The financial crisis left the City’s reputation in absolute tatters. But it also provided a big opportunity for a new generation of entrepreneurs. Many of those who lost their jobs in (or chose to leave) the Square Mile dusted themselves off and started their own companies, often using technology to ‘disrupt’ their former employers. This new wave of financial technology (‘fintech’) start-ups has made it easier to get a loan and manage your savings, and some are even hoping to replace high street banks in providing current accounts.
The insurance industry has been less disturbed by this rising tide. It’s not that insurers haven’t adopted new tech. New analytics tools have changed the way cover is priced, telematics devices mean careful drivers can get cheaper premiums and those with home insurance can make a claim by sending pictures of their broken 4k TV via their smartphone.
But thus far there have been a comparatively small number of disruptive new start-ups making a name for themselves. One of the few that has gained some traction is Bought By Many, launched by Steven Mendel and Guy Farley back in 2012.
‘I was sick and tired of the way financial services corporates took advantage of individuals in a way that they don’t take advantage of other corporates,’ says Mendel, a former actuary who also worked as a consultant for McKinsey and in senior wealth management roles at Barclays and Close Brothers. Those buying health or life insurance as an individual can often pay premiums several times larger than those on a group scheme, he says. ‘These inconsistencies made absolutely no sense to me.’
Bought By Many’s solution is to get individuals to club together. ‘We’re creating communities of individuals who all have a similar but niche insurance need and help them get access to a better insurance deal than they would be able to as individuals on their own.’
It’s a sort of ‘Groupon for insurance’, albeit one that’s about gathering together people with particularly specific characteristics – the 300 current groups include income protection for HGV drivers, home insurance for thatched houses and travel insurance for people with Crohn’s disease. The start-up identifies these niches based on search engine and social media data.
As well as being able to negotiate a better deal for customers, Mendel says his service is useful for insurance companies as it allows them to target niche customers they wouldn’t be able to reach on an individual basis. ‘But the problem is that helping insurers to create bespoke products is hard because they are fundamentally constrained by lots of things that stop them updating, innovating and improving their offering.’
So earlier this year Bought By Many launched its own policies, initially just for pet insurance. These are backed by reinsurer Munich Re and offer premium options including cover for pre-existing health conditions or the option to pay a fixed cost for the whole of the pet’s life.
It plans to launch policies for other types of insurance later this year, but Mendel says the group-buying aspect of Bought By Many will remain its core focus in the future: ‘This is not operationally easy, this is not intellectually easy and it’s not economically easy. If we can persuade insurers to do it instead of us they will absolutely be our first port of call.’
As one of the first new insurance companies of recent times, getting off the ground wasn’t entirely straightforward. ‘Most people thought we were completely bonkers,’ says Mendel. ‘Things are quite different now, which is great, but persuading insurers to work with us at the outset was very, very hard.’
But eventually 31 of them agreed to work with the start-up, which now has 50 staff and recently landed £7.5m in a funding round led by Munich Re and Octopus Ventures. Bought By Many has also expanded internationally, providing a white label service for Ping An, China’s secong-largest insurer, and partners in Mexico, Canada and Poland.
If it can make a success of things then Mendel’s company could pose a threat to the industry’s giants, who might be tempted to solve the problem with their chequebook. Would he ever sell out?
‘We’ve had some approaches and we’ve always said no. At some point the answer will be yes, but we really think what we’re doing is important. I don’t mean that in an arrogant way. But for reasons we don’t understand there are not enough consumer champions in the insurance industry.
‘While we are building a truly consumer-centric insurance business we will continue doing it, but I don’t think we will ever be big enough on our own to really properly affect change in this industry. That’s because large insurers have been around for 2-300 years. You can’t do a Facebook or a Google or an Uber of an industry like that. It’s just not technically possible.’
‘There are lots of flippant reasons - insurers don’t want this to happen, there’s a closed shop, there’s no money around for it. But I don’t believe those are the real core reasons.’ Instead, Mendel suggests, it’s because the sort of people attracted to a career in insurance tend to be seeking a stable, balanced lifestyle free from the sort of risks entrepreneurs thrive on.
‘To innovate in an industry you have to have people who want to innovate and those who want to innovate have to understand. The insurance industry is complicated, so you need people who understand it to innovate, yet the industry has never attracted people who are innovators.’ But what about Mendel, the former actuary? ‘Well I’m not of the right mind,’ he jokes. ‘I just get really, really angry when corporates take advantage of individuals.’
But ultimately, he suggests, it will be in the industry’s interest to sit up and improve things for customers. ‘The insurance industry complains enormously about fraudulent claims, about people not being entirely honest, non-disclosure when you take your policy out up-front.
‘This is a direct response to the industry having taken advantage of individuals, because individuals are going to have to find a way to take advantage back again, and this is their only option. If you want to be treated fairly and appropriately as a corporate in the insurance space you’ve got to treat your consumers in that way.