One of my pet peeves is the one-dimensional approach of technology companies when selling their particular “solution” to an insurance carrier. You can see this clearly if you look at the hundred plus insurance-technology vendors, mostly start-ups, that make up the phenomena known as “InsurTech.” These new faces in insurance technology can tout their particular technology that is going to revolutionize insurance, but to the wise buyer of InsurTech, their sales pitch falls on deaf ears. Even with moneyed cheerleaders who are throwing money at the up-start InsurTechs, experienced insurance IT executives aren’t going to be impressed to hear that so-and-so from Wall Street really likes our technology. Carriers like to see technology that will help them in their daily business. Partly because they’ve seen this all before and in part just because they want to see if a particular vendor has anything worth looking at or talking about; vendors get invited to meet with the carrier.
In my experience on the carrier side, and the agent/broker side, I’ve witnessed first-hand the day-to-day combat that exists between agents and carriers. You can have all the whiz-bang technology that the InsurTechs are raving about, but that isn’t going to help you write a policy for XYZ Bakery. Assume, if you will, that you are not the incumbent carrier or agent and your agent brings you the XYZ Bakery BOP application. A quick look at the old underwriting files shows that you’ve quoted the insurance on XYZ 4 times in the last 10 years and never won the business.
The Real Economics of Main Street
The simple fact is that all across America, main streets are not burgeoning with new business coming to town, or entrepreneurs starting businesses. The reality is that, in the average town, economic activity isn’t setting the world on fire. Rather it is slow, anemic, and slow again. So, if ABC insurance company wants to grow, they MUST be able to take business away from the incumbent, DEF insurance. And, ABC knows their agent is working to retain the account. The essence of growth in insurance underwriting is to not lose an account you want to retain; not necessarily “want” to retain but “must” retain.
Successful underwriting requires somewhat of a science and wags will tell you, “Yeah, that’s easy. Write that business that will never have a claim.” The science aspect is in retaining low-loss accounts, giving up those with a higher risk profile, and writing new business that has a lower loss profile than those you are willing to give up. Let’s say that you want to grow 10% in the year. Going in, you know that you will likely lose 10% of your business due to non-renewals, clients moving to another insurer, and general attrition. So, to grow 10% you have to make up the 10% you are losing, which gets you to zero growth, and now you must write 10% more to achieve 10% net growth.
If you’re ABC, you know that you must quote more business to meet growth targets. And, DEF knows that as well. But down on Main Street (to quote Bob Seeger) things aren’t exactly booming, so you have to fight to retain business and write more desirable business. And that is one of the reasons agencies, agents, and carriers conduct daily battles, all seeking to grow.
My question to the InsurTech’s of the world is this: just exactly how will your nice-sounding technology actually work in the insurance combat zone known as Main Street? In our 26 years of being in insurance technology, we have seen the InsureTech’s of yesterday come and go which gives us a unique vantage point of how to understand the current crop of InsureTech’s.