A little over five years ago, the insurance industry entered the sights of the tech world. Despite being the backbone of global growth, insurance has lagged the pace of technology adoption from other industries.
Entrepreneurs saw this as an opportunity to disrupt incumbents, and soon there were lofty claims that everything in the industry was about to change. With the embrace of tech, people were about to quickly “love their insurance!” Venture capitalists took notice and startups closed large rounds of capital.
Fast-forward to today, and it’s safe to say that none of us have found an intimate connection with our insurers. That said, the industry is in a transformative moment as it rushes to keep up with technology.
Many want to refute the underlying disruption by pointing to public valuations of insurtech companies, some of which have fallen by as much as 85%-90%. But we are experiencing a typical phenomenon that occurs in industries transformed by technology: early challengers often do not appreciate the complexity of the market and sometimes promise too many short-term visions.
We’ve learned that it’s hard to change a highly regulated industry with a disinterested customer base that rarely buys the competition.
Now a new crop of challengers are learning from the mistakes of their predecessors. As we move into “insurtech 2.0”, the lessons learned become the new best practices, and nowhere is this more evident than with the startups building an MGA (a general manager).
An MGA is a hybrid between an insurance office (policy sale) and an insurance company (acceptance and transfer of risk). MGAs started during the US frontier years. East coast airlines pursued the emerging market in the west by providing remote agents with unique underwriting and service authorities. In exchange for their additional responsibilities, these MGAs received higher sales commissions from their courier partners.
When they got on the scene, insurtech challengers revived the dormant MGA fabric to monetize their more scalable solutions. The founders gave carriers a technically progressive relationship with the customer, focusing on: