The Insurance Middleman is Dead, Long live the Insurance Middleman

Henri Deshays, Investor, Newfund

Turbulent times for the insurance industry. Not only is covid-19 wreaking havoc–with costs between $35 and $50 billion by the end of June according to S&P Global Ratings–but it is coming on top of innovation painting the sector. Insurance industry leaders have a historical advantage over newcomers: insurance is often regarded as a dull, complicated business, an obligation to comply with. This tends to favor established institutions with a reassuring household name. In the US, where insurance companies have to abide by the regulation of each state in which they operate, this may be even more true. Yet several factors seem to be leading to declining incumbency advantage. As fintech challenges traditional banks, it is no wonder that Insurtech is defying the giants of the industry.

"The insurance industry is facing double disruption from peer-to-peer insurance companies as well as digital brokers making insurance a one-click purchase–and incumbents are not ready for it"

The rise of peer-to-peer insurance

P2P insurance, like traditional insurance, consists of people gathering resources to insure against a specific risk. However, while traditional, profit-driven insurers generally keep the premiums that they do not pay out in claims, P2P insurance refunds unused premiums to its pool members. Alternatively, Lemonade, an insurance company created in 2015, donates the funds to a charity chosen by its users. As it only takes a flat fee before donating what is left over, there is less conflict of interest between the insurer and the insured.

Lemonade also boasts about its AI bot, making it easy to buy a policy in a few seconds, and that is because the one-click purchase is the next trend in the industry. A trend that benefits a new type of brokers.

Brokers aren’t broke

Indeed, insurance is also made more attractive by a new generation of digital brokers enabling consumers to review the fine print of their policy–and buy their insurance policy just as rapidly. These new brokers are pushing the funny animal commercials aside to remind consumers what they forgot: insurance can be easy. A new generation of digital brokers is engaging with a tech-savvy consumer that traditional brokers can’t touch. The kicker, the tech-savvy cohort, has expanded far beyond just Millennials. Just as the Internet disrupted and sometimes displaced the traditional middleman in many industries, these new brokers are reinventing the insurance middleman.

Considering itself the “The Best Way to Compare and Buy Home Insurance Online,” Young Alfred stands as a preeminent illustration of this phenomenon. Indeed, it claims to be more advantageous than both a local insurance agent–with poor technology and a limited number of carriers to choose from–and mere comparison websites, which often result in spam and the sale of users’ personal information. Instead, Young Alfred allows users to buy instantly and safely online the best insurance policy from 40+ carriers. As the company raised $10 Million last year from various VCs, including Google’s Gradient Ventures and Newfund, it has a strong potential to promote insurance-buying with the click of a button while also empowering customers with data so they can make more educated purchase decisions. Home insurance is just a start, and there is little doubt that such data-driven, customer-friendly solutions are the future of the insurance industry. Incumbents are warned.

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