Insurance brokerages recast as ‘fintechs’

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Welcome back to another FintechFT.

Payments systems have emerged as a critical bargaining chip in the global stand-off between Russia and the west after the invasion of Ukraine. Read to the end of this week’s newsletter for analysis on how financial sanctions could reshape the global payments landscape.

For our main piece, our insurance correspondent Ian Smith analyses how the deeply personal insurance broking business is trying to adjust to a digital world, and further down we have a Q&A with a digital analytics company powering some of the largest consumer banks.

You can reach the fintechFT team at [email protected] or [email protected]. Your thoughts and suggested topics for coverage are always welcome. Thanks for reading.

Digitising the relationship business

On the corporate spectrum, insurance broking for small and medium-sized businesses seems about as far away from fintech, or insurtech as you can get. The industry has done business in a similar way for centuries, and the traditional image of the sector does not seem easily disrupted: a broker, building a contact book of entrepreneurs over lunch at the local chamber of commerce, hoping to set them up with cover against various types of risks.

But increasingly, the sector is applying data analysis and machine learning to this relationship-heavy business and in some cases using the same technology to launch add-on services outside its wheelhouse.

Take Michigan-based Acrisure, which was founded in 2005. It spent most of its life as a straightforward private-equity-backed insurance brokerage firm and expanded quickly through a series of acquisitions. Now majority employee-owned, the firm pivoted in 2020 when it bought an insurance unit from artificial intelligence technology provider Tulco. Acrisure now brands itself as a “fintech business” that uses predictive technology to roll out services across different sectors, according to co-founder and chief executive Gregory Williams.

The core of that is an AI-powered platform launched in 2021, which helps brokers increase their accuracy and efficiency in client pitches.

The analysis engine takes in customer data such as business information and insurance coverage, mixes it with third-party data and identifies what coverage a given company — whether a current customer or not — might want to buy. It was rolled out to the company’s salespeople almost a year ago, firing out predictive recommendations.

“It was just so obvious to me that there is a better way to build what is traditionally a very, almost exclusively, person-to-person business development approach [by] overlaying technology over the top,” Williams said.

But adoption got off to a slow start. Only 10 per cent of those recommendations were acted upon. But six months later that figure had risen to 30 per cent as brokers warmed to the platform — and its results.

“It was training humans to . . . forget muscle memory a little bit and be a bit more open-minded and adaptive to the technology,” Williams said. Successes and failures serve to train the AI model, according to Acrisure, and each insurance acquisition that it makes creates fresh data.

The group is not alone in using such technologies to enhance the traditional mix of salesmanship and problem-solving that typifies insurance brokerage. Aon, one of the world’s biggest brokers, has used the AI engine of tech firm Groundspeed to scour thousands of historical insurance documents for data points on things like claims causes and the premiums paid by corporate insurance buyers versus their actual losses suffered. Aon says the initiative “provides us with more relevant and deeper data sets that ultimately support our ability to help our customers reduce [their] total cost of risk and gain access to superior coverage.”

Business owners’ needs extend beyond insurance coverage, of course, and brokers have long provided ancillary services — cyber support being the latest example. Acrisure’s business development platform has added some real estate services too.

“The fact of the matter is [that] this is far broader than just insurance brokerage,” Williams said, although he adds that insurance is likely to remain the company’s largest business line.

The internal message for brokers on the use of AI is “get used to it”, Williams said. “If you’re an insurance broker or insurance sales professional, just understand we are approaching your client digitally, as well as through humans, to sell other products and services that by the way we know your clients want and need.” (Ian Smith)

Quick Fire Q&A

I spoke with Personetics CEO David Sosna shortly after his digital analytics firm raised $85mn from private equity giant Thoma Bravo last month. The Tel Aviv-based company partners with banks like Metrobank, Santander, MUFG and US Bank to turn their troves of financial data into customer-specific insights. It raised more than $160mn in 2021 as banks around the world sought to shore up their digital offerings during the pandemic. With business accelerating sharply over the past two years, the 11-year-old company now services more than 120mn banking customers through about 80 different bank partnerships.

How did you get started? AI used to really only be used for risk management and marketing, but we thought we can do something for serving customers. The first few years, we were looking at what can be done, and how can we better serve the needs of the customers in the digital space. But that was back when digital was not yet prominent as the main channel. The last three, four years, there’s been a major shift. Now, banks are finding the mobile channel to be the first and primary place where they are serving and meeting customers. All of them have the same products: a bank account, a credit card, a loan. You can now get that from a fintech, a bank or maybe from Amazon. So what they’re trying to do is to work hard on their personalisation strategies with insights, and we are the ones that are doing it for many, many banks around the world.

Why specialise in financial services when every industry is interested in data? Financial services is my background and in order to really [give] valuable advice and guidance to customers, you really have to go deep. There are companies that tried to do it across multiple verticals, but I think to really be strong in what you do, you have to focus on one thing.

What teams do you work most closely at your banking clients? We work with both the digital guys actually responsible for the digital channels and the marketing teams.

What size banks typically hire you? Typically our services have been catered to large, super-regional banks. But the market is changing and a lot of the smaller ones like the credit unions are going digital. This push for digital started with Bank of America more than a decade ago, and now it’s gone all the way down into very small financial institutions. The second trend that we’re seeing that is a lot of digital brands are trying to offer the same level of service [as large banks.]

What prevents banks from doing this work in-house? Some will and some are. But of the 10,000 banks that actually need this capability, the majority of them will look for best practice table stakes and tools, and that’s why they will partner with us.

Fintech fascination

Swift response Western leaders ratcheted up economic sanctions against Russia over the weekend after its invasion of Ukraine, cutting some of the country’s banks off from the Swift global payments network and banning transactions with the Russian central bank. The move could bolster efforts to develop viable alternatives to western networks such as Swift, Visa and Mastercard, Lex writes. Russia began building out its own domestic payments network in 2014, when it faced sanctions for annexing Crimea.

Growth at all costs “Buy Now Pay Later” companies like Klarna and Zip are continuing to invest heavily in growth by pushing into new markets and buying up competitors despite soaring losses. Klarna’s losses in the most recent quarter more than quadrupled to SKr4.5bn, even as revenue jumped by nearly a third. Though quarterly figures show BNPL is becoming increasingly popular among shoppers, the sector seems to be falling out of favour with investors. Affirm shares plunged more than 20 per cent after reporting earnings earlier this month.

Respect your elders European banks have been at the forefront of digital banking, closing branches and pushing at a faster clip than in the US. However, some older customers are pushing back. A petition started by a Spanish septuagenarian to prevent banks from making it harder for the elderly to access financial services garnered nearly 650,00 signatures prompting authorities to publish a 10-point plan to address the issue.

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