Friday Feeling: I Have Good News & Bad News
“Obviously, insurance is substantial. So insurance could very well be 30%, 40% of the value of the car business, frankly. And as we’ve talked about before, with a much better feedback group, instead of being statistical, it can be specific.” – Elon Musk, in the company’s recent earnings call.
Sounds great. And in reality, I understand where he’s going. Scratch that. I understand what he’s selling, but the more accurate statement is this: as an insurer you should aim to price insurance statistically and market it specifically. As a quick refresher, earlier this summer, Tesla announced it is looking to develop “next generation rating models” based on how you drive and what you drive by taking into account kilometers driven and Autopilot assistance, as well as, the actual car design so that it is possible to reduce car repair costs by adjusting how the car is made. For now, Tesla Insurance is only available in California and only takes a minute to purchase. But things change; maybe not as quickly as Root Insurance changes its Twitter handles but I won’t digress.
Root and Tesla currently operate in parallel universes where when you think of one company and its competition, the other one doesn’t instantly come to mind. Except Tesla is the better Root for a specific subset of the population.
I once joked that to create an insurance unicorn you need to form a unicorn and enter insurance. Root entered the insurance industry and is now seeking a $6 billion valuation; Today Tesla enjoys a $387 billion market cap and considers insurance a substantial part of its chain of startups.
Pay attention to the chain of events.
- This week, Canadian financial advisor Wealthsimple ($1.4b valuation), which has been available in the US as of 2017, announced its plans to expand to “smart insurance”;
- Monzo ($1.5b valuation) announced its Premium account that combines banking, phone insurance (Assurant), and travel insurance (AXA);
- Intuit announced QuickBooks Insurance with 4 partners: AP Intego, Coterie, Cover Genius, and Next;
- Credit Suisse announced a bancassurance solution (AXA); and
- Group Nine Media-owned publication The Dodo is getting into pet insurance by taking a minority stake in pet insurer Petplan (US), which will go by “Fetch by The Dodo”
With the exception of 3 (Coterie, Cover Genius, and Next), incumbents are those being selected; not insurance startups, and that should tell you everything.
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In 2015, The Dodo didn’t generate much revenue; a fact that didn’t prevent it from raising an $11.5 million Series B round of financing at a post-money valuation between $40 and $50 million. Back then, the media startup had 15 million monthly unique visitors, according to Business Insider. Today, SEMrush paints a different story with unique monthly website visitors at 2 million, approximately. However, the company does have over 9.6 million Instagram followers and one of its least popular YouTube videos has over 4.6 million views.
To some, The Dodo is a media company playing a defensive strategy; a legitimate observation giving media companies are struggling. To others (counting 37 Glassdoor reviews), The Dodo – led by superficial bullies – barely earns 2 stars to its name but Petplan isn’t running away, it’s running towards The Dodo, giving up some equity and changing its name while doing so.
Monzo is also on the defense, a bleeding business offering travel perks at a time when no one wants to travel and phone insurance to an audience that isn’t old enough or young enough to appreciate this freebie (72% of all of Monzo’s customers are under 34 years old and only 23% of 25 to 34 year-olds have phone insurance in the UK). But playing defense can work – case in point – in 2004 Greece won the Euro Cup. “We only had the weapons we had been given. We did not have a Zidane, or Simao, or Cristiano Ronaldo. We only had hard work, sacrifice, determination and that family spirit.” – Takis Fyssas, the former left-back of the Greek national team who helped secure the win.
There is a finite set of combinations that involve an insurance product and an alternative distribution channel. Ultimately success will depend on three factors: 1) access to distribution partners, 2) type of product(s) offered and how these products are being offered (solo vs. choice model), and 3) conversion rates because the content is king if the kingdom is interested.
The Power of Three
Video-streaming service Quibi was built on three different tiers of content: star-studded “lighthouse” productions; mid-tier “quick bites”; and news-focused “daily essentials.” In essence, it attempted a new form of storytelling and quickly failed.
“With the dedication and commitment of our employees and the support we received from our investors and partners, we created a new form of mobile-first premium storytelling. And yet, Quibi is not succeeding. Likely for one of two reasons: because the idea itself wasn’t strong enough to justify a standalone streaming service or because of our timing.” – Quibi, in an open letter to its employees and investors.
Yes, the idea itself wasn’t strong enough, and operating under a subcategory of ‘short-form entertainment’ didn’t lend to a competitive landscape in which Quibi didn’t compete with Netflix, despite what it told the media.
Let’s bring it home.
Everyone is competing with everyone. In insurance, the equivalent of short-form entertainment is on-demand insurance – an idea not strong enough to justify a standalone service. And of course, Root is competing with Tesla – if it didn’t know it, it knows it now.
The good news – insurance like streaming is mainstream. On an aggregate level, the industry enjoys a well-established consumer behavior with very few surprises. The bad news – insurers are the ones standing in line to work with non-insurance brands; not the other way around.