The structure of the US insurance industry has barely changed over the past 200 years. While P&C insurance and health insurance have started to use new technologies, insurance companies’ technology and service levels remain backwards. In general, each company has an average of four to six insurance treaties and pays about one million premiums each year. Yet the industry heavily relies on manual processes with complex products. Many small and medium enterprises (SMEs) need to review and check their insurance regulations annually.
According to a report from McKinsey, the insurance market for SMEs is a relatively promising market. There are 20 million small businesses in the United States and the size of SME loan market is US$585 billion dollars. This SME market accounts for one-third of the commercial insurance market share of companies of all sizes, and those who have not purchased corporate insurance but have joined other types of insurance are not even within this statistical range. The market is highly decentralized but also highly profitable. Competition in this market is likely to intensify in the coming years. Due to opaque terms of insurance and low user loyalty, McKinsey believes that 50 percent of SMEs have the possibility to convert to new insurance product buyers. This provides a relatively open space for imaginative startups seeking to reshape the insurance value chain and replace intermediate links in the chain.
Company Profile
Embroker was founded in 2015 as a platform to provide insurance brokerage services for SMEs. The platform’s user technology improves the processes by which small and medium-sized companies applied for previously opaque insurance products, with low efficiency, and poor user experience. Embroker uses big data and predictive analytics algorithms to recommend insurance coverage and optimize pricing for small and medium-sized businesses, combined with offering professional manual consulting services. The company sells insurance directly to users through cooperation with insurance companies and sells different commercial insurance products. Compared to China, the United States also has a highly litigious culture, which people are much more likely to sue.
Embroker provides a one-stop insurance purchase and management platform for SMEs. Companies can purchase, compare, analyze, manage and store all insurance agreements and data on the platform. It can help companies to reduce the cost of managing risk.
Matt Miller, founder of the company, once held a major position at PE Hellman & Friedman, a company that has invested heavily in insurance-related companies. Prior to this, he worked at Bain & Co.'s Hong Kong and New York offices.
Currently, the platform cooperates with 30 insurance companies and serves more than 1200 customers in total. While the average size of SMEs served is 10 people, these SMEs range in size from 10 to 700 people. The platform has 65 employees.
Financing Situation
Embroker secured $12.2 million of A round financing led by Cannan Partners, followed by Nyca Partners and XL Innovate, and also received a loan from Silicon Valley Bank. Prior to this, Bee Partners, Fintech Collective, Vertical Venture Partners and 500 Startups also participated in a financing round. Embroker raised $2.2 million in the previous financing round in 2015.
Business Model
Embroker covers a wide range of products, including commercial insurance, management liability insurance, employee benefits, and bonds.
The company's CEO, CFO and related management personnel can purchase online through the platform. After the company provide relevant information online, the platform can recommend the right product for the company to choose. The buyer can also contact Embroker's consultant via phone for detailed information. Embroker charges a fee from the insurance company after a successful product sale.
Embroker gives agents and merchants a more streamlined operational tool that provides an online electronic application instead of the handwritten application, certificate request, and renewal updates. Compared to pre-existing insurance processes, Embroker offers a transparent, highly efficient and understandable service which makes it easier and intuitive for companies to compare, select and purchase insurance.
Using Embroker, the company begins by filling in basic information, including the company's zip code, company type and number of people. Embroker will recommend products based on the best average for the industry and provide corresponding statistics. After the company registers an account, it can submit the information and wait for Embroker's agent to contact.
Innovative Features
Embroker now acts as a broker in the insurance industry value chain. In the upstream, there are insurance companies, risk pricing parties, reinsurance and capital providers (i.e. capital markets). Embroker hopes to collect and obtain data to streamline the industry value chain by designing products and algorithmic-pricing to replace insurance and reinsurance companies. At the same time, the biggest threat that challengers like Embroker face is that upstream insurance companies being to develop direct relationships with customers downstream.
Note: The Managing General Agent (MGA) is defined as an individual or company principal appointed by the insurance company to solicit insurance brokers and to coordinate insurance contracts for insurance contracts or to comply with insurance company requirements. Captive insurance means some big companies set up their own insurance companies to meet their needs, such as Wal-Mart set up its own insurance company.
In the Embroker model, the company first establishes a platform to provide commercial insurance. Then, Embroker obtains customers. Embroker helps the companies to obtain technically low-cost insurance, while Embroker seeks to directly interface with the capital layer above.
However, there may be some problems with Embroker’s plan of relying on accumulated data to reach the upper layers of the insurance industry chain. One, question is whether it is possible to accumulate sufficient valuable data. Second, after the upstream insurance institutions have become more competitive, Embroker may not be able to compete with them. Finally, the big companies in the insurance market are also developing directly to clients. They also plan to provide customized products and services that are closer to the platform. The resistance that the platform may face in the future may be increasing.
Q&A
Below is our interview with Matt Miller, Founder and CEO of Embroker:
(The platform shows its position: To be an insurance company in the next era)
Q: How do you define the next era?
A: We believe that existing brokerage companies do not apply technology. We have planned a series of steps for future business development to use technology. Now we focus on optimizing the user interface and experiences.
Q: How do you reshape the insurance chain?
A: We need to take lot of steps. This is a big picture, in which we mainly collect information, and transfer this information to upstream users. After our data has accumulated to a certain extent, we can develop and use algorithms to design our own insurance products. With insurance can be re-priced, and capital and investors can be repriced, we will use UBI (Usage-based Insurance) to price insurance in the future, and this requires more data.
Q: Do you sell insurance to employees?
A: We do not sell insurance through the platform, but through partners. The decision makers of the two products in the enterprise are different. Our CEO and CFO buy the commercial insurance, but our HR buys the latter.
Q: Do you recommend insurance to companies?
A: We recommend insurance to companies. The problem of small and medium-sized companies is that they do not quite understand the complex treaties of insurance products. We also provide manual telephone consultation services and real-time alert services if needed.
Q: How do you charge for it?
A: Now we charge the carriers. The amount of the charges is the proportion of the transaction amount. At present, the insurance industry needs to meet the relevant laws in each state with strict requirements. In the future, we will have some ideas to change our charging model.
