McKinsey: Tell us how Bought By Many works.
Steven Mendel: Bought By Many is known for using a combination of search engines and social media to create communities of individuals with similar insurance needs, on whose behalf we negotiate with the insurance industry to bring them a better deal than they could get on their own. While this is our public persona, we actually start with the supply side—the insurers, not the consumers—and we say to them, “Tell us where you want more risk exposure. Where do you want to grow your book?”
Insurers tend to answer in one of three ways. Some look at it from an underwriting perspective and say, if you can bring us targeted access to certain specific risks, this works for us. Some say, our current mix of business works, but our current cost for distribution doesn’t. Bought By Many is typically a good deal cheaper than a face-to-face broker or a price comparison site so we bring a lower-cost distribution model to that second set of insurers. The third set are looking at us from a Solvency II perspective and identifying areas in their book where they’re underexposed. If we can help them fill those gaps, the business we bring them is disproportionately attractive because their book is more balanced as a result, and they can hold less capital across it.
Having found supply, we turn our attention to the demand side of the equation. Here the first thing we do is look at what individuals are searching for online, and not just what’s important to them but the exact strings they type into search criteria. It might be “travel insurance for diabetics,” or “staffie insurance” if they’re looking for cover for a particular breed of dog. The second is to build connection layers into the back of social platforms and use them to understand what people’s interests and problems are, whether they are cyclists or watch collectors, say. Where the demand side overlaps with the supply side, we create groups. Our members still buy directly from the underlying insurer in the brand of the insurer, but on the better terms that we’ve negotiated. (Better might mean cheaper, more appropriate, or more tailored cover, or a combination of these.)
McKinsey: How do you experience the industry changing?
Steven Mendel: One of our guiding principles is the understanding that individuals want to interact with all services in the same way, including insurance: they’re used to checking Facebook and their bank account on a mobile phone, but when it comes to insurance, this is not possible. And although most insurers will tell you they’ve got a mobile-friendly site, this typically extends to just the home page—not to the quote and buy process, let alone the claims process.
So a core part of what we do is to mobile-enable the entire journey. Everything we do is mobile first—not mobile optimized but mobile first, desktop second. Eighty percent of our members—we think of them as members rather than consumers because they join a group—access us on a mobile device. So the first big thing that is changing about insurance is the channel of access.
The second change is the use of social media. The vast majority of our members authenticate through Facebook. That gives us access to vast amounts of information about them that enables us to improve their insurance experience. For example, we can use that Facebook data to pre-populate your application. We don’t ask for your name, address, telephone number, date of birth, or email address, because we know them already. This makes the application process faster and easier to carry out on a mobile phone.
The third change is the product itself. This is the hardest change to bring about, but the one that will be the biggest differentiator between the industry’s survivors and the laggards that will eventually fall away. The truth is that most insurance policies bought today are unchanged from those that were sold 30-odd years ago. Maybe you now buy it online, but the product itself is exactly the same and includes features that are less relevant today. So I would like to think that there’ll be more tailoring of the offering and that consumers will only pay for the features they want. For example, in pet insurance, which is our biggest category, we surveyed our members and gave them a list of all the features our pet insurance policies include and asked them to rank the usefulness of these features. Top of that list—the least-used feature—was the cover that all policies provide, to take your pet to continental Europe.
The case for digital reinvention
Few policyholders take their pet abroad with them and yet most policies include this feature. There’s no option to say I’ll not take this element of the cover.
There has been some product innovation. Metromile, for example, has launched pay-per-mile insurance for low-mileage drivers. With limited exceptions, usage-based pricing hardly exists and I don’t understand why. If you’re insuring your snowboard for just the two weeks you use it, I’m not sure that there should be much difference in pricing than buying an annual policy because the two weeks of usage are the two weeks of most risk. The market has a long way to go here.
There has recently been a lot of noise in peer-to-peer insurance, where a group of people with the same type of policy pay part (or all) of their premiums into a pool from which claims are settled and any monies remaining at the end of each policy year are paid out to the policyholders. I cannot see how peer-to-peer insurance is the answer to any problem that a consumer has raised and so I don’t believe this will be a winning business model, at least in its current form.
McKinsey: Could you say more about the importance of understanding customer requirements?
Steven Mendel: It’s paramount. Mission-critical. We spend a lot of time talking to our members about how they see the traditional process, what doesn’t work for them and what things they like about it.
When their insurance renewal comes up, many consumers take a big, deep breath and get stuck in, because they don’t enjoy it, they don’t really understand it, and nobody is helping them. They feel they’re on their own. So putting the consumer at the center is about helping individuals to make the right decision, rather than them making a decision without understanding it or, worse, making a decision solely based on price—which hitherto has been the sole selection criterion—because consumers don’t understand any of the other criteria.
Some of this is a UK phenomenon and some is wider than the United Kingdom. The price comparison sites, so prevalent in the United Kingdom, have had two big impacts, mainly in mainstream home and motor cover. The first is that they have dramatically brought down prices; the second, much less positive, is that they have made price the sole selection criterion. We won’t tell you that price isn’t important. It is, but only as part of a selection process.
There are times when we write about a product that isn’t the cheapest. In these cases, yes, we will tell you where to get the cheapest, if that’s the only thing that’s important to you, but we’ll also tell you about the importance of understanding decisions that are appropriate for you rather than just looking at price. We see helping individuals to make the right decisions for themselves as an important part of our role.
McKinsey: What is the sort of data that enables you to help consumers in that way, rather than just waiting for a consumer to fill in your form?
Steven Mendel: Data is critical. We pay a lot of attention to what people search for, and how they search, because this tells you what’s important to them and how they describe what’s important to them. We also look at how people describe their passions and their problems in social media. So they’re passionate about their pet, a watch, a hobby, a sport. And they have a problem because they’ve got a medical affliction, they live on a floodplain, they want to take a year out and go traveling and how do they get covered for this?
Also, we look at how connected they are in social media, and how important that connectedness is in driving their decisions and the decisions of others.
We use all this data to understand propensity to buy so that we can choose the right time to target individuals. We also use it to understand propensity to claim, and insurance companies are now sharing claims data with us. As an actuary, I get excited about this because social data is not correlated to claims data. So non-correlated data sources are really interesting. And that helps you to build predictors of claims and ultimately to price policies differently.
It’s important to understand how people interact. So if you’re well connected in social media then we want to know this, because people will look to you to help them make decisions if you’re a popular person. There’s enormous beauty in numbers, and no one trusts the insurance industry, but they trust others, even if they’ve never met them, so we also play to that connectedness.