Newcomers are shaking up traditional insurance and banking practices

We keep meeting disruptors making waves in traditional sectors. Recently we’ve talked about disruptors in the energy sector. This time it’s banking and insurance. New players are disrupting key assumptions about how a sector works, and offering something a bit novel to customers. But, crucially, they started with a genuine customer need or pain point, and in at least one case they seem to have tipped a centuries-old business model on its head!

Take car insurance. It’s a giant pain for new drivers. One quote I saw recently for a new driver was £4,000 a year! This feels like exploitation and is a genuine barrier, preventing a lot of young people from even starting to learn. When the learner in our house passed her test it was a real issue, she certainly couldn’t afford £1,500 or more for annual insurance – more than the cost of buying a small car! – until she heard about the Veygo app, which insures cars for new drivers by the hour. Driving hours are restricted to 5am to 10pm, and rates vary depending on time of day – but after being refused by four major insurers and offered rip-off prices by one, she was up and running on Veygo in an hour. Competitors such as Cuvva and Bymiles have different criteria (some avoiding brand new drivers) but work similarly, with app-based ways to insure your own or a borrowed car quickly, only for the miles you drive or the hours you need. Veygo has now found another niche in tying up with a car-rental company: another area where under-25s are often excluded or overcharged.

Of course, the tech is impressive and is the enabler behind all of these – reducing cost-to-serve through bots and ever-smarter algorithms so that purchasing is quick and a three-hour insurance policy is profitable. But what really matters is starting from a pain point such as “annual insurance is impossible or too expensive for me” or “I’m super busy and I don’t want to spend hours filling in forms” (and of course insurance is a grudge purchase in the first place). They start from there, and have invested heavily in flexible tech and a fast, app-based customer experience, often adding handy features along the way like helping you find your parked car or giving route suggestions.

New opportunities to build savings

Meanwhile, finance innovators such as Monzo, Starling, Plum, Cleo and Chip looked at related pain beyond the bank account – helping people struggling to save, not by traditional means like limiting withdrawals but by automatically saving up to six times a month, offering spending notifications or the option to round every purchase up to the nearest pound and save the difference. Some are sold mainly as “finance buddies” to use messaging alongside standard banking to analyse your spend, celebrate when you save, suggest ideas for savings and help you to stay within a budget.

US contents insurer Lemonade thought even bigger, not just aiming for a slick app experience but reinventing parts of the business model to present a different philosophy, to give more back and prevent the pain called “fighting over the same coin”. Standard insurers are essentially in conflict: every pound paid in claims is seen as a pound taken from their bottom line, leading to inflated claims by customers who fear they won’t be fully paid out and rising claim-checking costs for the insurer. Lemonade’s business model is to simply take a flat fee, and it says “all other funds are treated as customers’ money”: claims are paid out from it and any remaining unclaimed funds are given once a year to several charities customers nominate – a six-figure sum last year. Obviously this means customers may think differently about how much they claim for, as lower claims may mean more money for their chosen charity. Lemonade rewrote some rules that have been in place for over a century, and it seems to be worrying the competition as a result.

All these services rely on the company developing their own app and heavily using online advertising, social media sharing and word of mouth, with most paying big incentives for referrals. Plum pays you an extra one per cent for a year on your savings for every referral.

Making careful strategy choices

We all love a new kid on the block, but the last thing you want to think about is your insurer or your bank going out of business. So many of the brands I’ve mentioned present as new brands, but have carefully backed themselves up with traditional players (Lemonade and Lloyds, Plum and Natwest, Bymiles and AXA) and sought ties to regulators, probably at quite some cost, giving comfort to prospects that their money is safe or their policy backed by something solid. Some (like Plum, Clip and Cleo) aim to avoid heavy regulation or liabilities by acting as app-based “helpers” and brokers, not really holding funds or risk themselves (in fact any funds they handle are often held in banks like Barclays). Veygo is actually a brand of Admiral insurance, but it initially played this down. These newcomers are careful with their offers too: for example Veygo reduces risk by only insuring cars that already have annual cover for their regular drivers, and Bymiles demands extra driving data from your car. Lemonade only currently insures home and contents in the US.

Interestingly, it appears customers are prepared to live with giving up more data, such as allowing read-only access to their bank account, and often time, in exchange for the other benefits they see. It seems to me some of them won’t succeed (and I imagine those that do aim to be bought by a big player) but a few are taking market share, so they are a threat.

Homing in on pain points

At KISS, we often work through business models and help clients home in on customer pain points in campaigns, because time and again we’ve found this uncovers “useful truths” to drive marketing that will differentiate you in overcrowded markets and increase “contagiousness” – the chances of people sharing your offer on social media. And newer players like Lemonade really do seem to be successful enough to be worrying the insurance industry. So as the new year kicks off, why not take action and see if there are opportunities to “be the new threat” in your market? I recommend taking another look at the business you’re in – what traditional players could be shaken up, what core assumptions and business models (including your own) might be ripe for challenge?

If you’d like help to think this all through, get in touch.