Insurtechs have been making headlines for several years with how they are changing the insurance business and the threat they pose to traditional insurance distribution. But as these fledgling insurance technology firms find their footing, they are realizing the value agents can bring to their business model, and vice versa.
Agents and insurtechs are also looking at new classes of business thanks to what is becoming a mutually beneficial relationship.
"There has been a pivotal change in the last 24 months where the realization has come through -- the insurance agent is the relationship manager and part of the transaction," said Daniel Feigenbaum, CEO of London Underwriters, a wholesale broker based in Florida. "When [insurtechs] work with them, there is a much higher success rate. By working with wholesale partners like us, they can create more efficient and targeted products that really fit a need in the marketplace."
Feigenbaum says London Underwriters has found a real value for its agent partners in working with insurtechs, so much so that it started a division specifically focused on helping insurtechs distribute their products. It now has four insurtech partners that include Next Insurance, Hiscox Now, Attune and Lavalier, and is in talks with two other partners to bring on additional lines of business.
"We are helping insurtechs become more successful and also keeping agents thriving," he said.
That's quite a different message than the dire predictions for the independent agent that came with the insurtech revolution.
Insurtechs have realized that "partnering with the agent distribution channel is advantageous for all partners," Feigenbaum said.
For Next Insurance, whose CEO at one time predicted a future without insurance agents because of the advent of insurtech, the experience of partnering with agents has been eye-opening and valuable, according to its COO Sofya Pogreb. It formally launched its Next for Agents marketing portal in September after beta testing it since April. It already has more than 3,000 agents using the platform and has partnered with a few wholesalers, including London Underwriters.
'There has been a pivotal change in the last 24 months where the realization has come through - the insurance agent is the relationship manager and part of the transaction.'
"The quality of feedback we are getting from the agents has been tremendously helpful because clearly the agents are more expert users than an average small business," she said. "They're reading our forms and language and making suggestions and asking great questions. We are also hearing from them that working with us is easier and faster than any of their other existing options, which of course we appreciate."
Next decided to open up an agency channel after another wholesaler approached it about wanting to offer the insurtech's proprietary products in the construction space to its agent partners, and since then, Pogreb said it has found that "agents appreciate the ease of instant quoting and binding and of online self-service."
"I would say it's early days and there's a lot of room to grow in the partnership, but so far we are excited," she said.
Pogreb says it has been an "interesting evolution" that they didn't anticipate when the company started, and while Next still expects more insurance business to go direct in the long-run, agents will remain an important part of many insurance transactions.
"Revolutions are never black and white, right? You don't get there overnight. I think over time I expect to see a pronounced trend towards more volume going through direct channels; this is not a revolutionary trend," she said. "We've seen it at personal lines, we've seen it in mortgage lending -- first consumer and then small business. We've seen it in banking ... We know that this will continue to happen. But how quickly is anybody's guess, and I think that there will be a second segment of customers that see value and prefer the agent channel."
Pogreb said that as Next continues to grow, it will be looking for additional value-added opportunities and new ways to offer its products to various constituents. Working with agents is one way it can grow and build its brand, she said.
"We appreciate the interest that the agencies are showing our product and we are committed to being a good partner," Pogreb said.
Insurtech Changing Risks
Insurtechs like Next are also providing access to admitted coverage for risks that predominantly have been placed in the excess and surplus lines market.
Next's direct platform launched back in 2017 with a construction focus, but it has since expanded to offering admitted general liability coverage to about 1,100 classes of business. Next offers coverage on State National Insurance Co. paper, but Pogreb said the company hopes to launch as its own carrier later this year. Next is currently licensed in 19 states with the majority of its volume coming from its MGA relationship with State National.
In early October, Next announced it had brought in $250 million in financing from reinsurer Munich Re. It said that Series C cash infusion will be used to scale up its small business insurance products and accelerate efforts to expand its customer base.
Pogreb said it is seeing success in hard-to-place classes like artisan construction, offering immediate responses to applications.
"These are risks that admitted carriers will often not have an appetite for and we strive to price every risk and try for minimal declinations," she said. "We quote the great majority of our applications and I think, as such, we are going head to head with the E&S [market] as well. And we offer the additional benefit of getting an admitted policy with an A-rated carrier, which is important for many businesses."
Pogreb said Next has been able to "unpack" niches that have been considered difficult and have traditionally gone to the E&S market while also giving the customer a "simpler, better experience."
"When you ask a small business owner about purchasing insurance, there's very few people who love that process today," she said. "As we've been building our insurance capability, I continue to be amazed by how much room for improvement there is in how risk is assessed and modeled in the small commercial space."
Pogreb says Next has experienced losses in the two years it has been in business, but because it is not offering cat-exposed products or property coverage, those have been manageable.
"Construction liability is a space that many shy away from and we think that with sophisticated data gathering and risk-based pricing, it's very doable," she said.
For London Underwriters, partnering with Next allows it to give its agents "additional tools" for hard-to-place risks, Feigenbaum said.
"Next is addressing the needs that have gone to the E&S world historically -- like general liability for contractors -- and is going after some of the business that was traditional E&S and can handle those on an admitted basis," Feigenbaum said. "They have seen those markets migrating to the E&S space and are finding opportunities in the admitted market."
'Next is addressing the needs that have gone to the E&S world historically and is going after some of the business that was traditional E&S and can handle those on an admitted basis.'
Most of the agents working with London Underwriters work in both the admitted and E&S space, Feigenbaum said, so they benefit from the company bringing on additional partners.
"It is known that many carriers out there have restrictive appointment guidelines so for us to bring on a company like Next gives them quick and immediate access to more products and services and they don't have to go through an appointment process," he said.
About 70% of London Underwriters' book of business has traditionally been E&S and it is a Lloyd's coverholder, Feigenbaum said, but it is expanding its admitted market offerings and has seen a "pivotal change" over the last few months. He expects a dramatic increase in its admitted business in 2020.
London Underwriters is currently working with Next on a workers' compensation program with a limited launch in five states. If that goes well, the geographic footprint will be expanded.
"We want to attract the right business in the right buckets, and we have found an efficient way in partnering with insurtechs to handle placements for admitted business," he said.