How the protection gap in the life insurance space was created?

The fragmented and non-scalable nature of the life insurance distribution sector has caused a massive protection gap, according to Anorak co-founder and CEO David Vanek.

Anorak was co-founded in London in 2017 by former Group CFO David Vanek and former AXA Direct CIO Vincent Durnez. It was created to help consumers get a better understanding of their life insurance needs and find the protections right for them. Initially, the company had explored opportunities in the P&C space; however, after six months of testing and research in the area, they decided it was not the right fit. Vanek said, “[Our type of solution] doesn’t really apply well to P&C world because it’s a highly commoditised market where the shopping experience has been defined by price comparison website and the consumer has very little appetite for anything much smarter than a price comparison website.”

Unlike the P&C marketplace, the life insurance space has a lot of opportunities waiting to be seized upon. The life insurance market is “highly archaic” and “everything needs to be invented, customer experience is not even at the concept stage and the protection gap is massive.” He went on to explain that one mortgage in every two is not protected with life insurance, and a lot of people have little savings which means families cannot cope if they are hit with a severe financial loss due to death or illness. While there is a clear need for these insurance products, little is done to help the mass market find the cover they need.

80% of life insurance policies are sold by fragmented base of independent financial advisors and brokers. This creates a bottleneck, hence causes the gap. Typically, life insurance is sold offline and is focused on a small group of consumers that can afford to seek financial advice. Whereas, the average person does not have as readily available access to these services. They are not likely to take out a life insurance policy as its not mandatory and they probably will not understand the importance getting protection. Even if they did want to get life insurance it would be tough to find a personalized solution.

He said, “it’s a complex conversation, very personal, and emotional where advice and help is much needed, but nothing is really built to guide people apart from the very dated distribution network that exists.” Anorak was designed to help everyone find a policy, regardless of their net worth or proximity to a financial advisor.

Anorak is an automated life insurance advice platform which provides consumers with impartial, regulated and personalized life insurance advice. Its technology is integrated via APIs into its partners so that a customer can easily access life insurance options while using banks, money apps, mortgage brokers and investment platforms, etc.

A consumer answers a few quick questions, Anorak will then identify what protection they need. It will show how much cover the consumer needs and for how long, detailing various suitable policies from across the market which meet these recommendations. The consumer then simply picks the one they want and applies online or over the phone. The Insurance space has lagged behind other areas of the financial ecosystem, such as banking and payments, in terms of innovation. Appetite for the InsurTech space risen a lot in the past five years. Last year, a total of $3.4bn was invested into companies in the space, compared to 2014 when just $504m was raised. Albeit things might be headed in the right direction, compared to the WealthTech space or payments space it is still behind. A total of $4.6bn was invested into the global WealthTech space last year, while a whopping $19.7bn went to payments companies in the same year.

Given the banking and payments space has been engaged with new technology offerings for a little longer, it has given consumers a clear idea of what they want financial services to be. The rise of challenger banks and mobile payments have shown people now want easy customer experiences where they do not need to meet with someone face-to-face. This has meant insurance companies need to be able to offer their consumers the streamlined and transparent experiences they would get with a banking platform.

This is what led Vanek and Durnez to create an automated service which is personalized to consumers. The company launched its initial services in September 2018 and has already seen some big companies integrate with it. Some of its clients include Starling Bank, Nutmeg, and London & Country.

He said, “[Adoption has been] very good, but obviously, you keep integrating and improving things because by nature we are never happy with what we do and we keep improving user experience. But the response is very positive, because it’s the first time someone is looking at the life insurance distribution from the end-user standpoint, and not from an intermediary or life insurance carrier standpoint.

“We really defined a new standard for selling protection, and it’s starting to be very exciting for the big players in the market i.e. the banks and the life insurers themselves. Because they see it as a way to capture data, profile customers to be able to retain them in order to have a different type of conversation with them along their key life events – as a companion. There is a lot of excitement around the platform we’re building because it’s opened up a new way to engage with customers.”

The company has not only received interest from clients, but also investors. Anorak has raised a total of £9m in venture capital since it was founded in 2017, with AXA Group’s innovation arm Kamet Ventures having backed the company from the beginning. It can be tough for investors to find the right companies to invest into, but also for startups to find the best backers to aid their growth. Vanek stated that Kamet “have been supportive since day one” and have given the company access to useful data for its models and connected them with players in the market. One of the biggest benefits with working with Kamet has been that they “were very keen to create disruptive innovation, not just make marginal improvements to insurance current.”

Finding the right investor is tough and the year-on-year rise in funding volume in InsurTech since 2016 shows more companies are looking to get involved. This will make it harder for startups to find a backer which really knows their stuff and is not just trying to get on the bandwagon. When Anorak began its journey it was a pioneer in the space, Vanek stated, and while the life insurance technology segment is growing, more transformation is needed and so is more capital, but not everyone can be a winner.  “any investors who are not truly spending enough time understanding the problems and the solutions will be frustrated by the InsurTech space where usually patient capital is needed to support disruptive innovation”

With such a large opportunity ahead of them, the company needed to ensure it had the right team. This was not to just take advantage of the market, but so they could survive the turbulent waters startup life can be. When Vanek and fellow co-founder Durnez were looking to bring their idea into an actual product, finding the right people to work with was the first step.

Anorak uses a lot of data and machine learning technology to analyse a consumer and find the best products in the market for them. This means you need to have a variety of skills and talent onboard: software engineers, actuaries, designers, digital product specialists, data. Talent acquisition is a constant effort – for example good engineers are “rare in general” and being a startup makes it even harder to reach them.

He said, “[It is tough as] you compete with businesses who are very attractive from an employee standpoint. When you do find someone, they already have an offer from Spotify, and from the leading banks in the city, from Facebook or Google. We need to be highly convincing before they join.”

Anorak is looking to continue marking its presence in the UK market over the coming years, but by 2021 it will be looking to begin its international expansion.

Copyright © 2019 FinTech Global

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