DIgital insurance

Death of a Salesman

Business woman using smart phone in Berlin city.
One click and you're insured.
  • Why it matters

    Why it matters

    The insurance industry is being revolutionized by a new breed of online brokers known as insurtechs. A new study points to strong opportunities in insurance sales.

  • Facts


    • Brokers usually receive commissions from insurance companies, which are built into policyholders’ premiums.
    • Commissions earned by conventional insurance brokers are expected to decline by 40 to 50 percent by 2025.
    • One in six automobile policies is now purchased online.
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For a long time the insurance industry was epitomized by the travelling insurance salesman.

Calling door to door he would try to sell policies, offering to customize packages to individual customers’ needs. But he will soon become a figure of the past as the insurance business changes rapidly. In the future, customers will sit at home on their sofas, using apps on their smartphones to find the policy that suits them best.

And young startups, known as “insurtechs,” are part of this revolution. According to a current study by consulting firm Oliver Wyman and insurance broker Policen Direkt, they could very well succeed in outpacing the traditional firms. The first “Insurtech Radar,” which Handelsblatt has obtained, shows that there are plenty of opportunities to make money in insurance sales.

Investors think so too: The online broker Clark has just secured the second-largest financing package – worth €13.2 million – for a German insurance fintech.

In most cases nowadays, someone who wants to obtain an insurance policy can no longer do so directly with the insurance company, but has to find an agent or broker instead. Customers pay for their services, but only indirectly, as the brokers receive commissions from the insurance companies that are incorporated into the final price.

“The ability to change coverage with the click of a mouse has created a lot of turmoil in the market.”

Nikolai Dördrechter, managing director of Policen Direkt

According to the study, acquisition commissions for brokers selling property insurance range from 10 to more than 30 percent of the annual premium, and 0.2 to 0.5 percent of the aggregate premium for life insurance. Commissions are significantly higher in some cases.

This revenue is attracting new players to the market. They are not interested in acting as insurance companies and selling policies directly, but instead want to serve as middlemen between existing insurance companies and customers, just at a lower price.

“It is unlikely that this model will be switched to direct sales across the board anytime soon,” said Nikolai Dördrechter, managing director of Policen Direkt, adding that there is no risk that Germany will impose a ban on commissions like the one in Great Britain.

However, in the case of conventional insurance brokers, which are tied to one provider, “commissions are likely to decline by 40 to 50 percent by 2025, especially because of the anticipated reform of company retirement plans,” said Dietmar Kottmann, a partner at Oliver Wyman. This will likely put many smaller agencies and insurance brokers out of business.

In contrast, a provider of a smartphone app would have a good chance of survival, because it can manage the relationship with customers at a lower cost.

Already startups are taking very different approaches in the marketplace. The study authors distinguish among eight different business models in sales alone. They argue that generalist comparison sites, online brokers for commercial customers and financial sites have the greatest economic potential.

“These three target large premium pools and can claim a large share of value added,” said Mr. Kottmann. These portals include companies like Check24, Verivox and Toptarif. “In this arena, the focus is currently still on ‘simple’ insurance policies that require no customer consultation, such as automobile policies,” explained Mr. Dördrechter. Customers usually use comparison calculators to select policies and these sites collect a commission when the customer signs the contract.

In the second group, online brokers’ customers receive a digital file, which they can use to review their existing policies, compare products and obtain new policies. Companies like Finanzchef24 and Gewerbeversicherung24 cater to commercial customers, while online brokers Asuro, Clark, Getsafe, Financefox and Knip target consumers. In many cases, customers are not only expected to enter their contract details, but also to recognize the site as their insurance broker.

The companies receive a portfolio commission, something that has come under fire from offline brokers. “The ability to change coverage with the click of a mouse has created a lot of turmoil in the market,” said Mr. Dördrechter.

For example, it has led Swiss insurer Helsana to terminate its relationship with provider Knip while another company, Ideal Versicherung, has also terminated agreements with “digital insurance brokers.”

“The insurers themselves can actually benefit from the new sites. However, there was apparently too much pressure from traditional broker organizations, on the one hand. While, on the other hand, some online brokers were not sufficiently transparent,” said Mr. Kottmann.

In the meantime, some of the digital brokers have changed their strategy. Customers now have the option of using the sites without granting them the authority to act as their broker. And some are trying to offer their technology to brokers as a “white label” solution. This means that insurance brokers can pay a license fee to use the modern technology, while putting their own name on it. “Some of the insurtechs are clearly oriented toward cooperation with insurance companies and traditional brokers,” said Mr. Dördrechter.

