This May well be remembered as the year of insurance start-ups.
Already, a record 24 seed or Series A deals for technology-based insurance companies have been completed in North America, and investors continue to express interest in start-ups promising to disrupt a $1 trillion industry.
And the area they see most ripe for disruption? The insurance broker distribution channel.
Citing an aging workforce, changing customer expectations and the success of direct-selling models in other industries, start-ups and investors feel the days of the independent broker are numbered. Loath to accept even the possibility of such a reality, however, brokers are closing their ears to these
arguments and are instead looking to the fall of some of these companies as evidence that their dominance cannot be questioned.
The closure of Google Compare in the US back in March particularly illustrates this misguided thinking, insurance professionals and business analysts say. While brokers may have greeted the news of Google’s exit from the insurance business with enthusiasm, industry experts are urging them not to read the closure as either a failure of online comparison services or a validation of brokers who have shunned technology.
Once billed as a serious threat to brokers, Google Compare operated for less than a year before the tech giant decided to pull the plug. However, both partners and competitors say this closure has more to do with the company’s good business sense than a sign that the online comparison model is flawed.
“It wasn’t overly shocking. It’s always been strange that Google came into the industry,” says Laird Rixford, president of Insurance Technologies Corp., the US-based software provider that powered Google Compare’s back-end rating system.
Rixford observes that, because Google’s main revenue source is keyword-based advertising, the extension into auto insurance essentially “cannibalized” the company’s $50-to $300-per-word revenue stream. A failure to attract some of the country’s larger auto insurers, such as Allstate and Progressive, also damaged the company.
Another reason Google Compare may have failed to take off is an ongoing reliance on insurance brokers. While online insurance offerings have increased over the years, a majority of auto purchases are still completed through individual brokers. The comparatively hands-off approach presented by Google Compare probably hurt the service, says Adam Lyons, CEO of The Zebra, a US-based comparison company.
“Auto insurance is a complex product, and a lot of folks underestimate that,” Lyons says. “I think Google really focused on the pricing piece, and while that approach works very well for some products, you need to be more involved and have a deeper understanding of others. Insurance is proving to be one of those.”
The treatment of auto insurance as a commodity was one of the reasons The Zebra chose to pass on an opportunity to work with Google Compare, adds Lyons, who plans to use Google’s failed venture as a cautionary tale.
“I think the lesson learned is that you need to help folks understand what insurance is as a product,” he says. To that end, The Zebra is heavily focused on educating consumers through tools like carrier comparisons and a guide titled “Insurance – in Plain English.” And as always, human interaction will be key.
The same is true for comparison site CoverHound, a former Google Compare partner. CEO Keith Moore says that along with delivering value to carriers, one of the reasons for CoverHound’s success is its focus on education and nuanced advisement. “Insurance is not a pair of shoes being
sold on Amazon,” Moore says. “We feel like consumers need a trusted advisor to match them to the best carrier and not show them a list of 30 options with prices.”
Regardless of the continued importance of personal insurance consultation, brokers should not interpret Google Compare’s exit as “time for a victory lap,” warns Rixford. “Brokers need to remain vigilant [because] the consumer has changed over the years. Google was trying to chase that opportunity.”
Now that Google has abandoned that pursuit, there is plenty of room for other companies to take its place as a leader in the online comparison space. MIT-developed Insurify recently pulled in $2 million in seed money, and Chubb
took out a 24% stake in CoverHound earlier this year.
And though these comparison tools have their roots in auto insurance, they have not been shy about expressing interest in expanding their services to homeowners and small business lines.
With these new players nipping at their heels, Rixford argues that now is the time for insurance brokers to invest in comparative raters and other technology to meet new consumer expectations.
“Don’t rest on your laurels,” he warns.
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