Embedding Commercial Insurance
Embedding Commercial Insurance
...and where do "captives" fit in?
Market Overview
Commercial insurance is mission critical for small business. Restaurants, salons, and gyms all need liability, workers compensation and other protection in order to operate (in most cases it’s mandated!). These industries represent a significant portion of the 33.2mm SMBs in the U.S. The scale of the industry is over $350bn+ premiums per year in the U.S. alone. However, the space is still incredibly fragmented, with the top player representing only 8% in total premiums.
Why has nobody cracked the code?
Acquisition costs are too high. Finding the right customer is expensive and laborious through a broker or online search.
Economics: Small businesses pay small premium dollars (ex: salons pay between $600 and $1,200 a year).
High CAC + low revenue = negative unit economics
Regulation: Navigating the rules & regulations across 50 separate jurisdictions is challenging.
Other Complexity: Data collection, reporting, etc.
Distribution - how it’s done today
Below demonstrates how insurance has been sold historically… option C has become more popular as vertical software and other platforms increase penetration in the SMB space
Broker: Broker takes ~20% of premium to find a carrier
Direct: Carrier matches with consumer directly online (online advertising via search acquisition cost)
Embedded: The opportunity exists to cross-sell insurance into these end customer bases for a lower cost
Embedded Opportunity
With Embedded Insurance, the benefits include:
No middleman: Brokers or other distributors take a significant % of premium. Embedding is a way to access customers without paying fees to “traditional” distribution businesses (brokers, search, etc.)
One core system: Small businesses are using software and other tools to run their operations. Embedding insurance consolidates another financial service onto one platform. This creates a more delightful & faster user experience, while increasing platform stickiness.
End market focus: Distribution partners service a specific customer base. The embedded policy can be hyper tailored towards this category creating a superior consumer experience. For example, Toast can create FAQs and other components of the insurance experience designed towards restaurants.
Data collection: Customer data that is collected by the software or other distribution partner can be leveraged for insurance underwriting.
How to Embed Insurance
So you’ve chosen “option C” above. This concept (“embedded insurance”) has received significant attention the past 12 - 24 months given the challenge of acquiring customers in the industry. However, the archetype has existed before digital platforms. For example, purchasing auto insurance at the car dealership is a form of “embedded insurance.”
Embedded options…
Lead generation: Software partners profit from a one-time lead fee when their end consumer clicks through to an insurance carrier website. The modern version of the auto dealership!
Embedded agency: Distribution partner splits commissions with third party carrier.
Captive: A captive is the closest option to a software partner setting up their own insurance company. This enables them to capture both commissions and profit of an insurance program (premiums - claims).
Takeaway:
Leads and embedded agent/broker do not provide compelling economics (small $).
Captive option allows partners to capture meaningful insurance revenue. However, it’s very challenging to do it yourself - actuarial tables, domiciling a captive insurance company, finding reinsurance, licensing, etc. is required.
Enter Authentic
Within the embedded landscape, we believe option A&B above will soon become table stakes. Anyone can sell leads to a third party carrier and make small referral fees...
Authentic exists to enable option C for vertical software and other partners looking to embed insurance in a more meaningful way. We strip away the insurance complexity of creating a captive insurance company. With Authentic, partners maximize their economics (commissions + underwriting profit) and have the most control to create a seamless insurance experience within their platform.
Authentic embeds captive programs for partners in the food & beverage, retail, fitness, salon & spa, and professional services industries. We’d love to help you offer a better insurance product to your customer base and capture economics!
 | A guest post by
|