Investing in Insurtech
Is it worth the significant effort to research which Insurtech is real versus which is vaporware and then decide which of six or a dozen Insurtechs have services that truly work and adequate support staff only to then make a decision and have that firm sell out? Especially if they sell out to a carrier that now has all your data or to a carrier that competes with your agency?
This is a serious question based on who is buying Insurtech designed for agencies. A trust factor is real and has been damaged for those paying attention to who buys some of these companies.
Another frustrating example is spending the time and effort involved in choosing a company only to have one of the main agency management system vendors buy that company, especially if they then shelve it. Does it ever feel as though carriers and vendors do not want you, the agency, to have access to certain kinds of technology? Or, if they do allow access, they do so with some kind of hand on your data and potentially another hand in your pocket?
When you are vetting Insurtech, the legitimate questions to ask are these:
When are you planning to sell out?
Who are your investors?
If your investors are carriers or agency management system vendors, do they have privileges relative to buying you out? (This is an especially pertinent question if your agency management system provider is not the same as the agency management system vendor owning a piece of the Insurtech.)
Where is data being stored?
Who owns the data outright in both the identifiable format and the anonymized format?
Who else has data access rights?
What is the legal liability? This is an important question, especially when you get to the contract and the liability varies by type of technology. An example is a contract that limits liability to the subscription price even though the actual damage might be $1 million. Also, pay attention to the clause that states they have $X million in E&O coverage -- they will point to that but pass over the $50,000 or $5,000 contractual limit of liability.
Many other questions need to be asked and I am not an expert who knows all of those questions. These are simply common-sense types of questions that have arisen out of the frustrations my clients have encountered. To be looking at two vendors and choose one, only to have them sell a few weeks later to a buyer you want/need to avoid, all while knowing you must start the process all over, incur long delays, and then realize you have wasted money is extremely frustrating.
With so much technology, investors and founders do not really care about building a lasting product. They care about getting someone to buy their company/product for as much as possible. That is their #1 goal, not the serving the customer (i.e., you).
In other cases, no nefarious motives exist. The founders simply run out of money and must sell. Raising money seems much easier in news reports than it really is and frankly, sometimes founders just run out of energy, give in, and sell. I feel for those folks because they lose part of themselves when they sell. That said, the agency is still left holding a bag of air.
Insurtech products and services are changing the way insurance is distributed and clients are serviced. We cannot put our heads in the sand and ignore this fact. Choosing an Insurtech vendor after doing as much vetting as you can is an important step. As a leader in vetting Insurtech told me the other day, "Sometimes you just must pick one and ride that horse." A randomness exists (using publicly available knowledge) relative to who will succeed, who will fail, and who will be bought and shelved. Each agency needs to place the most informed bet they can place.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.
None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.