Cooperation instead of confrontation with insurance companies is especially appealing to providers that help companies recognize and manage risks of damage, digitize procedures and make them more efficient, offer real assistance beyond simply paying money in case of claims, and increase customer satisfaction.

“There are inefficiencies today, especially in claims adjustment, which is where insurtechs can simplify processing,” said Mr. Kottmann. Two examples of companies that provide these services are ClaimsControlling and Unfallhilfe24, which provides assistance with automobile claims.

“Insurtech is a very hot topic among venture capital investors . Some see it as a gold mine.”

Peter Barkow, management consultant

Nevertheless, “the competition for digital-savvy customers will increase,” Hasso Suliak, spokesman for the German Insurance Association (GDV), told Handelsblatt. One in six automobile policies is already purchased online, and the numbers are growing, he explained. While the new business models like insurance apps, comparison sites or online short-term policies can win new customers, it not necessarily the companies with the most modern technology that will be most successful, Mr. Salik argued, “but rather those that understand customers best.”

A few financial sites now combine insurance with banking services. Mint is a pioneer from the United States, while German companies active in the business include Treefin, Moneymeets, Feelix and Fidor Bank. They promise users a better way to keep track of their accounts, cost savings and, in some cases, reviews of their insurance portfolios.

“Financial sites like Moneymeets are already well positioned. In the end, however, the goal is to rebuild insurance sales and tailor it to the new needs of customers,” said Mr. Dördrechter. A traditional broker knows the families of his customers and can anticipate their needs. “This needs to be translated into this new world, where there is still room for improvement,” he argued.

Consumer advocates are already warning consumers to exercise caution. “Based on our observations, some online brokers and financial websites do not make it sufficiently clear that the customer is giving up his relationship with his current broker if he uses their services,” said Bianca Boss of the Association of Insured Persons. “People who already have a longstanding relationship of trust with their broker should think carefully before taking this step.”

Ms. Boss also questions the independence of these sites. “As soon as commissions are in play, there is an incentive for agents and brokers to promote policies with high commission payments more heavily than others. Only those who are paid by the customer, and not the insurance companies, can offer independent advice,” she said. “We view customer participation in commissions as a bait-and-switch approach.”

According to the Oliver Wyman study, another model with significant chances of success in the market is offered by Simplesurance, also known as Schutzklick. The company sells insurance policies in connection with product purchases, such as bicycle insurance together with a newly purchasing bike. “The customer can easily buy the insurance as an add-on,” said Mr. Dördrechter. “This is where technology meets changes in consumer behavior,” said Mr. Kottmann.

One area where this new breed of innovative insurtechs are proving most successful is in attracting funding from investors.

“Insurtech is a very hot topic among venture capital investors,” said Düsseldorf management consultant Peter Barkow. “Some see it as a gold mine.” According to Mr. Barkow, these startups attracted some $2.7 billion ($2.42 billion) in investments last year, three times as much as the year before. “In Germany, the investment was €27 million in 2015,” said Mr. Barkow.

That amount is likely to be much higher this year. As Handelsblatt has learned, online broker Clark has just secured €13.2 million in funding. In addition to the existing investors, which include Berlin “company builder” Finleap, publishing house Axel Springer and television station ProSieben subsidiary Seven Ventures are involved.

“The money is to be invested in technical development, new employees and marketing,” said Christopher Oster, the head of Clark. The Frankfurt-based fintech currently has about 20 employees and roughly €30 million in premium revenue.

According to management consultant Barkow, Clark is already the ninth German insurtech to successful complete a round of financing this year. It is also one of the top three insurtechs that have already collected sums in the double-digit millions.

Friendsurance, which reduces the cost of policies through group rates, received about €14 million form venture capitalists in March. Market experts estimate that Moneymeets, in which Swiss company Postfinance recently acquired a stake, has already received more than €10 million in venture capital. The companies themselves have been tight-lipped about the levels of investment.

Online broker Getsafe has managed to win over the largest known number of venture capital investors to date – eight, according to Mr. Barkow’s count. And Simplesurance is also popular. The company has already managed to secure insurance giant Allianz as a minority shareholder.


Katharina Schneider covers the financial industry from Frankfurt. Heinz-Roger Dohms contributed to this article. To contact the author:

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