Some see insurtech as the enemy. Others see it as a sign of things to come.
Then there’s EPIC Insurance Brokers & Consultants, which is clearly embracing the insurtech craze while soliciting brokers to join them.
San Francisco, Calif.-based EPIC and Two Sigma Private Investments kicked in a total of $60 million in late March to fund insurtech benefits startup Decisely to make potential acquisitions and to expand the firm’s services.
Decisely has until recently been quietly making preparations to launch for the last few years.
Now the firm’s executives say a solid structure is in place and it’s full steam ahead.
Two Sigma is now the controlling owner of Decisely. The New York City-based hedge fund acquired the majority interest in Decisely at the end of 2016. Two Sigma, EPIC and The Carlyle Group, EPIC’s private equity partner, are represented on the board.
The Decisely business model was created in June 2015 and the brand and technology were launched in February 2016. The incubation of the business was funded by EPIC and The Carlyle Group until the Two Sigma acquisition. Details of the funding are not being released.
Decisely provides benefits administration, risk management and human resources services via an automated technology platform. It focuses on serving small businesses in the U.S. with less than 100 employees.
Sounds like another tech company that’s presenting competition – and disruption – for the insurance industry right?
Decisely executives view this more as a sort of “for the industry, by the industry” type of thing.
Decisely and EPIC are closely situated. Chris Duncan, chief operations officer at Decisely, was the chief growth officer and national employee benefits leader at EPIC, where he’d been for more than three years.
“EPIC has a very strong relationship with Decisely as well as an ownership interest,” Duncan said. “Really, the backdrop here that is relevant is EPIC launched itself on a very aggressive growth strategy, particularly in employee benefits, about three-and-a-half years ago.”
According to Duncan, EPIC has quadrupled its employee benefits revenue from three years ago, when its employee benefits business was around $20 million. In 2017, it’s already in excess of $80 million, according to Duncan.
This growth got them to doing some thinking, and some self-examination.
“One of the things that we looked at three, three-and-a-half years ago, was that we were very long in small business,” Duncan said. “We saw that the market was changing in the small business arena. Insurtech was really going to be the wave of the future. Insurtech being turnkey technology and solutions for small businesses, including the benefits and benefits administration.”
That’s when they moved to invest in a insurtech firm specializing in small employee benefits targeting less than 50 employees, thereby creating an opportunity to solve a long-standing problem for brokers that struggle to service and grow small employee benefits business on a profitable basis, according to Duncan.
“It’s always been a bit of an Achilles’ heel for the brokerage industry,” Duncan said.
By investing in Decisely, EPIC in effect helped create a new small service partner where EPIC’s clients could get a greater depth of needed technology and integration, he said.
“Starting in mid-2016, we piloted a small business shift to Decisely in Atlanta,” Duncan said. “With proof we could migrate clients to the Decisely platform, EPIC has selectively moved, or is in the process of moving, about half of its small business accounts by end of 2017 that will benefit from the broader Decisely platform. In addition, EPIC continues to refer small business opportunities to Decisely.”
Duncan added: “We see it as a huge strategic opportunity for EPIC as well as for the rest of the industry.”
Is it really an opportunity for the rest of the industry?
It’s not uncommon to hear words of caution cast about insurtech startups from groups like the Independent Agents and Brokers of America Inc., which has been busy lately either shushing naysayer-speak over disruptors bringing about the demise of the brokerage model or encouraging brokerages to embrace technology themselves.
Christopher J. Boggs, executive director of the Big I Virtual University for IIABA, is cautiously optimistic about the Decisely promise.
“If I was a small agent, it looks like Decisely wants me to view them as a partner,” Boggs said. “I would be interested in seeing the contract/agreement to see if there is truly a partnership.”
He acknowledged the primary perk to doing a deal with Decisely is attractive: most small agencies don’t have the expertise to manage a benefits program for their clients.
“My fear as an agent … is that another agency or brokerage would get in the door on the benefits side and then weasel away the P/C from me – or at least try to do it,” he added. “If I can keep all my client’s insurance program in house – and properly service them – I see this as a win for me.”
This is why Matthew Josefowicz, president and CEO of Novarica, an insurance technology consulting and research firm, believes the Decisely model has a good chance to succeed.
“I think it’s a focused offering with a very clear strategy that fits into the current structure of the insurance market,” Josefowicz said. “I can see that having a lot of appeal for larger brokers in terms of sending over referrals.”
An early move for Decisely was to bring on people with a background in technology as well as the brokerage business.
Kevin Dunn came on board as the CEO in 2015. Before that he was with Mercer, where he was global head of strategy for mercermarketplace.com. He also served for a time as chief operating officer retirement consulting. Before that, he was a managing director for Marsh and McLennan Companies Inc.
Dunn originally headed Delta Airline’s e-commerce launch with delta.com in 1995 and ran it through its first $2 billion worth of revenue before the tech bubble burst.
It was with the success of delta.com that Dunn first realized the potential of e-commerce.
Since airlines and the travel industry first decided to embrace e-commerce, websites like Priceline, Expedia and Travelocity have radically altered the industry, he said.
“It’s fundamentally changed the industry so that consumer expectations change, pricing transparency changed, and overall the customer experience got much better, much more efficient, and much more available,” Dunn said.
