Is the rise of the Digital Advisor the new InsurTech game changer?
My-Whole-Life cover makes more sense to customers
As a backdrop to this article on the digital advisor, let me take you back nearly two years. In December 2015 I made this prediction in my top 10 for the coming year (this was number 4);
Policyholders will be able to insure their lifestyle in a single policy based on highly personalized risk assessment through a digital platform
At the time this was greeted with an “easier said than done” tone from those who posted comments. But my faith in the prediction was based on conversations I’d had with my own children. All three of them are digital savvy millennials. All three of them questioned why they had to go through a unique buying experience every time they wanted insurance.
What they all wanted was the equivalent of Amazon Prime for insurance.
And let’s face it, if you stopped a 100 people in any street in the world, how many would know what P&C means? Or the difference between Life and Non-Life? Or why they have to buy insurance as lots of separate products. Not very customer friendly!
Which is why I was interested to look at two different, but in many ways, similar approaches for this month’s InsurTech Insights.
Both Sherpa and Getsafe are classified as Digital Advisors. Because this is what they do. But that over simplifies and shows a lack of understanding of what they are actually doing.
It would also make the mistake of pigeon holing them using traditional industry vernacular. When the reality is that both are unique and redefining the traditional insurance supply chain.
It’s all about asking better questions
Let me start with Sherpa.
Their approach is highly innovative, using a subscription-based model to provide all-risks personalized cover (instead of selling multiple individual products for a premium and commissions).
The way Sherpa works is that customers effectively join a club. They pay a membership fee that gives them access to insurance cover without the commissions traditionally paid to insurance companies. Sherpa are the customer’s digital advisor. They risk assess all aspects of the customer’s lifestyle and identify the cover needed specifically for them.
CEO, Chris Kaye told me; “Sherpa try to get as much insight on a customer as possible and assess the customer’s personal risk. We look at the risk probability for the individual as well as for the population as a whole.
“We boil this down into a single score that assesses an individual’s overall vulnerability. This is a great starting point from an all-risks perspective. From there we can drill down further depending on any specific areas of cover the customer is looking for.”
Where Sherpa differ from a traditional approach is that they package up multiple customers’ insurances and buy cover wholesale from GenRe. For regulatory purposes they need a primary carrier, but to all intents and purposes, the carrier is superfluous in the Sherpa model.
This Digital Advisor has a Brain!
The other key difference in the way the Sherpa model works is that it treats the customer as a whole risk. Sherpa does not look at a customer as multiple, discrete, silo’ed products of cover.
It does this using the Sherpa Brain. This is where digital advisor comes together!
Partnering with advanced AI mathematical models and actuarial data, the Sherpa Brain is a massive risk assessment tool that takes into account the probability of a customer’s high frequency/low impact events, and vice versa. The Sherpa brain builds both Life and Non Life risks and combines them into a single view of the customer.
This is an important distinction because many incumbent insurers today are chasing the single customer view with a single engagement touch point. But all they are doing is providing a snazzy digital front-end. It can’t really act as a digital advisor when the underlying insurance products remain silo’ed and rated independently. (More on the the constraints of policy administration systems here.)
|The Sherpa approach is fundamentally different to how the traditional insurance industry works and is organised|
The Sherpa brain starts with a risk model based on an average UK person. By definition, this is a very broad model, but based on every piece of data the customer puts in, the Sherpa brain adjusts the average model to increasingly make it a personalised model.
Sherpa earn their money by taking this risk assessment, bundling it together with other personalised risk assessments and placing the aggregated risk through the wholesale market.
“We don’t need 100% accuracy for the individual at the outset,” Chris explained to me, “but over time, it will continue to move closer to 100%. We continually use artificial intelligence and new data to update the individual’s risk profile so it remains up-tp-date and dynamic.
Learning the hard way: how building trust is key to getting access to customer’s data
When I predicted the emergence of my-whole-risk digital insurance cover, it was a prediction that was so much easier said (by me) than done (by someone else). As Chris explained to me, “to start with, we got it 100% wrong!”.
At the outset, Sherpa thought they could get customers to (simply) connect via FaceBook, Instagram, Google etc. Sherpa would build a profile from the bottom up using customers’ social media data. But they soon found that customers didn’t like that.
“We definitely saw caution outweigh convenience!” Chris explained.“In response, we changed our approach and introduced a chatbot interface. But customers didn’t take to that either!
“We learnt through trial and error that we had to earn the trust of our customers before they would freely give up access to their data”.
|Sherpa package up multiple customer’s insurances and buy cover wholesale from GenRe. For regulatory purposes they need a primary carrier, but to all intents and purposes, the carrier is superfluous in the Sherpa model.|
The learning continued for Sherpa and they moved to a more traditional approach of a simple Q&A at the start of a new customer engagement.
“What we found with this approach is that 1st time round, customers don’t always give you a truthful answer. They are cautious and want to see how it works before they get really honest and open. They want to know what you are you doing under the hood with their data.
“When they trust that it is in their interest, they redo the Q&A more accurately.”
In essence, what Sherpa have learnt is you can’t start by asking the customer to give up all their data connections. They’ve turned their approach about face and start simply.
They work on building trust first and then they ask for the data connections at the back end. They find customers are much more willing to let Sherpa access other sources of personal data once trust is established.
Getsafe pivot their business model in tie-up with Munich Re
To contrast the approach Sherpa have taken, I caught up with the co-founder and CEO of Getsafe, Christian Wiens. I first worked with Christian about 18 months ago when he presented on a webinar I chaired on the subject of insurance distribution.
