Tom Blomfield: The quiet coder turned enemy of the big banks
Monzo’s founder has combined Silicon Valley zeal with a predilection for publicity to position himself as digital banking’s consumer champion. Will he pull it off?
Startups promising to upend the insurance industry use the same descriptions the likes of Transferwise, iZettle, Xero and Monzo used to describe the incumbents in consumer finance: opaque, inefficient, old-fashioned and plagued by customer dissatisfaction and confusion.
Investment in UK startups in the broad sphere of financial technology hit £937m in 2016, with £820m of that going to companies based in London; and had reached £839m in 2017 at the time Courier went to print.
By comparison, the £218m invested into insurance technology so far this year seems fairly paltry. But there are signs that more and more investors are looking to park their cash in places beyond fintech. And in insurtech, they see a giant opportunity and few companies challenging the incumbents.
‘Lots of investors are looking for new ways to invest, with good returns,’ says Vinoth Jayakumar, an investor at Draper Esprit. ‘Lots of things in fintech are overheated, and so expensive. Insurtech is largely untouched.’
Faster and simpler
Like new proptech and legaltech companies, several tech-powered insurance startups are poised to make a push to sign people up over the coming months.
New companies are attacking the current way insurance is done on three fronts. Firstly, through AI-led sales and services replacing expensive human advisers. Secondly, by using behavioural data; for example, a car fitted with a box that captures how a person drives and allows the company to set prices accordingly. Thirdly, by making it faster, simpler and more transparent to buy insurance.
David Vanek is setting up a life insurance startup, Anorak. ‘Automation and simplifying the experience are big opportunities for new entrants,’ he says.
Buying and claiming insurance is a notoriously painful experience for customers, involving long phone calls and tedious form-filling. Tellingly, many people don’t buy non-compulsory policies. For example, 61% of UK renters don’t have contents insurance. As a result, insurers are increasingly turning to startups to help them bypass brokers, lower premiums and improve customer service.
For startups, opportunities span from offering policies tweaked to suit changing lifestyles – like backpack contents insurer In My Bag – to building tools to help insurers do their job more efficiently.
‘It’s easier to set up a startup bank than a startup insurer,’ Jayakumar adds, to explain why new businesses in the sector are primarily partnering with the incumbents, rather than trying to oust them. Insurers need hefty balance sheets to take on liability risk – and that capital is hard to come by.
The sector has also been slow to develop because insurance is a necessity that once bought is mostly forgotten – unlike banking and payments, which people engage with daily. ‘There are very few touch points [with the customer],’ says Jayakumar.
Selling phone, travel and motor insurance is the easy part; many insurtech startups are hoping to eventually become one-stop shops for policies of all kinds. This would bring benefits for customers and insurers, says Phoebe Hugh, CEO of insurtech startup Brolly: ‘If you can build up a deep understanding of a customer – their behaviour and how they interact with risk – you can eliminate fraud and bring down costs.’ Brolly intends to offer bespoke policies in the future; meanwhile competitor Wrisk – which plans to launch early next year – will let users combine several types of insurance in one plan.
If startups can garner enough trust from their customers to sell more profitable policies such as life and health insurance, it will be interesting to see what form they take. Prudential has already experimented with incentivising and rewarding customers for healthy behaviour, and Yu Life is a venture-backed startup from the same founder, built on the same principles. Meanwhile, French health and life insurance startup Alan has released a mobile app, which lets customers submit bills and forms from their hospital bed.
Right Indem is one of several startups offering insurers faster and more cost-efficient ways to process claims – and keep punters happy. Customers upload photos of their damaged vehicles to its platform, which are then assessed using image recognition. It can also schedule repairs and settle payments.
There are two reasons to believe this spirited band of digital upstart banks will achieve mass-market success. Firstly, the smartphone is still underexploited as a tool in various facets of everyday life. The other is that big banks can’t innovate. It’s this second sentiment that appears to be the bigger driver in the case for proper disruption than anything the startups have up their sleeves.