn’t have sufficient coverage to replace their pieces. The outcome was poor experiences for all parties, especially jewelers and their customers.
We also identified a critical shortfall in the process of acquiring insurance, or rather, not acquiring insurance. When we compared the number of new policies each year versus the average number of engagements, we saw nearly half of all engagement ring purchases were uninsured. That does not include all the customers leaving a store who later purchased coverage. This represents another gap in time where customers were susceptible to an uninsured loss. Adding in the fact that the personal jewelry market was an estimated $3.0 billion in annual written premiums, we knew we had a viable market in which to resolve these issues.
It’s equally important to evaluate the competition and overall environment surrounding your insurance product. For example, you may have an innovative idea that addresses pain points in the personal auto market. According to the National Association of Insurance Commissioners, countrywide premiums for personal auto totaled over $200.0 billion (not a small chunk of change). However, you may also want to consider that personal auto is heavily saturated with competition, and profit margins in recent times have been relatively slim. That may not be an attractive business proposition to a burgeoning entrepreneur. You’ll also have to consider the value your insurance product offers relative to your competitors. Here’s where a wealth of publicly available filing data may come in handy (see each state’s SERFF website for more information). Here are a few questions you should ask while reviewing your competitors’ products:
- How does my product differ from my competitors? Will I offer significant improvement on price, coverage, convenience, etc., or just marginal?
- What is the cost structure of my competitor’s product? Can/should I compete on price?
- How do my competitors underwrite? What do they consider a good risk or bad risk?
- How will my coverage structure differ from my competitors?
- What market segments does my competitor focus on? Are there opportunities to underwrite risks they are unwilling to take?
- What variables do my competitors use to underwrite or rate policies? Is there additional data I can leverage that they don’t?
- Do my competitors have a geographic focus? If so, are there opportunities outside their regional focus?
There are many more questions you should consider asking yourself while reviewing competitor filings. At BriteCo, we spent nearly six months prior to engaging carriers asking ourselves these questions, reviewing competitors filings, and structuring our product with the current market in mind. We knew our approach would offer a product significantly different from the current market.