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This week we had our Morning Coffee with Maik Schaefer, Founder & CEO of Mango Life
“It just didn’t feel like there was a fit”
We are sitting with the Founder-CEO of one of the fastest-growing digital-banks in Mexico. They are adding a four-digit number of accounts per… day.
Number of insurance contracts they have sold? Zero.
He tells us that some Sales Directors of larger insurance companies already knocked on their door. They presented them with products that their users “surely would be interested in.” They put a ton of money on the table. But—he thinks it wasn´t a good fit. He didn’t close any agreement.
Bancassurance in the old days
“Bancassurance” usually refers to selling insurance through banks, meaning the bank is the distribution channel for the insurer. Insurers with a considerable share of bancassurance usually grew that business either because:
- They are insurers within a banking group, selling through their “sister companies” or;
- They paid huge sums of up-front money to secure exclusive, long-term agreements with bank partners;
When it comes to this second pillar, besides money (upfront fees, commissions, sales bonuses), often some of the following aspects are considered by banks when assessing insurance partners:
- Variety & quality of the insurance products;
- Service levels;
- Ability to train the bank sales force to sell the products;
- Call-center capacity for outbound campaigns selling to cardholders;
There are more considerations, but make no mistake: money is the most important factor.
That is historically how the bancassurers grew (relatively) big and that’s what their playbook looks like.
But let’s face it—apart from insurance included in financing (cars, houses,…), there are very few success stories about traditional bancassurance. Selling insurance through the bank advisor in a local branch has never really worked—how can you expect someone to sell insurance when they are already asked to push their banking products?
And those call-center outbound campaigns? They are hated by clients, they have huge cancelation rates and massive amounts of complaints.
The world is changing—and the banking world especially, with the digital neo-banks being a new breed.
Bancassurance in the new world
“What I found most surprising is that they never even once asked me about what our users look like or what insurance needs they might have.”
Customer centricity, building and iterating your product based on customer feedback and data. This is what most neo-banks have put at the heart of their business practice. Bancassurance—how is has evolved to date—has not put the (end-)customer at the center, but rather the distributor: the bank. Pay to play—who pays more money gets the deal.
Those days seem to be over. In the new world, other qualities will play a key role, evolving around Customer Centricity (the user! not the distributor!) in multiple ways:
- Needs discovery, leading to a relevant insurance product offer;
- The ability to quickly launch new products and adjust them afterwards;
- Being all-digital—from APIs/web services for quoting, policy issuing, and premium collection to a 100% digital claims process
“Physical documents in the claims process? I thought they were kidding me.”
This touches on two topics that have—traditionally and notoriously—been weak points for legacy (bank) assurers: Agility and Digital Capabilities. Not surprisingly, almost all insurers I am in contact with—and/or have worked with—are running their own “Digital Transformation” programs.
“SDKs? The bancassurance director glanced at me looking perplexed.”
But for bancassurers, I believe Digital Transformation is even more pressing than it is for agent-based insurers: the new breed of banks has no problem saying “no”. Customer centricity is more important than short-term money. The big bancassurers might sit on long-term agreements with legacy banks—but the growth lies at digital bancassurance with neobanks.
Bancassurance from a neobank’s perspective
After the WeWork debacle, we are seeing a shift across the board across all vertical markets and investor types: growth is not everything anymore. Founders are under pressure to go from a “user-generating” to a “unit-economics” storyline. Probably rightfully so. Unit economics—profitability on a single product/single sale basis—is a challenge for digital banks: most give away debit accounts for free. They mostly still lack higher-margin products like credit cards, other types of financing products or sales of mutual funds.
Among the possible products to offer in order to improve unit economics, insurance is highly attractive in terms of margins: think gross margins of 10-30 percent on sales (commissions).
The problem lies in implementation:
- Which products should you offer? What is relevant to your target group?
- Which partner (insurer) should you work with? Which one has the above-mentioned attributes (agile, digital)? (hint: very few)
- Is there a long-term agreement with money upfront or more short/medium-term with flexibility if the partner does not deliver?