Getsafe were the first InsurTech investment made by CommerzVentures and started out as a mobile insurance wallet. Their modus operandi was to aggregate insurance policy data onto a personalised mobile wallet and use the aggregated view to assess gaps and duplication in coverage. This is the “insurance concierge” model that has so far failed to gain real traction with customers (because, IMHO, it doesn’t offer a compelling customer value proposition).
Recently, Getsafe announced a pivot in their business model linked to a tie up with Munich Re Digital Partners. Instead of acting as a broker selling 100’s of traditional insurance products, Getsafe are a digital advisor selling their own insurance products.
Like Sherpa, Getsafe are shortening the insurance supply-chain and going straight to a reinsurer for capacity. In their case it is Munich Re. This is a trend that will increase as primary carriers get squeezed between new models for distribution and the reinsurance foundations of the industry.
With the emergence of strong consumer brands like Amazon and digital self service claims platforms like RightIndem, the role of the carrier is increasingly going to be challenged, which will ultimately lead to changes in the regulatory structure that currently protects them. You can read more on this point of view here.
There is only one insurance product with Getsafe
Getsafe build an insurance portfolio that is personalized for each customer. It is also highly flexible, enabling customers to dynamically add/remove classes of cover, members, assets, etc. All with the option to adjust the level of deductible, even to zero.
I asked Christian how they approached this. “It’s taken us a year and we’re pleased with our accomplishments. We’ve built a multi-line setup and a new PAS (policy admin system). Together with Munich Re we have built a licensing framework as well as an online PAS, that lets us build, underwrite and manage our own products in all three lines of business (health, life, non-life), that can be packaged in one single, flexible master-policy for the customer.”
|Getsafe build, underwrite and manage their own products across all three lines of business (health, life, non-life), then package it up in one single, flexible master-policy for the customer|
And all with a touch on a mobile app. The self-service, personalised, customisable digital advisor. Awesome!
Their target demographic is the millennial sweet spot of 23-28 year olds. A digital generation who simply don’t understand why they can’t have one relationship with one insurer and have one insurance policy that covers everything they want covered.
The way that Getsafe do this is to build one insurance product for a customer. Just the one. It’s an over-arching policy customised to the individual. Getsafe then apply modules of specific insurance cover to the single policy framework.
To those incumbents trying to solve the single customer view – take note! Getsafe, like Sherpa, have done it by treating their customer as a single entity and not as a collection of multiple products.
Keeping it simple is the key to customer engagement
A massive advantage for Getsafe is that Christian and the team have a background as brokers. They are also digital natives. They understand customers and how to engage with them digitally.
|Getsafe and Sherpa treat their customers as a single entity and not as a collection of multiple products|
Like Sherpa, Getsafe start with a simple questionnaire. In itself, there is nothing technically advanced or innovative about this approach. It is simply that customers respond well to a simple Q&A approach, even when its a digital advisor. With Getsafe, they use a Chatbot through a mobile app to gain their understanding of a customer’s needs.
For the complicated products, like life and health, the digital advisor is replaced by a human one. They will come online and chat with the customer through the app to guide them through.
Christian explained it to me; “Most InsurTechs have a concept to be digital, but they are not always customer centric. We started our careers in broking and learnt that you have to put the customer first.” A recurring theme from the InsurTechs!
Customers join the Getsafe club
The Q&A approach through a mobile Chatbot enables Getsafe to do a preliminary risk assessment from which to advise on insurance products. They start with public liability insurance, which is mandatory in Germany. This is often the first insurance that a young person will buy after leaving college.
Christian told me. “Once they come onto the platform, they see that we operate as a club. New customers are given a membership card and unique number plus a 20% discount card. This club number stays with them as they add and change their insurance coverage with Getsafe.”
Once on board, the customer can configure their insurance policy using the mobile app. Getsafe tread the regulatory path by offering guidance on the right levels of cover for the customer.
Christian explains their approach as a digital advisor, “Getsafe start by suggesting a basic setup built on the data that we know about each new customer. As we collect more data about a customer, this setup is refined to build a holistic view of our customer and their unique and individual risk profile. This allows us to build insurance cover specific for them.
“This is very different to the traditional insurance approach of selling multiple insurance products from the individual insurance silos.”
Are insurance carriers about to become an endangered species?
It depends on who you ask in the #InsurTech9! For me, the answer is maybe, but not anytime soon!
By going direct to the reinsurers, both Getsafe and Sherpa achieve one significant and fundamental step change in the way insurance is provided. They eliminate the generic product.
|Getsafe and Sherpa have achieve one significant and fundamental step. They have eliminated the generic product |
Where many of the current crop of InsurTechs are failing is that the underlying insurance product remains the same. These digital advisors are simply digital lipstick on an analogue pig and fail the fundamental customer question that every start-up has to be able to answer – “so what?”
Both Getsafe and Sherpa offer a compelling answer for the customer. And by disintermediating the supply-chain, they also take out cost inefficiency and friction in the process.
Instead of customers being sold the product with the closest fit to their needs, the shift is towards customers buying a product that absolutely meets their needs. Thanks to the emergence of this new breed of digital advisor.
For me, Sherpa and Getsafe are in the same game-changing category as Lemonade. And with more announcements to come from both of them, I look forward to writing the next chapters in their stories
Rick Huckstep is the Chairman, The Digital Insurer. Rick is an InsurTech thought leader, keynote speaker, advisor and investor to tech start-ups.