He believes in the same potential for employee benefits, where business owners are seeking “one‑stop solutions” that cover all of their human resources needs.
“Last thing an owner wants to deal with, because he or she is usually also the HR person when you’re a 10‑person operation, is to really understand HR and employee benefits,” Dunn said. “They need help recruiting, and they want to go to one platform to do all those things.”
The Decisely business model isn’t completely new, nor is it without its share of perils, Josefowicz noted.
He was referring to the woeful tales of a recent insurtech benefits startup, Zenefits, which has had it out with regulators in several states.
The latest Zenefits matter involved the North Carolina Department of Insurance, which in late May reached a settlement resulting in a $104,500 penalty for engaging in unauthorized insurance activity in North Carolina. That activity reportedly resulted in 46 unlicensed and/or un-appointed insurance producers participating in the issuance of 186 policies to North Carolina consumers from January 2014 through November 2015.
Josefowicz sees that as a lesson about biting off more than one can chew that Decisely executives can take away from the Zenefits experience.
“The question is ‘What’s their ambition in terms of rapid scaling?’” he said. “From a business model point of view, it’s similar to what Zenefits is offering.”
Zenefits, however, “promised astronomical growth rates and had problems with licensing requirements,” he added.
Despite its speedbumps, the Zenefits endeavor seems to have also showed that taking labor-intensive small business accounts with small profit margins off insurance brokers’ books is a viable opportunity for insurtechs.
“I think Zenefits proved that the value proposition was attractive,” Josefowicz said.
Dunn resisted comparisons to Zenefits that were put to him, and said that unlike Zenefits, Decisely is “a broker at heart.”
“Taking a technology and creating a slick user interface is easy to do,” Dunn said. “It’s actually satisfying the back office, where if you don’t feed the carriers correctly, if you don’t understand brokerage at the end of the day, it potentially infects employees at an employer.”
Dunn maintains that they built Decisely with a brokerage in mind, spending the last 18 months building the back office, building the technology and the efficiency of the data.
Another difference is that Zenefits doesn’t partner with brokers, Dunn added.
“The fact is they have outwardly said they’re going to compete with the brokers,” Dunn said. “That’s not our intent. We hand the clients back to the brokers when they become larger, while Zenefits services clients up to 500 lives.”
With the Decisely model, a broker’s clients and referrals are tracked and reported to the broker by Decisely. Depending on the broker partner’s arrangement, Decisely is willing to offer back to the referring/selling broker the client’s business when they reach a mutually agreed growth hurdle, usually 100 lives.
Decisely acts as a referral partner. When a small business comes in as a new business for broker, that can refer the company to Decisely. The firm provides technology as well as an employee benefits solution that is free to brokers, who get paid referral fees and have their books of business purchased. Ultimately, that book gets handed back to brokers when it becomes larger.
“Then we basically take that small business, we nurture that business, take care of that business, until it gets to 100 lives or close to 100 lives,” Dunn said. “Then our business model re‑contacts that producer or the broker and asks them if they would like the client back at that point in time. That’s, specifically, how we are broker‑friendly, is that we do not extend our brand or product above 100 lives as we return the client to the individual broker.”
He notes that there’s no charge to the brokers to use their product and allow them “to nurture” those small businesses.
The Decisely executives did not say how many brokers they are dealing with at present, but noted that over the past two years they have spent the majority of their time and resources building back-office operations, technology and process mapping to carriers and third-party vendors.
“We began contracting with brokers and acquiring books of business in Q1 2017 and made our broker-friendly news release in March 2017,” Dunn said. “We are entering the market after two years of incubation.”
According to Dunn, demand is strong and they have already acquired more than 200 new clients and are contracted with an additional 200-plus this summer. Decisely now serves clients in 38 states, is licensed in all 50 and has offices in Georgia, Utah, California and North Carolina.
For some, being tossed into the gears of automation can feel inhuman and be a turn off. However, Dunn doesn’t believe businesses will get turned off by dealing with an automated process.
“Decisely is digital broker that recognizes an employer and employee needs someone to verify and validate decision,” Dunn said. “We are a trusted advisor. We pair self-service with specific guidance tailored to each client so they receive the best combination of insurance services and protection.”
For example, when an employer signs into the Decisely system, they immediately see a picture of their relationship manager along with that person’s full contact details, while employees at that business receive the same relationship manager’s information for assistance.
“We were built by brokers and understand that a trusted advisor is required,” Dunn added.
Dunn, who evidently is a big fan of “A Few Good Men,” and/or Jack Nicholson, stressed the continued importance of the broker-client relationship.
“Bottom-line, the insurance/brokerage world has walls, and those walls have to be guarded with industry experts in brokerage, carrier product development and technology,” he said. “Decisely has a responsibility to be a trusted advisor who properly guards ‘the wall’ and provides the protection and insight that our clients employees and families deserve.”
Josefowicz with Novarica said there’s also no wall stopping the Deciselys of the world from heading into other lines.
“In a lot of ways a small commercial buyer is not a lot different than a personal lines buyer,” he said, adding that if you’re an owner of a business with 20 or 30 employees, you are often the one who is making all the decisions. “Small businesses are baking online, they’re buying their supplies online, they’re serving their customers online. There’s no reason they shouldn’t be buying their insurance online.”