To answer the above question, I Skyped with Max Steinmetz recently. Max is the CEO of German insurance tech startup RiskEraser. A short while ago, I hadn’t heard of RiskEraser, or Max for that matter, but after my recent article about the apparent lack of tech startups focused on insurance, Max was the first to get in touch, and I’m glad he did. He displays all the qualities investors want to see in startups: passion, creativity, market awareness, and above all, a drive to want to challenge the conventional; to disrupt!
The business started about four years ago with a group of friends sharing a train journey and talking about buying travel insurance with their mobile. They concluded that the insurance would need to be easy to buy, all-inclusive (no small print, and no gotchas should they ever need to make a claim), and priced specifically to their individual needs. They challenged themselves to show that this could be made possible and set about building a platform. Their initial aim was to sell direct to consumer in a B2C business model, but they quickly learned (as most B2C startups do) that the customer acquisition costs would be too high. The sheer cost of online marketing to attract customers would kill the business case before they even got started. They believed in this business concept, and after taking a year out, they restarted in 2013 with a new approach selling to those in the market that already had the customers. In other words, they moved to a B2B model for their digital insurance platform.
Now, RiskEraser targets two segments of the insurance market: the brokers and the ‘shared economy platforms’. For brokers, RiskEraser provides a white label mobile app that runs on an agile, SaaS digital platform. This is a distribution platform and is called ‘MySurance-App’. This enables brokers to provide standard protection products to their customers through a mobile device. All the policy details are available through the phone and not in the filing system in your house (so it’s exactly what you need, when you need it, if you’re in a car accident or struck down with a bug on a strange continent and in need of medical attention).
The key here is that the broker has the flexibility to distribute standard products on a self-serve (low cost) basis, yet still provide good service should the client need to make a claim. And if the insurance product requires consultation, the broker and client can meet, discuss and then place the business through the app.
Consumers don’t get the same level of service when they buy through the comparison websites as they do when buying through brokers. The quality and appropriateness of the product is often left out when the focus is on price as the buying criteria. Consumers want convenience and a personalized approach to providing insurance.
The other market that RiskEraser is enabling is what Max describes as the ‘sharing economy’, and for this it has its ‘ShareSurance’ offering.
I must confess to being unaware of this term and Max explained to me what it means. Essentially, it’s about borrowing something that belongs to someone else, for a short term, a one-off ‘situation’. Businesses like Erento, Paul Camper and Shelfsailor are creating digital marketplaces where businesses and individuals alike can hire their stuff out. And when they do, the ‘thing’ needs to be insured, which is where RiskEraser comes in. These short-term, one-off transactions are not so popular for mainstream brokers given their high volume and small value, so in this business model, RiskEraser acts as the broker and already has a panel of big-name, established carriers behind it that offer the underwritten products.
The insurance market is ripe for change
As Max was explaining all this to me, I thought of a very recent experience of my own that was neither convenient nor cost-effective for me. My wife and daughter had planned a four-day trip to the northeast of England and they wanted to share the drive from the south. My daughter has been driving for eight years with 100% no claims and we wanted four days’ cover for what would turn out to be about no more than eight hours behind the wheel of my wife’s car. The cost to provide this cover was 10% of the annual premium for my wife. To make matters worse, because the annual renewal fell in the middle of the four-day trip, this meant that we had to pay the premium twice (two days on each policy). On a pro rata basis, the cost of insurance was £25 a day for my daughter versus £1 a day for my wife. And remember, my daughter already had third party cover in place from her own car insurance.
If Max and RiskEraser are to be successful, and I have no reason to doubt that they will, then their approach will be disruptive because I would have turned to RiskEraser and bought four days of incremental cover for my daughter to provide the additional protection we wanted. And this gets to the very heart of the point I made last week: the insurance market is ripe for change. It’s an open goal! There’s no justification for such a huge pricing gap between the cost of my wife or my daughter driving the car. There is no logical reason why my daughter represents a 25 times greater risk than my wife. In this situation, I have paid a premium (literally) for convenience. And yet, I believe most established insurers know they need innovation, but are seemingly unwilling to take the risk! It’s true to say that not all of the major insurers are behind the curve. Max calls out Allianz in Germany, and I would add Aviva in the UK in the category of those insurers working hard to innovate. For them, they will have first mover advantage.
Yet, for the majority of insurers, they are at best smart followers, but followers nonetheless. Some are in denial and believe they’re unbreakable and immovable. Some are still running on outdated technology with origins in a time when a communicator and a ‘tricorder’ were science fiction and Enterprise was the name of a spaceship! These I call the ‘dinosaurs’ and they will lose the battle with the ‘unicorns’. It’s not a matter of whether, it’s a matter of when.
I was impressed by Max and the business he runs with the other seven members of the team. They have bootstrapped the business so far, with funding support from two consultancies that believe in their vision. They have a long way to go, as all startups do, but they exhibit the creativity, desire, invention and commitment that startups have and that most established businesses, sadly, do not.
MySurance-App and ShareSurance may well change the business model for the distribution of protection insurance, but I feel there’s more to come from Max and RiskEraser. They have ideas up their sleeves for disruptive plays in this world of insurance. I do hope so, because this industry needs it!
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read the original article here.