Avantia provides non-standard home insurance through its HomeProtect brand using streaming technology for faster risk and pricing decisions. CEO Mark Eastham joined Matthew on Podcast 121 to give an insurer’s view on Deloitte’s The Future of Home and Motor Insurance survey. Read the highlights from that interview below.
Matthew: Avantia says it’s leading the way using streaming technology. Can you explain what that means in practice?
Mark: We use our brand HomeProtect to sell non-standard home insurance to consumers through price comparison sites and our website. The platform technology we use for that is called streaming technology. It allows us to make machine learning decisions in 700 milliseconds, which is the amount of time we get to respond to quote requests from price comparison sites, otherwise, we'd be timed out.
Streaming technology has allowed us to build a decisioning platform for retail and risk pricing, and to demote the role of our policy administration system. We’ve taken all the value creation and put it into the decisioning platform. It’s cloud-based, fully scalable and we can add new models easily. There’s no real limit on the complexity of modelling we can apply, which has been very powerful for our growth as a business.
Matthew: You're another person who discovered insurance part way through your career. What led you to insurance after leaving Carphone Warehouse?
Mark: I wasn't expecting to join an insurer but the parallels with retail have been really strong. Insurance is like mobile phones in that we are selling a product, and it's a predictive product that generates lifetime value over several years.
We’ve also created our own value chain at Avantia. We manage our own claims, and we manage an outsourced partner for our contact centre. Building strategic supplier relationships is a big part of retail and it's a big part of the work I've done here. I'm no more popular at parties as a consequence of joining insurance, but there are several parallels that mean I've really enjoyed the last five years.
Matthew: What is the biggest problem Avantia is trying to solve for consumers buying insurance?
Mark: The founders of the business saw digital solutions as being revolutionary for customers who had non-standard needs. It used to take a lot of effort to buy a non-standard home insurance policy, with poor value for the customer. What the founders did was to start building an underwriting engine which allowed all those different conditions to be covered, without the need for a phone call or much human intervention.
That's moved on over the last five years. Today, 98% of every risk that presents itself through a price comparison site can be sold by us without a human being involved. That cuts the friction down massively for the customer. It also keeps our costs low, so we can reinvest in the proposition to lower prices for customers. That's the ethos and digital runs pretty deep in our culture.
Matthew: You must have confidence in the data sources you have for non-standard risks?
Mark: Data is a really important part of what we do. The fact we've quoted for every home insurance risk over the last 10 years to all of the comparison sites creates a very rich source of data.
Also, we’re not an intermediated business that deals with a broker. We operate everything end-to-end, which means we see all the data in the value chain and from the customer journey. We can build a much deeper, richer picture of the customer and the marketplace that we’re trading in. The data allows us to join all the dots together.
Matthew: Deloitte's new survey, The Future of Home and Motor Insurance, highlighted consumer demand for simplicity, particularly around the wording. How does Avantia help customers get clarity on what they're covered for?
Mark: The best time to be transparent on what’s in the product is during the digital acquisition journey. But the more insurers try and explain, the less simple the journey appears and it’s harder for the customer to shop.
When insurers get this right, what they’re doing is investing in their risk pricing and risk selection capabilities. Ultimately, it allows them to lower the cost of the product and include more in it, which makes it easier to be transparent. We can’t just start with the journey. We have to start with the risk pricing and risk selection to deliver a product that customers want to buy and is simple to understand.
Matthew: Customers don’t want to read wording documents, so do insurers need to be more explicit about what’s not covered?
Mark: The industry is trying to tackle that at the moment with tiering. Some players use a tiered solution for what they offer, but I'm not as convinced by that, because ultimately, they're quite arbitrary collections of cover that may not fit the consumer’s needs.
The opportunity for transparency and making customers clear on what they're getting is to add the material items of cover they might want as extras in the digital journey. It leaves a smaller list of exclusions that are only visible in the product details.
If some minor things are excluded, then the impact on the customer is small, even if they don’t read the documentation. All the major things should be squared off, and the customer should feel reassured that we’re going to pay their claim.
