Insights

When Insurtech Works… and When It Definitely Doesn’t
POSTED 1.16.19 Insurance

You’ve seen the commercials on TV.

You visit a website and easily apply for insurance for your home or car, getting quotes from multiple companies at the same time. Some types of health insurance even work like this.

The advantage of these online marketplaces is you don’t have to go through the time-consuming process of calling or visiting an agent to get your policy… who might even try to upsell you on other services. It can be a real chore.

I have no problem with this so-called “insurtech” when it’s used to secure these relatively simple types of “consumer” insurance faster and easier.

When it comes to any sort of insurance product with the least bit of complexity, however, insurtech should be just a first step to give you a ballpark idea of what’s out there.

And, you need an expert helping you in person when you go beyond this Step 1 to ensure you get the coverage you need.

Take the popular online legal services website, LegalZoom. They make it super easy to set up articles of incorporation. But if you’re a startup looking to attract serious investors, doing so would lose you all credibility. And you couldn’t be certain your business was structured correctly.

With insurance, you could potentially go “DIY” and try to do your own research to figure out which option is best for you as far as type of policy and level of coverage. But if something goes wrong down the line and you discover a certain risk isn’t covered, it’s all on you.

You could sue the insurance company but… good luck there.

What You Should Do Instead

You need an expert who does this for a living and knows specialized types of insurance like Representations and Warranty (R&W), which covers M&A transactions, as well as Directors and Officers liability insurance, Cyber Security insurance, and more, inside and out.

If you deal with a broker, you not only have an expert to answer questions. The broker is also accountable. By law, they have a fiduciary responsibility to look after your best interests. If they make a mistake, you have someone to go after.

These brokers may not be available 24/7 like an online marketplace, but they have the specific information you need and the answers to your complicated questions, backed up by years of experience dealing with these issues every day. That peace of mind is priceless when so much money is on the line.

And, speaking of money, the difference in what you’ll pay in fees for an online marketplace versus an in-person broker is not as much as you might think. A bargain compared to the millions of dollars that change hands in a typical M&A deal.

When you use a broker, you get responsiveness and expert-level input to make sure you get the right policy.

Let’s use an example from the auto insurance world.

On-line auto policies provide Liability and coverage for physical damage to the car (Comprehensive/Collision coverage), which most buyers understand. To keep costs down, buyers only select the coverages they think they need at the lowest Limit possible to comply with the law.

The danger, is these “optional” coverages purchased at levels solely dictated by price, can leave drivers seriously unprotected. 

In the case of Uninsured motorists – a driver will be left paying his medical bills and those of his passengers if his car is struck by someone with little or no insurance (think drunk driver). 

Worse is when young adults (the “m-word”) living in their parents’ home purchase a tiny amount of insurance thinking they have no net worth at risk. They later find a court will likely allow attorneys to pursue their parents’ home for compensation because of their residence – so the house is “fair game”.

This is no problem when there is a savvy broker involved. They’ll ask the questions necessary to understand what’s at stake and they can provide complete explanations of coverage, so buyers can make an informed decision.

When an Expert Makes the Difference

When it comes to complex insurance like Directors and Officers liability and R&W, only where the needs are very simple can I say that insurtech is the way to secure a policy.

The vast majority of situations and transactions are much too complex. In the case of R&W insurance, this coverage is intimately intertwined with an M&A deal and is a major component of the negotiations. Underwriters need quite a bit of information before they’re confident in writing your policy. That’s not something you can handle online.

In these cases, you need someone on your team who can put together a “patchwork” of different coverages and policies so there are no gaps… and no overlapping that causes you to pay too much.

The layman can’t read through the policies to figure that out on their own. This complexity is why brokers are licensed and regulated.

If you’re looking at securing a specialized type of insurance like Representations and Warranty, Directors and Officers liability, or Cyber Security, bypass the online portals and talk with an expert.

I’m happy to jump on the phone or answer your questions by email. You can reach me at (650) 931-2321 or pstroth@rubiconins.com.