Steven Mendel on Digital Insurance for the Long Tail

Steven Mendel is CEO and cofounder of Bought By Many, a free, members-only service based in the UK that helps people find insurance for the out of the ordinary. Its motto: “Insurance made social.”

The company uses social media and search engine optimization to assemble groups of people who need niche personal insurance—travel insurance for people with diabetes or pet insurance for owners of French bulldogs, for example. The company negotiates with insurers on behalf of its more than 58,000 members. The result can be coverage for people who previously could not get it. (The company was profiled inInsurance and Technology: The Emerging Role of Ecosystems in Insurance,BCG article, April 2015.)

Mendel recently spoke with Miguel Ortiz, a partner and managing director in BCG's London office and the firm’s worldwide topic leader for life insurance. Edited excerpts from the discussion follow below.

How does Bought By Many work?

We use a combination of search and social media to group together people who have similar insurance needs. We then take that group requirement out to the insurance industry and negotiate on behalf of members of the group to bring them a better deal than they can get on their own. A better deal might be better pricing, it might be more tailored benefits, or it might be both of those things. Once we bring the offer back to the group, individuals buy directly from the insurer on the better terms that we negotiated for them.

Strategically, we are focused on the long tail of insurance demand. It’s similar to the way that Amazon thinks about the long tail in music and book demand: where historically your local bookseller might have had thousands of books on the shelves, Amazon has millions, for example.

Right now in the insurance space, the vast majority of businesses are focused on the short tail. So if you are looking for mainstream car or home insurance, you are very well served in countries like the UK. You can go to a direct seller, or you can go to a broker, and you’ll get pretty much the same policy from any of them.

What do insurers think about all this?

When we have a conversation with insurers, we ask them, “In which areas do you want to write more risk?” You would think that was a relatively easy question to ask an insurer. Many insurers just say, “Bring us lots of business. And if you can bring it cheaply, that’s great.”

Increasingly, insurers interpret that question in one of three ways. Some insurers look at it from an underwriting perspective, and they say, “We really like this area of risk and we have a very clear understanding of it from an underwriting perspective, so if you could bring us more business in that area, we’d be really happy.”

Some insurers look at their existing book of business, and they say, “We’re really happy with our current mix of business, but our current distribution model is inefficient. If you can bring us that same mix of business but from a more cost-effective channel, we’d be much happier.”

And some insurers are starting to look at their business from the perspective of Solvency II [a European Union directive that regulates the amount of capital an insurance company must hold to reduce the risk of insolvency]. Solvency II says that the more diversified an insurer’s book is, the less capital it needs to hold; the more concentrated it is, the more capital it needs to hold. We’re seeing lots of opportunity to help them increase diversification. Once insurers identify the areas where they currently have gaps, if we can bring them exposure in those areas, they can hold less capital across the whole of their book.

For whatever reason, insurers often come back to us with long lists of areas where they think we can bring business or where they would like to have more business. So that's, if you like, the supply side of our equation.

What are some of the other benefits to insurers?

We work with insurers to change what they bring to members, and we also work with the insurers to give people back the benefit of our much lower acquisition costs. Broadly, we’re saying to insurers, if you currently pay 30 percent to a broker for business, take that 30 percent and divide it into three. Put 10 percent into the pot for our members to get a better benefit, give us 10 percent, and keep 10 percent for yourself, because we want you to want to do this business.

The other usual thing that we do is to drive renewals. Renewals are a very important part of this industry. What happens if people don’t renew? At some point in the future, their premiums will go up. Actually, it’s a win-win situation for people to renew, presuming of course that they have the right policy in place. When it comes to renewals, we make sure that we’ve still got the right deal in place, and then we actively encourage people not to shop around but instead to renew. If they want to shop around, they can, but they will still find it’s the best deal going.

Can you offer some examples of groups you’ve served?

We were approached by the chief executive of a large cancer charity that had a big problem for its members. When people are in remission, they can buy travel insurance. But if they are currently undergoing any form of treatment, even if that treatment might be just once a year, it’s almost impossible to acquire travel insurance. For a person who is undergoing chemotherapy, for example, an oncologist might tell her that she won’t be having another treatment for another four weeks and the best thing to do would be to get some sun on a vacation. In the past, we have helped an insurer develop a policy specifically for people who are undergoing treatment.

