What InsurTechs need to know about product market fit

6 Simple Questions For InsurTech Founders

The InsurTech space is well known as one of the most fertile in the entire FinTech sector, the application of technology to insurance is generating countless innovations and startup companies.

Not all of these new ventures will succeed and selecting which new businesses and innovations are the potential success stories of the future can be a major challenge.

This can never be an exact science, but there are 6 key basic questions every InsurTech startup needs to ask if it has a product focus.

1. Have you identified a real customer need and can you satisfy it?

This sounds simple and obvious, but you’d be surprised by how many businesses we see who put the cart before the horse, presenting a new product without having identified the market audience. If you are lucky this can work — it may turn out that there just happens to be a market for your new product. But the reality is that most new businesses that succeed do so because they started off by identifying a customer need, and they continue to thrive because they constantly evolve to meet the changing demands of their customers. In fact, market intelligence group CB Insights recently found that the top reason company founders felt their business failed was because there was no market for what they were providing — Insurance is no different.

The InsurTech Gateway was setup to enable products to be built for consumers. Customers could be commercial businesses, digital natives or millennials, but they must all have one thing in common; they are either poorly served by existing providers, or they needs aren’t being met at all. Customer need is key.

Once you’ve identified the consumer need, you must ask yourself: ‘Why is no-one else already providing your product?’ For example, it could be that the risk profile of the customer too high or is the cost of claims prohibitive. To succeed your product or service will overcome this problem.

2. What are you supplying? Data or an audience… or both?

Every successful innovation in InsurTech comes down to two factors — data and/or audience. You can make your business attractive to insurance companies either by providing data that is better or entirely new than currently available, or by providing an audience that is untapped or under-served by existing services.

Successful companies will be those that provide one of these or perhaps even both.

Improved or entirely new data allows insurers to model risk more effectively, provide better pricing and manage their exposure to claims. It will help make them more competitive. If your business is based on providing new or improved data it’s important to think, and present clearly, how your data is going to change existing models.

New and under-served audiences are ones where insurers are not currently playing, or are poorly serving a segment. Motor insurance is a good example of this. Policyholders are required by law to be insured, but those who drive relatively short distance each year are typically charged the same as everyone else.

InsurTech Gateway-backed company ByMiles identified this as an audience. They also found a way to come up with new data — a dashboard gadget that keeps a real-time track on miles driven.

Combining a newly defined target audience (low mileage drivers) with new data (real-time data on miles driven) allowed them to launch Britain’s first pay-by-the-mile or ‘usage based’ motor insurance policy.

3. How do you intend to acquire (and keep) your customers?

Some businesses will choose to acquire customers through partnerships for example using APIs to sell product without friction via other product suppliers or services. Others will choose to acquire customers directly, though it is worth noting that this can be expensive. For example insurance keyword searches are some of the most expensive around often costing between $30-$50 per click.

Either way a company should think about how much it will spend to acquire a customer and, equally important how they expect those costs to evolve over time. Acquiring large numbers of customers cheaply is all well and good, but if none of them ever renew their policy, it may be a false economy.

The relationships between customers and insurers are notoriously strained, and many on both sides behave as if the best thing is to keep contact to a minimum. Touch points generally only occur when a customer buys a policy or makes a claim. Startups should think about how to develop a more engaging customer relationship which in turn may help make those customers sticky. They should also be able to explain exactly how they intend to achieve this.

4. Do you have a strong distribution strategy?

How is your product going to reach your customer? This is an area that InsurTech startups tend to overlook, and underestimate! Startups should present their route to market in detail, explaining how or where they are going sell, through which channels, and who will be their potential partners. In addition businesses should show that they have thought about any risks and dependencies they may incur from their chosen route.

5. Have you thought about the impact of claims?

When presented with a new product all insurers and underwriters will want to know the likely value of claims from the new product. Claims will be one of their largest expenses and without knowing the likely value of those claims they cannot begin to judge whether the product will be a success. If you’re going to propose a new product it is important to understand how many claims you are likely to expect, how much they will cost and any expenses associated with servicing them. Using proxy products as a basis for calculation can be helpful.

Further, businesses can establish a secure market position if they can change the norm in assessing risks and handling claims, for example using tech to predict the likelihood of a claim being made, or automating how claims are serviced.

6. Have you learnt from those who have gone before?

The road to a successful InsurTech launch is rarely entirely smooth. While it impossible to foresee every bump along the way, studying the path taken by others and the obstacles they have navigated (or stumbled over) will be invaluable. At InsurTech Gateway we’ve learnt a great deal from trying to get products to market with our startups. Here are just a few of those insights:

  • Traditionally buying insurance is a negative purchase — it’s a product the customer hopes never to use. This can change and customers need to feel like they’re getting value from their insurer even before they make a claim.
  • Digital marketing is not the Holy Grail when it comes to selling an insurance product. Depending on the product you’re selling and your target market, consider all your options including brokers, comparison websites, face-to-face selling and more. Which are the best channels?
  • Do you really need an App? Apps can add huge value if they provide a real service and reward the customer. If they don’t provide real value, ask yourself: is it really necessary?

This handful of lessons barely scratches the surface of issues that a InsurTech startup will face, and every new business will encounter unique questions and challenges of its own. But studying those companies that have gone before you will at the very least save you from having to re-invent the wheel.

The greatest successes in any industry, and InsurTech is no exception, will often involve a certain unpredictable X-factor, from an technological breakthrough to an inspired management team, but even in such cases getting the basics right is an essential foundation.

Nothing is ever guaranteed (after all that is why we have insurance) but if your InsurTech startup has powerful and convincing answers to the foundational questions I have outlined in this blog, then you are well on your way.

The Checklist

1. Have you identified a real customer need and can you satisfy it?

2. What are you supplying? Data or an audience… or both?

3. How do you intend to acquire (and keep) your customers?

4. Do you have a strong distribution strategy?

5. Have you thought about the impact of claims?

6. Have you learnt from those who have gone before?

We’re looking for great founders with brilliant business ideas. If you can answer all or most of the questions in the checklist get in touch by sending us an email at opensesame@insurtechgateway.com or find out more here.