- Are you aiming only for commission-based incentives? How about monetary incentives for the insurer to uphold certain service standards?
- Digital integration—how to integrate critical processes (quoting, policy issuing, premium collection, service) between the insurer and the bank?
- Or something entirely different: a marketplace strategy with multiple insurers per product line to be able to offer the best (lowest?) quote to the customer?
Traditional marriage or polygamy?
There are some interesting plays in bancassurance, creating a marketplace. They are very similar to the price-comparison portals (“aggregators”) that have long been dominating markets like the UK’s. In Mexico specifically, Santander (“Autocompara”) and Scotiabank (“FIU”) went in that direction with their car insurance offer. The obvious advantage is that customers get good deals for those products on the marketplace. But that’s also the weakness:
- You have to standardize the product to make the price comparable—say goodbye to product innovation. You have to “standardize down” to the lowest common denominator;
- Is the price actually the most important factor? One could argue that customer satisfaction could be factored into the ranking. This of course never really happens in practice because there is no objective data available.
The real disadvantage of a marketplace is that you would most likely not have a, let’s call is, a “close friend” (insurer) that you can develop new products with. Is your bank targeting freelancers? The insurance offer better be specifically developed for that target group.
The data game
At the end of the day, profitability in insurance depends heavily on how you manage data and statistical models. How is your process to discover new variables to explain the insured risks? How to get access to that data at the moment of underwriting (point of sale)?
Especially in the latter, there is large potential in digital bancassurance: usage of the data available to digital banks in insurance pricing and underwriting is the wet dream of any state-of-the-art actuary.
It is already very well studied that, for example, the credit score is heavily correlated with a variety of insurance risks. Imagine using all the “alternative credit score” algorithms to find correlations with insurance risks.
“Next-generation risk intelligence”, with mutual learning from credit and insurance risk analytics will most likely happen through close cooperation, not in a marketplace setup.
Converging fintech and insurtech– the “Finance Cockpit”
If we can take away one thing from behavioral economics, it is this: people are lazy. We want to avoid (mental) effort. That´s why we usually don’t make rational decisions—we are corner-cutters.
Finance is not the funnest topic. It represents mental effort for people. Having to “open the mental box” of financial planning multiple times throughout the year because the go-to providers are different ones for each field (debit/credit card, insurance, house financing, consumer credit, investment,…) creates unnecessary mental effort.
How about a one-stop-shop, or “Finance Cockpit”, that has all personal finance topics in one place? This would merge different fintech and insurtech offers into one platform.
Neobanks are probably the players who are best positioned to develop that offer: your “home base” of finance is your debit account, with the highest frequency of interaction with users, among finance/insurance topics.
For some of the products to be offered in that marketplace, the challenger bank might opt to offer them themselves, others with partners (exclusive or multiple ones). That decision will not be easy, for they must take into account multiple factors:
- What do the internal resources and knowledge about that product category look like? Is it convenient to create a full-blown internal team?
- To what degree is it a “commodity” product vs. how much potential is there for innovation?
- Who would be the potential partners available in the market(s) we operate in?
Within the InsurTech scene, my perception is that next-generation bancassurance is not getting the attention it deserves. The opportunities are big and legacy players usually do not fit the profile that is needed. Again, those are:
- Customer-centricity instead of distributor-centricity;
- Agility in product development;
- All digital: APIs/web services for frictionless connection to the insurers’ back-end and a 100% digital claims service;
- An understanding of fintech—neobanks, neolenders, etc.
On the other hand, bancassurance does not receive the attention it deserves in the fintech/ neobank scene—despite its huge potential to improve unit economics. And we haven’t even touched the topic of financial inclusion: insurance penetration is way too low in Mexico, posing a substantial risk for the rising middle class to fall back into poverty.
Digital bancassurance certainly has a bright future—for those who recognize its potential and act accordingly.
Maik Schaefer is the founder and CEO of InsurTech Mango Life, which is his first entrepreneurial adventure after a decade in the insurance sector. He is from Germany but fell in love with Mexico years ago and got married there in 2019. He lives in León, Gto, and can be reached at [email protected]