Another example is pugs. The dogs are the most stolen pets in the UK. They are perfectly sized for sticking in a handbag, and they cost £2,500 each. We heard from many people that pet policies pay only about £600 if your pet gets lost or stolen. So we worked with a big pet insurer to tweak their policy slightly, such that the payout is £2,000 if your pug gets stolen. There’s also a £2,000 reward you can advertise for its safe return, and you can spend £2,000 advertising the reward, as well. This has proved hugely popular.

How do you identify these opportunities?

We analyze more than a hundred million lines of insurance search data, examining what people are looking for when they search for insurance. We have a very clear understanding of what people are typing into a search engine when they’re looking for insurance. Increasingly, people are being much more specific about what they’re looking for. Instead of saying that they’re looking for home insurance, they might say they’re looking for thatched-roof home insurance.

Search engines are getting better at understanding how to deal with those slightly unusual searches, whereas two or three years ago they had no answer. In fact, Google reported recently that 15 percent of all searches done on any given day have never been done before.

We look to see what people are searching for, and our algorithm can analyze how successful that search is likely to have been. With these two pieces of information—volume of search and success of search—we can identify unmet insurance needs. We then look at a variety of social media to learn what people are talking about in the insurance space. Out of that, we create what we call our “taxonomy of demand,” which is a very long list of places where demand is not being met. We’re finding a big opportunity space.

How do you bridge what the market wants and what insurers want?

We take the supply side and we compare it to the demand side that we’ve identified. Where there’s overlap in the middle, we create groups. We have 250-odd groups that have been formed since we started in September 2012, with more than 58,000 members spread across those groups. We’re currently working with 17 UK-based insurers.

Once we identify the groups we’re going to launch, we use a combination of search and social media to bring people into those groups. If you remember, we know what people are searching for. Everything we do is specifically designed to hit the Google analytics search algorithms. Consequently, we score very highly on Google analytics for more than 6,000 insurance search terms. We collect the different things that people are searching for and put them into the group. “Pet insurance and French bulldog” might be one.

We also get customers by talking with them actively on Facebook. This is very much about changing the way people think about insurance. We want people to engage. We want people to talk to us. We want people to talk to each other about insurance. Only then are people going to find the offering that works best for them.

Insurers often think people are not interested in insurance. People look at it once a year, and they groan when they have to do it. They’re not interested past that. And to a great extent, that’s true. But increasingly, people are happy to talk about insurance, because if they’ve got a problem, they know there are others out there with the same problem. They’re happy to share that problem in the hope and expectation that someone will help them solve it.

Once they’ve joined our groups, we also actively encourage people to bring other people they know into the group. It’s a one-click process to invite friends on Facebook or Twitter. If someone has diabetes and is looking for travel insurance, you can be pretty sure that person will know someone else with diabetes, and that person might eventually want travel insurance.

How do you prioritize the groups you serve?

There are three routes for an individual to get us to launch a group. The first and highest-priority space is where an insurer has a very interesting angle on something and we can find sufficient demand that satisfies the supply.

The second priority is if we can find massive discontinuities in demand—for example, if there’s massive demand and not a lot of supply, or supply is very poorly served for that demand. Take the case of young drivers. We will agitate for the industry to change to better serve that market

The third priority is a form on our website that asks, “What insurance are you looking for?” Every now and then, we get some interesting replies. For example, someone asked us to create insurance for quad bikes, also known as all-terrain vehicles. You cannot insure a quad bike in the UK if it’s not a road-going vehicle. The vast majority of quad bikes in the UK are not road-going vehicles because they’re driven on beaches or on private land. As a result, they’re not insured. We’re working to find an insurer to provide coverage for this member, who incidentally got 450 people in her club to join a group of people who want insurance for quad bikes.

Where will you take the business in the next year?

For starters, we are working toward creating a “social thumbprint” of each of our groups to help identify an individual’s insurance needs. We can use that to talk to people in the same way Amazon does to make personalized recommendations. We want to use the social data we have to improve an individual’s insurance experience.

We also want to analyze claims experience and what people are claiming for. We want to use this data to analyze which groups of people have better or worse claims experiences and are more or less likely to claim. Insurers can use that information to drive pricing. If you can do all of that using publicly available information, that’s hugely compelling.