Matthew: What’s your view on embedded insurance?
Mark: At the moment, the price comparison websites are the dominant force. If another digital platform gained sufficient critical mass, then we would plug-in and use that as a distribution platform.
Where that could become a risk is if the comparison aspects are lost. For example, it’s wonderful to think that my new car comes with insurance. It’s straightforward, but is that product meeting my needs? Is it good value? Let's not forget, we've been embedding products with mortgages since time immemorial and I would argue it's not been in the customer's interest.
I'm all for slick, simple, embedded insurance solutions, but we have to protect the customer's right to choose something more suitable for their needs. Price comparison sites have done a fantastic job of making it easy for customers to find good value insurance. If we lose that by bundling things up, then it would be negative for the consumer.
Matthew: How important is branding and trust to Avantia? Or is it more important that the company performs well on the comparison sites?
Mark: Our consumer-facing brand, HomeProtect, is not a well-known brand, so we rely on what people can find out about us through online research. We’re putting a lot of emphasis into customer experience so customers can find out what we’re like, and what it’s going to feel like when they make a claim.
We do kind of live and die by that reputation. We don't have any inbuilt brand recognition, given the size and scale of our business. That makes it even more important to do the right thing and be transparent, and we see that recognised by our customers in places like Trustpilot.
Matthew: Can you see a time when Avantia is offering connected devices? Or benefits for being connected to smoke or leak detectors for example?
Mark: The approach we’ve taken is to futureproof our technology platform so it’s ready for when that opportunity arrives in scale. Our view is it will be hardware driven by companies like Google or Amazon. It won’t simply be an insurance user case that ultimately accelerates the drive towards connected homes.
When the opportunity presents itself, our objective is to be ready. One of the benefits of our streaming platform is that it can ingest large volumes of data in real-time. We've built the capability to be able to listen to connected devices and to therefore be able to proactively warn customers about things that might go wrong. But at this stage, the concept of the connected home isn’t mature enough to plugin to that ecosystem.
Matthew: Are there devices in the market that are starting to make a difference? Where can you see the opportunities?
Mark: The potential is interesting. Covid-19 has effectively put more people in their homes more of the time. If we take a peril like escape of water, customers have been able to catch leaks earlier, reducing the cost of the ultimate claim. When they all go back to the workplace, the ability of technology to perform the same preventative role is quite powerful.
The prevention use case is very strong, but I don’t get as excited about being able to price the risk of a home better. We would need an enormous amount of data to learn the patterns and understand which houses were more or less risk. Prevention will be really powerful, so we’re excited to be ready for that when the hardware is in place.
Matthew: Covid-19 has also got consumers looking more carefully at their policies. Are you able to offer flexibility to customers if their situations change?
Mark: The product we have is dynamic. It looks at the customer’s risk characteristics and packages up the right cover at a competitive price. It allows us to cover non-standard characteristics without producing a product that is unaffordable to the customer, so we have dynamism in that respect.
There are some very clear use cases for flexibility, but some of the new innovations assume a major change in buying behaviour, for example that the customer wants to be in one portal constantly having their insurance needs updated. That’s not realistic or helpful, because it misses the point. What the customer wants is to make changes to their policy digitally with no cost penalty. We shouldn’t leap to hyper-personalisation without having the fundamentals in place.
Matthew: Parametric insurance came out favourably in Deloitte’s report. Do you see opportunities for using parametric solutions?
Mark: It isn’t necessarily right for every customer, because it’s such a sophisticated product to buy. In effect, the customer is taking a risk that they might not have enough money to cover an event that’s happened. In addition, it potentially removes their ability to use an insurance claims supply chain to put things right.
It was interesting to see parametric coming out at number one in the Deloitte report. It's a shame if the driver for using parametric is that customers don't trust their insurer. Wanting more certainty and clarity comes back to the heart of the matter, which is do consumers trust insurance enough to pay out when it matters?